JONES ENERGY, INC., 10-Q filed on 8/8/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Jul. 27, 2018
Document Information [Line Items]    
Entity Registrant Name Jones Energy, Inc.  
Entity Central Index Key 0001573166  
Document Type 10-Q  
Document Period End Date Jun. 30, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Filer Category Accelerated Filer  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Class A common stock    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   98,039,826
Class B common stock    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   4,825,038
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 148,070 $ 19,472
Accounts receivable, net    
Oil and gas sales 39,990 34,492
Joint interest owners 34,789 31,651
Other 1,167 1,236
Commodity derivative assets 723 3,474
Other current assets 7,070 14,376
Total current assets 231,809 104,701
Oil and gas properties, net, under the successful efforts method 1,620,083 1,597,040
Other property, plant and equipment, net 2,243 2,719
Commodity derivative assets 1,371 172
Other assets 993 5,431
Total assets 1,856,499 1,710,063
Current liabilities    
Trade accounts payable 43,725 72,663
Oil and gas sales payable 39,930 31,462
Accrued liabilities 46,199 21,604
Commodity derivative liabilities 46,686 36,709
Other current liabilities 3,863 4,049
Total current liabilities 180,403 166,487
Long-term debt 978,727 759,316
Deferred revenue 4,675 5,457
Commodity derivative liabilities 14,949 8,788
Asset retirement obligations 20,146 19,652
Liability under tax receivable agreement 50,529 59,596
Other liabilities 874 811
Deferred tax liabilities 9,732 14,281
Total liabilities 1,260,035 1,034,388
Commitments and contingencies (Note 15)
Mezzanine equity    
Series A preferred stock, $0.001 par value; 1,837,995 shares issued and outstanding at June 30, 2018 and 1,839,995 shares issued and outstanding at December 31, 2017 91,534 89,539
Stockholders' equity    
Treasury stock, at cost: 22,602 shares at June 30, 2018 and December 31, 2017 (358) (358)
Additional paid-in-capital 611,242 606,319
Retained (deficit) / earnings (207,081) (136,274)
Stockholders' equity 403,906 469,787
Non-controlling interest 101,024 116,349
Total stockholders’ equity 504,930 586,136
Total liabilities and stockholders' equity 1,856,499 1,710,063
Class A common stock    
Stockholders' equity    
Common stock 94 90
Class B common stock    
Stockholders' equity    
Common stock $ 9 $ 10
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2018
Dec. 31, 2017
Mezzanine equity    
Series A preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Series A preferred stock, shares issued 1,837,995 1,839,995
Series A preferred stock, shares outstanding 1,837,995 1,839,995
Treasury stock    
Treasury stock, shares 22,602 22,602
Class A common stock    
Common stock    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares issued 93,799,481 90,139,840
Common stock, shares outstanding 93,776,879 90,117,238
Class B common stock    
Common stock    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares issued 9,074,330 9,627,821
Common stock, shares outstanding 9,074,330 9,627,821
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Operating revenues        
Oil and gas sales $ 64,748 $ 48,114 $ 122,886 $ 88,791
Oil and gas sales, type us-gaap:OilAndGasMember us-gaap:OilAndGasMember us-gaap:OilAndGasMember us-gaap:OilAndGasMember
Other revenues $ 507 $ 512 $ (142) $ 1,068
Total operating revenues 65,255 48,626 122,744 89,859
Operating costs and expenses        
Lease operating 11,592 9,425 21,821 18,231
Production and ad valorem taxes 3,284 2,790 6,035 1,884
Transportation and processing costs 885   1,591  
Exploration 1,528 6,725 4,827 9,669
Depletion, depreciation and amortization 44,729 45,336 86,170 80,990
Impairment of oil and gas properties   148,016   148,016
Accretion of ARO liability 264 266 515 467
General and administrative 7,896 8,633 15,466 16,674
Total operating expenses 70,178 221,191 136,425 275,931
Operating income (loss) (4,923) (172,565) (13,681) (186,072)
Other income (expense)        
Interest expense (23,055) (12,677) (44,917) (25,564)
Net gain (loss) on commodity derivatives (30,145) 21,527 (39,167) 43,847
Other income (expense) 5,774 27,501 13,504 28,081
Other income (expense), net (47,426) 36,351 (70,580) 46,364
Income (loss) before income tax (52,349) (136,214) (84,261) (139,708)
Income tax provision (benefit) (5,418) (2,236) (8,410) (2,215)
Net income (loss) (46,931) (133,978) (75,851) (137,493)
Net income (loss) attributable to non-controlling interests (5,416) (51,762) (8,975) (53,890)
Net income (loss) attributable to controlling interests (41,515) (82,216) (66,876) (83,603)
Dividends and accretion on preferred stock (1,963) (1,966) (3,931) (3,993)
Net income (loss) attributable to common shareholders $ (43,478) $ (84,182) $ (70,807) $ (87,596)
Earnings (loss) per share:        
Basic - Net income (loss) attributable to common shareholders (in dollars per share) $ (0.47) $ (1.28) $ (0.77) $ (1.37)
Diluted - Net income (loss) attributable to common shareholders (in dollars per share) $ (0.47) $ (1.28) $ (0.77) $ (1.37)
Weighted average Class A shares outstanding:        
Basic (in shares) 93,429 65,681 92,253 63,948
Diluted (in shares) 93,429 65,681 92,253 63,948
v3.10.0.1
Statement of Changes in Stockholders' Equity - 6 months ended Jun. 30, 2018 - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Class A common stock
Common Stock
Class B common stock
Treasury Stock
Class A common stock
Additional Paid-in-Capital
Retained (Deficit)/ Earnings
Non-controlling Interest
Total
Balance at Dec. 31, 2017 $ 90 $ 10 $ (358) $ 606,319 $ (136,274) $ 116,349 $ 586,136
Balance (in shares) at Dec. 31, 2017 90,117 9,628 23        
Increase (Decrease) Stockholders' Equity              
Stock-compensation expense $ 1     518     519
Stock-compensation expense (in shares) 1,283            
Exchange of Class B shares for Class A shares $ 1 $ (1)   2,470   (6,350) (3,880)
Exchange of Class B shares for Class A shares (in shares) 553 (553)          
Conversion of preferred shares for Class A shares       97     97
Conversion of preferred shares for Class A shares (in shares) 34            
Dividends and accretion on preferred stock $ 2     1,838 (3,931)   (2,091)
Dividends and accretion on preferred stock (in shares) 1,789            
Net income (loss)         (66,876) (8,975) (75,851)
Balance at Jun. 30, 2018 $ 94 $ 9 $ (358) $ 611,242 $ (207,081) $ 101,024 $ 504,930
Balance (in shares) at Jun. 30, 2018 93,776 9,075 23        
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities    
Net income (loss) $ (75,851) $ (137,493)
Adjustments to reconcile net income (loss) to net cash provided by operating activities    
Depletion, depreciation, and amortization 86,170 80,990
Exploration (dry hole and lease abandonment) 907 6,880
Impairment of oil and gas properties   148,016
Accretion of ARO liability 515 467
Amortization of debt issuance costs 7,261 1,953
Stock compensation expense 974 3,736
Deferred and other non-cash compensation expense 84 180
Amortization of deferred revenue (782) (942)
(Gain) loss on commodity derivatives 39,167 (43,847)
(Gain) loss on sales of assets (1,945) 119
Deferred income tax provision (8,410) 6
Change in liability under tax receivable agreement (9,081) (28,266)
Other - net 376 1,307
Changes in operating assets and liabilities    
Accounts receivable (9,246) (4,188)
Other assets 7,574 (12,407)
Accrued interest expense 15,583 (1,301)
Accounts payable and accrued liabilities (6,484) 6,268
Net cash provided by operations 46,812 21,478
Cash flows from investing activities    
Additions to oil and gas properties (114,832) (107,250)
Net adjustments to purchase price of properties acquired   2,391
Proceeds from sales of assets 6,566 2,730
Acquisition of other property, plant and equipment (71) (436)
Current period settlements of matured derivative contracts (25,655) 45,738
Net cash used in investing (133,992) (56,827)
Cash flows from financing activities    
Proceeds from issuance of long-term debt 20,000 75,000
Repayment of long-term debt (231,000) (72,000)
Proceeds from senior notes 438,867  
Payment of debt issuance costs (11,537)  
Payment of cash dividends on preferred stock (97) (3,367)
Net distributions paid to JEH unitholders   (562)
Net payments for share based compensation (455) (462)
Proceeds from sale of common stock   8,352
Net cash provided by financing 215,778 6,961
Net increase (decrease) in cash and cash equivalents 128,598 (28,388)
Cash and cash equivalents    
Beginning of period 19,472 34,642
End of period 148,070 6,254
Supplemental disclosure of cash flow information    
Cash paid for interest, net of capitalized interest 23,055 24,064
Change in accrued additions to oil and gas properties (1,425) 13,155
Asset retirement obligations incurred, including changes in estimate $ 280 $ 395
v3.10.0.1
Organization and Description of Business
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Organization and Description of Business

