Jones Energy, Inc. - 10-K filing on 2017-03-10

Subsidiary Guarantors

12 Months Ended

Dec. 31, 2016

17. Subsidiary Guarantors

On April 1, 2014, the Issuers sold $500.0 million in aggregate principal amount of the 2022 Notes. On February 23, 2015, the Issuers sold $250.0 million in aggregate principal amount of the 2023 Notes.

As of December 31, 2016, the 2022 Notes and the 2023 Notes are guaranteed on a senior unsecured basis by the Company and by all of its significant subsidiaries, other than Nosley SCOOP, LLC and Nosley Acquisition, LLC. Therefore, these two subsidiaries are not displayed as subsidiary guarantors in our financial statements for the year ending December 31, 2016. Nosley SCOOP, LLC and Nosley Acquisition, LLC have since become guarantors during the first quarter of 2017 and will be presented as such going forward. Each subsidiary guarantor is 100% owned by JEH, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing our 2022 Notes and 2023 Notes, as discussed below, and joint and several with all other subsidiary guarantees and the parent guarantee. Any subsidiaries of JEH other than the subsidiary guarantors and Jones Energy Finance Corp. are immaterial.

Guarantees of the 2022 Notes and 2023 Notes will be released under certain circumstances, including (i) in connection with any sale or other disposition of (a) all or substantially all of the properties or assets of a guarantor (including by way of merger or consolidation) or (b) all of the capital stock of such guarantor, in each case, to a person that is not the Company or a restricted subsidiary of the Company, (ii) if the Company designates any restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) upon legal defeasance, covenant defeasance or satisfaction and discharge of the applicable indenture, or (iv) at such time as such guarantor ceases to guarantee any other indebtedness of the Company or any other guarantor.

The Company is a holding company whose sole material asset is an equity interest in JEH. The Company is the sole managing member of JEH and is responsible for all operational, management and administrative decisions related to JEH’s business. In accordance with JEH’s limited liability company agreement, the Company may not be removed as the sole managing member of JEH.

As of December 31, 2016, the Company held 57,025,474 JEH Units and all of the preferred units representing membership interests in JEH, and the remaining 29,832,098 JEH Units are held by a group of investors that owned interests in JEH prior to the Company’s IPO (the “Class B shareholders”). The Class B shareholders have no voting rights with respect to their economic interest in JEH.

The Company has two classes of common stock, Class A common stock, which was sold to investors in the IPO, and Class B common stock, and one series of preferred stock, Series A preferred stock. Pursuant to the Company’s certificate of incorporation, each share of Class A common stock is entitled to one vote per share, and the shares of Class A common stock are entitled to 100% of the economic interests in the Company. Each share of Class B common stock has no economic rights in the Company, but entitles its holder to one vote on all matters to be voted on by the Company’s stockholders generally. Except as required by law or the Company’s certificate of incorporation, which includes the certificate of designations for the Series A preferred stock, the holders of Series A preferred stock have no voting rights (other than with respect to certain matters regarding the Series A preferred stock or when dividends payable on the Series A preferred stock have not been paid for an aggregate of six quarterly dividend periods, or more, whether or not consecutive, as provided in the certificate of designations for the Series A preferred stock).

In connection with a reorganization that occurred immediately prior to the IPO, each Existing Owner was issued a number of shares of Class B common stock that was equal to the number of JEH Units that such Class B shareholder held. Holders of the Company’s Class A common stock and Class B common stock generally vote together as a single class on all matters presented to the Company’s stockholders for their vote or approval. Accordingly, the Existing Owners collectively have a number of votes in the Company equal to the aggregate number of JEH Units that they hold.

The Class B shareholders have the right, pursuant to the terms of an exchange agreement by and among the Company, JEH and each of the Class B shareholders (the “Exchange Agreement”), to exchange their JEH Units (together with a corresponding number of shares of Class B common stock) 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. As a result, the Company expects that over time the Company will have an increasing economic interest in JEH as Class B common stock and JEH Units are exchanged for Class A common stock. Moreover, any transfers of JEH Units outside of the Exchange Agreement (other than permitted transfers to affiliates) must be approved by the Company. The Company intends to retain full voting and management control over JEH.

Jones Energy, Inc.