1.        Organization and Description of Business

 

Organization

 

Jones Energy, Inc. (the “Company”) was formed in March 2013 as a Delaware corporation to become a publicly-traded entity and the holding company of Jones Energy Holdings, LLC (“JEH”). As the sole managing member of JEH, the Company is responsible for all operational, management and administrative decisions relating to JEH’s business and consolidates the financial results of JEH and its subsidiaries.

 

JEH was formed as a Delaware limited liability company on December 16, 2009 through investments made by the Jones family, certain members of management and through private equity funds managed by Metalmark Capital, among others. JEH acts as a holding company of operating subsidiaries that own and operate assets that are used in the exploration, development, production and acquisition of oil and natural gas properties.

 

The Company’s certificate of incorporation authorizes two classes of common stock, Class A common stock and Class B common stock. The Class B common stock is held by the remaining owners of JEH prior to the initial public offering (“IPO”) of the Company (collectively, the “Class B shareholders”) and can be exchanged (together with a corresponding number of common units representing membership interests in JEH (“JEH Units”)) for shares of Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions. The Class B common stock has no economic rights but entitles its holders to one vote on all matters to be voted on by the Company’s stockholders generally. As of June 30, 2018, the Company held 93,776,879 JEH Units and all of the preferred units representing membership interests in JEH, and the remaining 9,074,330 JEH Units are held by the Class B shareholders. The Class B shareholders have no voting rights with respect to their economic interest in JEH, resulting in the Company reporting this ownership interest as a non-controlling interest.

 

The Company’s certificate of incorporation also authorizes the Board of Directors of the Company (the “Board”) to establish one or more series of preferred stock. Unless required by law or by any stock exchange on which our common stock is listed, the authorized shares of preferred stock will be available for issuance without further action. Rights and privileges associated with shares of preferred stock are subject to authorization by the Board and may differ from those of any and all other series at any time outstanding.

 

On August 25, 2016, the Company issued 1,840,000 shares of its 8.0% Series A Perpetual Convertible Preferred Stock, par value $0.001 per share (the “Series A preferred stock”), pursuant to a registered public offering at $50 per share, of which 1,837,995 remained issued and outstanding as of June 30, 2018. See Note 12, “Stockholders’ and Mezzanine equity”.

 

Description of Business

 

The Company is engaged in the exploration, development, production and acquisition of oil and natural gas properties in the mid-continent United States, spanning areas of Oklahoma and Texas. The Company’s assets are located within the Eastern Anadarko Basin, targeting the liquids rich Woodford shale and Meramec formations in the Merge area of the STACK/SCOOP plays, and the Western Anadarko Basin, targeting the liquids rich Cleveland, Granite Wash, Tonkawa and Marmaton formations, and are owned by JEH and its operating subsidiaries. The Company is headquartered in Austin, Texas.

 

NYSE Listing

 

On March 23, 2018, the New York Stock Exchange (the “NYSE”) notified the Company that it was non-compliant with certain continued listing standards because the price of the Company’s Class A common stock over a period of 30 consecutive trading days had fallen below $1.00 per share, which is the minimum average closing price per share required to maintain a listing on the NYSE. The Company is now in a six-month cure period during which it can regain compliance, which expires on September 23, 2018. Within the cure period, the Company may regain compliance if the closing price per share is $1.00 or higher on the last trading day of a given month, or at the end of the cure period. Additionally, the 30-day average closing price per share must also be $1.00 or higher. We previously received a similar notice on December 26, 2017, but regained compliance on February 1, 2018.

 

The Company notified the NYSE that it intended to cure the price deficiency by proposing a reverse stock split for approval by the Company’s stockholders. At the Company’s annual meeting of stockholders held on May 22, 2018, the Company’s stockholders approved the reverse stock split, subject to further approval by the Board. The Board has not considered or made a decision as to whether it will approve a reverse stock split.

 

During the cure period, the Company’s Class A common stock will continue to be listed on the exchange so long as it remains compliant with other continued listing standards. The notice does not affect ongoing business operations of the Company or its reporting requirements with the Securities and Exchange Commission. For more information, see Item 1A of Part II, “Risk Factors.”

 

 

v3.10.0.1
Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Significant Accounting Policies

2.        Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission. All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s financial position as of December 31, 2017 and the financial statements reported for June 30, 2018 and 2017 and each of the three and six-month periods then ended include the Company and all of its subsidiaries.

 

Certain prior period amounts have been reclassified to conform to the current presentation.

 

The accompanying unaudited condensed consolidated financial statements for the periods ended June 30, 2018 and 2017 have been prepared in accordance with GAAP for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information relating to the Company’s organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been appropriately condensed or omitted in this Quarterly Report. The Company believes the disclosures made are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented herein. It is recommended that these unaudited condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements included in Jones Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

Use of Estimates

 

There have been no significant changes in our use of estimates since those reported in Jones Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

Production taxes

 

During the first quarter of 2017, the Company's application for High-Cost Gas Incentive refunds in Texas was approved for qualified wells on which taxes were initially paid between October 2012 and September 2016. The Company received a net production tax refund of $3.3 million during the six months ended June 30, 2017. No further refunds were received during the three months ended June 30, 2017. During the three and six months ended June 30, 2018, the Company received net production tax refunds of $0.1 million for High-Cost Gas Incentive refunds and Low-Producing Gas Incentive refunds in Texas for qualified wells on which taxes were initially paid between November 2014 and June 2017. These refunds were recorded as a reduction in Production and ad valorem taxes on the Company’s Consolidated Statement of Operations.

 

Accrued Liabilities

 

Accrued liabilities consisted of the following at June 30, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

(in thousands of dollars)

    

2018

    

2017

    

Accrued interest

 

$

27,692

 

$

12,109

 

Joint interest owners prepayments

 

 

9,199

 

 

4,061

 

Other accrued liabilities

 

 

9,308

 

 

5,434

 

Total accrued liabilities

 

$

46,199

 

$

21,604

 

 

Recent Accounting Pronouncements

 

Adopted in the current year-to-date period:

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which creates a new topic in the Accounting Standards Codification (“ASC”), topic 606, “Revenue from Contracts with Customers.” This standard sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. The amendments may be applied on either a full or modified retrospective basis and are now effective for interim and annual reporting periods beginning after December 15, 2017. Therefore, the Company has adopted Update 2014-09 and Update 2015-14 effective as of January 1, 2018.  The change was applied on a modified retrospective basis, which did not result in a cumulative effect adjustment to retained earnings. However, adoption did result in certain changes in presentation of gross revenues and expenses on the Company’s Consolidated Statement of Operations; such costs were historically offset against revenues. Upon adoption, we have also expanded disclosures related to revenue recognition. See Note 4, “Revenue Recognition.”

 

In January 2017, the FASB issued ASU 2017-01, “Business Combinations” (Topic 805). The amendments under this ASU provide guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions/disposals or business combinations by providing a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired, or disposed of, is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business, therefore reducing the number of transactions that need to be further evaluated for treatment as a business combination. This new guidance is effective for annual periods beginning after December 15, 2017. Therefore, the Company adopted ASU 2017-01 effective as of January 1, 2018 applied prospectively, which did not have a material impact on our financial statements; however these amendments could result in the recording of fewer business combinations in future periods.

 

To be adopted in a future period:

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This amendment requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases and mineral leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11, “Leases” (Topic 842) Targeted Improvements, which allows issues an additional (and optional) transition method of adoption. Under the original standard issued in 2016, lessees and lessors were required to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. However, under the new transition method allowed for in the standard released in 2018, an entity may elect to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments are effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impacts of the amendments to our financial statements and accounting practices for leases, as well as the method of adoption. We anticipate adoption of ASU 2016-02 effective as of January 1, 2019.

v3.10.0.1
Divestitures
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Divestitures

3.         Divestitures

 

Six Months Ended June 30, 2018

 

Sales of non-core assets resulted in net gains of $4.6 million during the six months ended June 30, 2018. These gains were recognized during the first quarter of 2018.

 

Twelve Months Ended December 31, 2017

 

Arkoma Divestiture

 

As of June 30, 2017, the Company’s former assets in the Arkoma Basin and related liabilities (the “Held for sale assets”) were classified as held for sale due to the pending Arkoma Divestiture. Upon the classification change occurring on June 30, 2017, the Company ceased recording depletion on the Held for sale assets. Based on the Company’s sales price, the Company recognized an impairment charge of $148.0 million at June 30, 2017 which has been included in Impairment of oil and gas properties on the Company’s Consolidated Statement of Operations.

 

On August 1, 2017, JEH closed its previously announced agreement to sell its Arkoma Basin properties for a purchase price of $65.0 million, prior to customary effective date adjustments of $7.3 million, and subject to customary post-close adjustments (the “Arkoma Divestiture”). JEH may also receive up to $2.5 million in contingent payments based on natural gas prices. As of June 30, 2018, $0.1 million has been recorded related to this contingent payment. The $0.1 million was recorded as a gain in Other income (expense) on the Company’s Consolidated Statement of Operations during the three months ended June 30, 2018.

 

v3.10.0.1
Revenue Recognition
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Revenue Recognition

4.        Revenue Recognition

 

Adoption of ASC Topic 606, Revenue from Contracts with Customers

 

On January 1, 2018, the Company adopted ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers, using the modified retrospective approach, which was applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018, are presented in accordance with ASC 606, while prior period amounts are reported in accordance with ASC Topic 605, Revenue Recognition.

 

In accordance with ASC 606, the Company now records transportation and processing costs that are incurred before control of its product has transferred to the customer (i.e. fixed fee contracts) as a separate expense line item on the Consolidated Statement of Operations. Prior to the adoption of ASC 606, these transportation and processing costs were recorded as a reduction of Oil and gas sales on the Consolidated Statement of Operations. See further discussion below in “Nature of revenue” related to transportation and processing costs associated with fixed fee contracts. Revenue under ASC 606 is recognized at the same point in time at which revenue was recognized under ASC Topic 605, thus there was no impact to net income (loss) or opening retained earnings as a result of adopting ASC 606.  

 

The following table presents the impact to the Consolidated Statement of Operations as a result of adopting ASC 606.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

Six Months Ended June 30, 2018

 

 

 

Amounts under

 

Adoption

 

Amounts under

 

Amounts under

 

Adoption

 

Amounts under

 

(in thousands of dollars except per share data)

    

ASC 606

    

impact

 

ASC 605 (1)

    

ASC 606

    

impact

 

ASC 605 (1)

    

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and gas sales

 

$

64,748

 

$

(885)

 

$

63,863

 

$

122,886

 

$

(1,591)

 

$

121,295

 

Other revenues

 

 

507

 

 

 —

 

 

507

 

 

(142)

 

 

 —

 

 

(142)

 

Total operating revenues

 

 

65,255

 

 

(885)

 

 

64,370

 

 

122,744

 

 

(1,591)

 

 

121,153

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

 

11,592

 

 

 —

 

 

11,592

 

 

21,821

 

 

 —

 

 

21,821

 

Production and ad valorem taxes

 

 

3,284

 

 

 —

 

 

3,284

 

 

6,035

 

 

 —

 

 

6,035

 

Transportation and processing costs

 

 

885

 

 

(885)

 

 

 —

 

 

1,591

 

 

(1,591)

 

 

 —

 

Exploration

 

 

1,528

 

 

 —

 

 

1,528

 

 

4,827

 

 

 —

 

 

4,827

 

Depletion, depreciation and amortization

 

 

44,729

 

 

 —

 

 

44,729

 

 

86,170

 

 

 —

 

 

86,170

 

Accretion of ARO liability

 

 

264

 

 

 —

 

 

264

 

 

515

 

 

 —

 

 

515

 

General and administrative

 

 

7,896

 

 

 —

 

 

7,896

 

 

15,466

 

 

 —

 

 

15,466

 

Total operating expenses

 

 

70,178

 

 

(885)

 

 

69,293

 

 

136,425

 

 

(1,591)

 

 

134,834

 

Operating income (loss)

 

 

(4,923)

 

 

 —

 

 

(4,923)

 

 

(13,681)

 

 

 —

 

 

(13,681)

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(23,055)

 

 

 —

 

 

(23,055)

 

 

(44,917)

 

 

 —

 

 

(44,917)

 

Net gain (loss) on commodity derivatives

 

 

(30,145)

 

 

 —

 

 

(30,145)

 

 

(39,167)

 

 

 —

 

 

(39,167)

 

Other income (expense)

 

 

5,774

 

 

 —

 

 

5,774

 

 

13,504

 

 

 —

 

 

13,504

 

Other income (expense), net

 

 

(47,426)

 

 

 —

 

 

(47,426)

 

 

(70,580)

 

 

 —

 

 

(70,580)

 

Income (loss) before income tax

 

 

(52,349)

 

 

 —

 

 

(52,349)

 

 

(84,261)

 

 

 —

 

 

(84,261)

 

Income tax provision (benefit)

 

 

(5,418)

 

 

 —

 

 

(5,418)

 

 

(8,410)

 

 

 —

 

 

(8,410)

 

Net income (loss)

 

 

(46,931)

 

 

 —

 

 

(46,931)

 

 

(75,851)

 

 

 —

 

 

(75,851)

 

Net income (loss) attributable to non-controlling interests

 

 

(5,416)

 

 

 —

 

 

(5,416)

 

 

(8,975)

 

 

 —

 

 

(8,975)

 

Net income (loss) attributable to controlling interests

 

$

(41,515)

 

$

 —

 

$

(41,515)

 

$

(66,876)

 

$

 —

 

$

(66,876)

 

Dividends and accretion on preferred stock

 

 

(1,963)

 

 

 —

 

 

(1,963)

 

 

(3,931)

 

 

 —

 

 

(3,931)

 

Net income (loss) attributable to common shareholders

 

$

(43,478)

 

$

 —

 

$

(43,478)

 

$

(70,807)

 

$

 —

 

$

(70,807)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic - Net income (loss) attributable to common shareholders

 

$

(0.47)

 

$

 —

 

$

(0.47)

 

$

(0.77)

 

$

 —

 

$

(0.77)

 

Diluted - Net income (loss) attributable to common shareholders

 

$

(0.47)

 

$

 —

 

$

(0.47)

 

$

(0.77)

 

$

 —

 

$

(0.77)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Class A shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

93,429

 

 

 —

 

 

93,429

 

 

92,253

 

 

 —

 

 

92,253

 

Diluted

 

 

93,429

 

 

 —

 

 

93,429

 

 

92,253

 

 

 —

 

 

92,253

 


(1)

This column excludes the impact of adopting ASC 606 and is consistent with the presentation prior to January 1, 2018.

 

Nature of revenue

 

Our revenues are primarily derived from the sale of oil and natural gas production, and from the sale of NGLs that are extracted from our natural gas. Sales of oil, natural gas, and NGLs from our interests in producing wells are recognized when we satisfy a performance obligation by transferring control of a product to a customer. Our oil and gas production is sold to purchasers under either short-term or long-term contracts at market-based prices. The sales prices for oil, natural gas, and NGLs are adjusted for transportation and other related deductions. These deductions are based on contractual data and do not require significant judgment. The revenue deductions reflect actual charges based on purchaser statements. Since there is a ready market for oil and natural gas, we sell the majority of production soon after it is produced at various locations.  Payment is generally received one month after the sale has occurred.

 

Under our oil sales contracts, we generally sell oil to the purchaser from storage tanks near the wellhead and collect a contractually agreed upon index price, net of pricing differentials. We transfer control of the product from the storage tanks to the purchaser and recognize revenue based on the contract price. For pipeline sales, title transfers upon oil passing the inlet or delivery point.

 

Under our natural gas sales contracts, we deliver natural gas to the purchaser at an agreed upon delivery point. Natural gas is transported from our wellheads to delivery points specified under sales contracts. To deliver natural gas to these points, the Company or third parties gather, compress, process and transport our natural gas. We maintain ownership and control of the natural gas during gathering, compression, processing, and transportation. Our sales contracts provide that we receive a specific index price adjusted for pricing differentials. We transfer ownership and control of the product at the delivery point and recognize revenue based on the contract price. The sales prices for natural gas is adjusted for transportation and other related deductions. The revenue deductions reflect actual charges based on purchaser statements. The costs to gather, compress, process, and transport the natural gas are separately presented as Transportation and processing costs on the Consolidated Statement of Operations.

 

NGLs, which are extracted from natural gas through processing, are either sold by us directly or to the processor under processing contracts. For NGLs sold by us directly, our sales contracts provide that we deliver the product to the purchaser at an agreed upon delivery point and that we receive a specific index price adjusted for pricing differentials. We transfer control of the product to the purchaser at the delivery point and recognize revenue based on the contract price. Several of our revenue contracts are fixed fee where title transfers to the customer at the tailgate of the processing plant and we pay a gathering and processing fee. Gathering and processing costs associated with fixed fee contracts have a distinct service payable and, as a result of the adoption of ASC 606, these costs are reported as a separate expense line item titled Transportation and processing costs on the Consolidated Statement of Operations. Prior to the adoption of ASC 606, these transportation and processing costs were recorded as a reduction of Oil and gas sales on the Consolidated Statement of Operations. There is no impact to the current method of recognizing revenue for percentage of recovery contracts for gathering and processing costs which, in accordance with ASC 606, remain deducted from sales proceeds and are recorded as a reduction of Oil and gas sales on the Consolidated Statement of Operations.

 

Significant accounting policy

 

Revenue is measured based on a consideration specified in a contract with a customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. We generally consider the delivery of each unit (Bbl or MMBtu) to be separately identifiable and represents a distinct performance obligation that is satisfied at a point-in-time once control of the product has been transferred to the customer upon delivery to an agreed upon delivery point. Transfer of control typically occurs when the products are delivered to the purchaser, and title has transferred.

 

Revenue is recognized at a point in time as a result of not meeting any of the three criteria required for over time recognition.

 

Certain transportation and processing costs associated with fixed fee contracts where title transfers to the customer at the tailgate of the processing plant and we pay a gathering and processing fee are recognized at the time of title transfer. These costs are presented as Transportation and processing costs on the Consolidated Statement of Operations.

 

The Company enters into marketing agreements with our non-operating partners to market and sell their share of production to third parties. Under these arrangements, we record revenue for our share of the production (i.e. we, as the operator, record revenue on a net basis). Distributions are made to our non-operating partners for their share of the revenue.

 

As part of our adoption of ASC 606, we used practical expedients permitted by the standard when applicable. These practical expedients included:

 

·

Applying the new guidance only to contracts that are not completed as of January 1, 2018;

 

·

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue;

 

·

The Company recognizes the incremental cost of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in General and administrative expenses;

 

·

For our product sales that have a contact term greater than one year, we have utilized the practical expedient in ASC 606, which states that a company is not required to disclose the transaction price allocated to remaining performance obligation if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our product sales contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required; and

 

·

For our product sales that have a contract term of one year or less, we have utilized the practical expedient in ASC 606, which states that a company is not required to disclose the transaction price allocated to remaining performance obligations if the performance obligation is part of the contract that has an original expected duration of one year or less.

 

Disaggregation of revenue    

 

The following tables present quantitative information about disaggregated revenues from contracts with customers by commodity and region of production for the three and six months ended June 30, 2018 as presented under ASC 606.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

(in thousands of dollars)

    

Oil

 

Natural gas

 

NGLs

 

Total

 

Eastern Anadarko

 

$

19,102

 

$

1,896

 

$

6,792

 

$

27,790

 

Western Anadarko

 

 

22,831

 

 

5,149

 

 

8,978

 

 

36,958

 

Total

 

$

41,933

 

$

7,045

 

$

15,770

 

$

64,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

(in thousands of dollars)

    

Oil

 

Natural gas

 

NGLs

 

Total

    

Eastern Anadarko

 

$

32,614

 

$

3,087

 

$

10,565

 

$

46,266

 

Western Anadarko

 

 

45,996

 

 

12,145

 

 

18,479

 

 

76,620

 

Total

 

$

78,610

 

$

15,232

 

$

29,044

 

$

122,886

 

 

The following tables present quantitative information about disaggregated revenues from contracts with customers by commodity and region of production for the three and six months ended June 30, 2017 as presented under ASC 605 since the Company adopted ASC 606 under the modified retrospective method which does not require adjustment of prior period amounts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017 (1)

 

(in thousands of dollars)

    

Oil

 

Natural gas

 

NGLs

 

Total

 

Eastern Anadarko

 

$

3,150

 

$

795

 

$

867

 

$

4,812

 

Western Anadarko

 

 

21,148

 

 

12,756

 

 

11,168

 

 

45,072

 

Total

 

$

24,298

 

$

13,551

 

$

12,035

 

$

49,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017 (1)

 

(in thousands of dollars)

    

Oil

 

Natural gas

 

NGLs

 

Total

    

Eastern Anadarko

 

$

4,106

 

$

1,090

 

$

1,136

 

$

6,332

 

Western Anadarko

 

 

38,459

 

 

23,888

 

 

21,882

 

 

84,229

 

Total

 

$

42,565

 

$

24,978

 

$

23,018

 

$

90,561

 


(1)

Prior period amounts have not been adjusted under the modified retrospective method.

 

During the six months ended June 30, 2018 and 2017, the timing of revenue recognition for all products was transferred at a point in time. No products and/or services were transferred over time.

 

Contract balances

 

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers at June 30, 2018 and December 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

(in thousands of dollars)

    

2018

    

2017

    

Accounts receivable, net

 

 

 

 

 

 

 

Oil and gas sales

 

$

39,990

 

$

34,492

 

Other current liabilities

 

 

 

 

 

 

 

Contract liabilities

 

$

1,294

 

$

 —

 

 

Accounts receivable – Oil and gas sales consist of uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 to 60 days of production. Under our sales contracts, payment is unconditional after our performance obligations have been satisfied under ASC 606. Accordingly, unconditional rights to consideration are presented separately as a receivable. Since our sales contracts are not conditional on factors other than the passage of time, the contracts do not give rise to contract assets under ASC 606.

 

Other current liabilities – contract liabilities represent estimated fees for minimum volume and drilling commitments associated with certain revenue contracts with customers.

v3.10.0.1
Properties, Plant and Equipment
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Properties, Plant and Equipment

5.        Properties, Plant and Equipment

 

Oil and Gas Properties

 

The Company accounts for its oil and natural gas exploration and production activities under the successful efforts method of accounting. Oil and gas properties consisted of the following at June 30, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

(in thousands of dollars)

    

2018

    

2017

 

Mineral interests in properties

 

   

 

 

   

 

 

Unproved

 

$

110,153

 

$

164,087

 

Proved

 

 

948,203

 

 

893,246

 

Wells and equipment and related facilities

 

 

1,542,932

 

 

1,434,383

 

 

 

 

2,601,288

 

 

2,491,716

 

Less: Accumulated depletion and impairment

 

 

(981,205)

 

 

(894,676)

 

Net oil and gas properties

 

$

1,620,083

 

$

1,597,040

 

 

There were no exploratory wells drilled during the six months ended June 30, 2018 or 2017. As such, no associated costs were capitalized and no exploratory wells resulted in exploration expense during either period.

 

The Company capitalizes interest on expenditures for significant exploration and development projects that last more than six months while activities are in progress to bring the assets to their intended use. During the three and six months ended June 30, 2018, the Company capitalized $0.1 million associated with such in progress projects. During the three and six months ended June 30, 2017, the Company capitalized $0.2 million associated with such in progress projects. Costs incurred to maintain wells and related equipment are charged to expense as incurred.

 

Depletion of oil and gas properties amounted to $44.4 million and $85.6 million for the three and six months ended June 30, 2018, respectively, and $45.1 million and $80.5 million for the three and six months ended June 30, 2017, respectively.

 

The Company continues to monitor its proved and unproved properties for impairment. No impairments of proved or unproved properties were recorded as a result of our impairment assessment during the three and six months ended June 30, 2018. As disclosed in Note 3, “Acquisitions and Divestitures - Arkoma Divestiture,” the Company recognized an impairment charge of $148.0 million during the second quarter of 2017 based on the Company’s negotiated selling price of the Arkoma Basin oil and gas property assets and related liabilities.

 

Other Property, Plant and Equipment

 

Other property, plant and equipment consisted of the following at June 30, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

(in thousands of dollars)

    

2018

    

2017

 

Leasehold improvements

 

$

1,186

 

$

1,186

 

Furniture, fixtures, computers and software

 

 

4,383

 

 

4,410

 

Vehicles

 

 

1,922

 

 

1,922

 

Aircraft

 

 

910

 

 

910

 

Other

 

 

239

 

 

210

 

 

 

 

8,640

 

 

8,638

 

Less: Accumulated depreciation and amortization

 

 

(6,397)

 

 

(5,919)

 

Net other property, plant and equipment

 

$

2,243

 

$

2,719

 

 

Depreciation and amortization of other property, plant and equipment amounted to $0.3 million and $0.6 million, for the three and six months ended June 30, 2018, respectively, and $0.2 million and $0.5 million for the three and six months ended June 30, 2017, respectively.

v3.10.0.1
Long-Term Debt
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Long-Term Debt

6.        Long-Term Debt

 

Long-term debt consisted of the following at June 30, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

(in thousands of dollars)

    

June 30, 2018

    

December 31, 2017

 

Revolver

 

$

 —

 

$

211,000

 

2022 Notes

 

 

409,148

 

 

409,148

 

2023 Notes

 

 

150,000

 

 

150,000

 

2023 First Lien Notes

 

 

450,000

 

 

 —

 

Total principal amount

 

 

1,009,148

 

 

770,148

 

Less: unamortized discount

 

 

(14,943)

 

 

(5,228)

 

Less: debt issuance costs, net

 

 

(15,478)

 

 

(5,604)

 

Total carrying amount

 

$

978,727

 

$

759,316

 

 

Senior Unsecured Notes

 

On April 1, 2014, JEH and Jones Energy Finance Corp., JEH’s wholly owned subsidiary formed for the sole purpose of co-issuing certain of JEH’s debt (collectively, the “Issuers”), sold $500.0 million in aggregate principal amount of the Issuers’ 6.75% senior notes due 2022 (the “2022 Notes”). The Company used the net proceeds from the issuance of the 2022 Notes to repay certain indebtedness and for working capital and general corporate purposes. The 2022 Notes bear interest at a rate of 6.75% per year, payable semi-annually on April 1 and October 1 of each year beginning October 1, 2014. The 2022 Notes were registered in March 2015. The 2022 Notes mature on April 1, 2022.

 

On February 23, 2015, the Issuers sold $250.0 million in aggregate principal amount of 9.25% senior notes due 2023 (the “2023 Notes”) in a private placement to affiliates of GSO Capital Partners LP and Magnetar Capital LLC. The 2023 Notes were issued at a discounted price equal to 94.59% of the principal amount. The Company used the $236.5 million net proceeds from the issuance of the 2023 Notes to repay outstanding borrowings under the Revolver (as defined below) and for working capital and general corporate purposes. The 2023 Notes bear interest at a rate of 9.25% per year, payable semi-annually on March 15 and September 15 of each year beginning September 15, 2015. The 2023 Notes were registered in February 2016. The 2023 Notes mature on March 15, 2023.

 

During 2016, the Company purchased an aggregate principal amount of $190.9 million of its senior unsecured notes through several open-market and privately negotiated purchases. The Company purchased $90.9 million principal amount of its 2022 Notes for $38.1 million, and $100.0 million principal amount of its 2023 Notes for $46.5 million, in each case excluding accrued interest and including any associated fees. The Company used cash on hand and borrowings from its Revolver to fund the note purchases. In conjunction with the extinguishment of this debt, JEH recognized cancellation of debt income of $99.5 million during the year ended December 31, 2016, on a pre-tax basis. This income was recorded in Gain on debt extinguishment on the Company’s Consolidated Statement of Operations. Of the Company’s total repurchases, $20.3 million principal amount of its 2022 Notes were not cancelled and are available for future reissuance, subject to applicable securities laws. No additional purchases were made during the year ended December 31, 2017 and during the six months ended June 30, 2018.

 

The 2022 Notes and 2023 Notes are guaranteed on a senior unsecured basis by the Company and by all of its significant subsidiaries. The 2022 Notes and 2023 Notes will be senior in right of payment to any future subordinated indebtedness of the Issuers.

 

The Company may redeem the 2022 Notes at any time on or after April 1, 2017 and the 2023 Notes at any time on or after March 15, 2018 at a declining redemption price set forth in the respective indentures, plus accrued and unpaid interest.

 

The indentures governing the 2022 Notes and 2023 Notes are substantially identical and contain covenants that, among other things, limit the ability of the Company to incur additional indebtedness or issue certain preferred stock, pay dividends on capital stock, transfer or sell assets, make investments, create certain liens, enter into agreements that restrict dividends or other payments from the Company’s restricted subsidiaries to the Company, consolidate, merge or transfer all of the Company’s assets, engage in transactions with affiliates or create unrestricted subsidiaries. If at any time when the 2022 Notes or 2023 Notes are rated investment grade and no default or event of default (as defined in the indenture) has occurred and is continuing, many of the foregoing covenants pertaining to the 2022 Notes or 2023 Notes, as applicable, will be suspended. If the ratings on the 2022 Notes or 2023 Notes, as applicable, were to decline subsequently to below investment grade, the suspended covenants would be reinstated.

 

As of June 30, 2018, the Company was in compliance with the indentures governing the 2022 Notes and 2023 Notes.

 

Senior Secured First Lien Notes due 2023

 

On February 14, 2018, the Issuers sold $450.0 million of 9.25% senior secured first lien notes due 2023 (the “2023 First Lien Notes”) at an offering price equal to 97.526% of par in an offering exempt from registration under the Securities Act. The 2023 First Lien Notes are senior secured first lien obligations of JEH and Jones Energy Finance Corp. and are guaranteed on a senior secured first lien basis by the Company and each of the existing and future restricted subsidiaries of JEH and Jones Energy Finance Corp. The Company used the net proceeds from the offering to repay all but $25.0 million of the outstanding borrowings under the Revolver, to fund drilling and completion activities, and for other general corporate purposes. During the six months ended June 30, 2018, the Company capitalized $11.4 million of loan costs associated with the issuance of the 2023 First Lien Notes.

 

Other Long-Term Debt

 

The Company has a Senior Secured Revolving Credit Facility (the “Revolver”) with a syndicate of banks. At the beginning of 2018, the borrowing base under the Revolver was $350.0 million. In connection with the offering of the 2023 First Lien Notes, the borrowing base was reduced to $50.0 million effective February 14, 2018. On June 27, 2018 the borrowing base was further reduced to $25.00. The Company’s oil and gas properties are pledged as collateral to secure its obligations under the Revolver. The Revolver matures on November 6, 2019.

 

In connection with the offering of the 2023 First Lien Notes, on February 14, 2018, JEH amended the Revolver to, among other things, (a) permit the issuance of the 2023 First Lien Notes and additional senior secured notes in an aggregate principal amount, together with the notes issued pursuant to this offering, not to exceed $700.0 million, (b) permit the incurrence of liens securing the 2023 First Lien Notes pursuant to the terms of a collateral trust agreement, (c) reduce the borrowing base under the Revolver to $50.0 million and (d) suspend testing of our senior secured leverage ratio until March 31, 2019.

 

On June 27, 2018, the Company entered into an amendment to the Revolver to, among other things (a) remove the financial maintenance covenants contained therein, including the current ratio, total leverage ratio and senior secured leverage ratio, (b) align certain of the other covenants contained therein to be consistent with the terms of the indenture governing the 2023 First Lien Notes, (c) reduce lender commitments to $25.00, and (d) reduce the borrowing base to $25.00 for the remainder of the life of the facility. Additionally, outstanding borrowings of $25.0 million were repaid in connection with the closing of the amendment. The Company’s current outstanding borrowings under the Revolver are $0.00.

 

The Company recognized accelerated amortization of debt issuance costs of $0.6 million and $3.8 million during the three and six months ended June 30, 2018, respectively, associated with the modifications of the Revolver, which was recorded as Interest expense on the Company’s Consolidated Statement of Operations.

 

The terms of the Revolver require the Company to make periodic payments of interest on the loans outstanding thereunder, if any, with all outstanding principal and interest under the Revolver due on the maturity date. The Revolver is subject to a borrowing base, which limits the amount of borrowings which may be drawn thereunder.

 

Interest on the Revolver is calculated, at the Company’s option, at either (a) the London Interbank Offered (“LIBO”) rate for the applicable interest period plus a margin of 2.75% to 3.75% based on the level of borrowing base utilization at such time or (b) the greatest of the federal funds rate plus 0.50%, the one month adjusted LIBO rate plus 1.00%, or the prime rate announced by Wells Fargo Bank, N.A. in effect on such day, in each case plus a margin of 1.75% to 2.75% based on the level of borrowing base utilization at such time. For the three and six months ended June 30, 2018, the average interest rate under the Revolver was 4.75% and 4.46%, respectively, on an average outstanding balance of $24.2 million and $74.3 million, respectively.

 

Total interest and commitment fees under the Revolver were $0.3 million and $1.8 million for the three and six months ended June 30, 2018, respectively, and $1.6 million and $3.1 million for the three and six months ended June 30, 2017, respectively.

 

Jones Energy, Inc. and its consolidated subsidiaries are subject to certain covenants under the Revolver, which are substantially similar to those set forth in the indenture governing the 2023 First Lien Notes or are otherwise customary for facilities of this type and which limit our ability to, among other things: borrow money or issue guarantees; pay dividends, redeem capital stock or make other restricted payments; incur liens to secure indebtedness; sell certain assets; enter into transactions with our affiliates; or merge with another person or sell substantially all of our assets. We were in compliance with all terms of our Revolver at June 30, 2018, and we expect to maintain compliance throughout the next twelve months. However, factors including those outside of our control may prevent us from maintaining compliance with these covenants. In the event it were to become necessary, we believe we have the ability to take actions that would prevent us from failing to comply with our covenants, such as terminating the Revolver. If an event of default exists under the Revolver, the lenders would be able to accelerate the obligations outstanding under the Revolver and exercise other rights and remedies. Our Revolver contains customary events of default, including the occurrence of a change of control, as defined in the Revolver.

v3.10.0.1
Derivative Instruments and Hedging Activities
6 Months Ended
Jun. 30, 2018
Disclosure Text Block  
Derivative Instruments and Hedging Activities

7.        Derivative Instruments and Hedging Activities

 

The Company uses derivative instruments to mitigate volatility in commodity prices. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. Depending on changes in oil and gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our hedging positions.

 

The following tables summarize our hedging positions as of June 30, 2018:

 

Hedging Positions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

    

 

    

 

 

    

 

 

    

Weighted

    

Final

 

 

 

 

 

Low

 

High

 

Average

 

Expiration

 

Oil swaps

 

Exercise price

 

$

49.70

 

$

54.18

 

$

50.41

 

December 2020

 

 

 

Net barrels per month

 

 

55,000

 

 

211,000

 

 

97,667

 

 

 

Natural gas swaps

 

Exercise price

 

$

2.76

 

$

3.10

 

$

2.86

 

December 2020

 

 

 

Offset exercise price

 

$

2.83

 

$

2.85

 

$

2.84

 

December 2018

 

 

 

Net MMbtu per month

 

 

700,000

 

 

1,600,000

 

 

1,012,667

 

 

 

Natural gas liquids swaps

 

Exercise price

 

$

22.89

 

$

45.26

 

$

30.04

 

December 2018

 

 

 

Barrels per month

 

 

130,000

 

 

145,000

 

 

132,500

 

 

 

Natural gas basis swaps

 

Exercise price

 

$

(0.50)

 

$

(0.44)

 

$

(0.45)

 

October 2018

 

 

 

Net MMbtu per month

 

 

800,000

 

 

800,000