Condensed Consolidating Balance Sheet

December 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Assets
Current assets
Cash	$	27,164	$	1,975	$	5,483	$	20	$	—	$	34,642
Accounts receivable, net
Oil and gas sales		—		—		26,568		—		—		26,568
Joint interest owners		—		—		5,267		—		—		5,267
Other		—		5,434		627		—		—		6,061
Commodity derivative assets		—		24,100		—		—		—		24,100
Other current assets		—		422		2,262		—		—		2,684
Intercompany receivable		15,666		1,180,859		—		—		(1,196,525)		—
Total current assets		42,830		1,212,790		40,207		20		(1,196,525)		99,322
Oil and gas properties, net, at cost under the successful efforts method		—		—		1,586,707		156,881		—		1,743,588
Other property, plant and equipment, net		—		—		2,378		618		—		2,996
Commodity derivative assets		—		34,744		—		—		—		34,744
Other assets		—		5,265		785		—		—		6,050
Investment in subsidiaries		531,363		—		—		—		(531,363)		—
Total assets	$	574,193	$	1,252,799	$	1,630,077	$	157,519	$	(1,727,888)	$	1,886,700
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	—	$	13	$	36,514	$	—	$	—	$	36,527
Oil and gas sales payable		—		—		28,339		—		—		28,339
Accrued liabilities		3,874		11,227		10,597		9		—		25,707
Commodity derivative liabilities		—		14,650		—		—		—		14,650
Other current liabilities		—		1,984		600		—		—		2,584
Intercompany payable		—		—		1,410,077		159,660		(1,569,737)		—
Total current liabilities		3,874		27,874		1,486,127		159,669		(1,569,737)		107,807
Long-term debt		—		724,009		—		—		—		724,009
Deferred revenue		—		7,049		—		—		—		7,049
Commodity derivative liabilities		—		1,209		—		—		—		1,209
Asset retirement obligations		—		—		19,441		17		—		19,458
Liability under tax receivable agreement		43,045		—		—		—		—		43,045
Other liabilities		—		269		523		—		—		792
Deferred tax liabilities		85		2,820		—		—		—		2,905
Total liabilities		47,004		763,230		1,506,091		159,686		(1,569,737)		906,274
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at December 31, 2016		88,975		—		—		—		—		88,975
Stockholders’/ members' equity
Members' equity		—		489,569		123,986		(2,167)		(611,388)		—
Class A common stock, $0.001 par value; 57,048,076 shares issued and 57,025,474 shares outstanding at December 31, 2016		57		—		—		—		—		57
Class B common stock, $0.001 par value; 29,832,098 shares issued and outstanding at December 31, 2016		30		—		—		—		—		30
Treasury stock, at cost: 22,602 shares at December 31, 2016		(358)		—		—		—		—		(358)
Additional paid-in-capital		447,137		—		—		—		—		447,137
Retained earnings (deficit)		(8,652)		—		—		—		—		(8,652)
Stockholders' equity		438,214		489,569		123,986		(2,167)		(611,388)		438,214
Non-controlling interest		—		—		—		—		453,237		453,237
Total stockholders’ equity		438,214		489,569		123,986		(2,167)		(158,151)		891,451
Total liabilities and stockholders’ equity	$	574,193	$	1,252,799	$	1,630,077	$	157,519	$	(1,727,888)	$	1,886,700

Jones Energy, Inc.

Condensed Consolidating Balance Sheet

December 31, 2015


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Assets
Current assets
Cash	$	100	$	12,448	$	9,325	$	20	$	—	$	21,893
Accounts receivable, net
Oil and gas sales		—		—		19,292		—		—		19,292
Joint interest owners		—		—		11,314		—		—		11,314
Other		—		14,444		726		—		—		15,170
Commodity derivative assets		—		124,207		—		—		—		124,207
Other current assets		—		444		1,854		—		—		2,298
Intercompany receivable		12,866		1,161,997		—		—		(1,174,863)		—
Total current assets		12,966		1,313,540		42,511		20		(1,174,863)		194,174
Oil and gas properties, net, at cost under the successful efforts method		—		—		1,635,766		—		—		1,635,766
Other property, plant and equipment, net		—		—		3,168		705		—		3,873
Commodity derivative assets		—		93,302		—		—		—		93,302
Other assets		—		7,456		583		—		—		8,039
Investment in subsidiaries		444,362		—		—		—		(444,362)		—
Total assets	$	457,328	$	1,414,298	$	1,682,028	$	725	$	(1,619,225)	$	1,935,154
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	—	$	388	$	7,079	$	—	$	—	$	7,467
Oil and gas sales payable		—		—		32,408		—		—		32,408
Accrued liabilities		—		15,741		11,270		—		—		27,011
Commodity derivative liabilities		—		11		—		—		—		11
Other current liabilities		—		—		679		—		—		679
Intercompany payable		—		—		1,391,838		2,434		(1,394,272)		—
Total current liabilities		—		16,140		1,443,274		2,434		(1,394,272)		67,576
Long-term debt		—		837,654		—		—		—		837,654
Deferred revenue		—		11,417		—		—		—		11,417
Asset retirement obligations		—		—		20,301		—		—		20,301
Liability under tax receivable agreement		38,052		—		—		—		—		38,052
Other liabilities		—		—		330		—		—		330
Deferred tax liabilities		19,280		3,692		—		—		—		22,972
Total liabilities		57,332		868,903		1,463,905		2,434		(1,394,272)		998,302
Stockholders’/ members' equity
Members' equity		—		545,395		218,123		(1,709)		(761,809)		—
Class A common stock, $0.001 par value; 30,573,509 shares issued and 30,550,907 shares outstanding at December 31, 2015		31		—		—		—		—		31
Class B common stock, $0.001 par value; 31,273,130 shares issued and outstanding at December 31, 2015		31		—		—		—		—		31
Treasury stock, at cost: 22,602 shares at December 31, 2015		(358)		—		—		—		—		(358)
Additional paid-in-capital		363,723		—		—		—		—		363,723
Retained earnings (deficit)		36,569		—		—		—		—		36,569
Stockholders' equity		399,996		545,395		218,123		(1,709)		(761,809)		399,996
Non-controlling interest		—		—		—		—		536,856		536,856
Total stockholders’ equity		399,996		545,395		218,123		(1,709)		(224,953)		936,852
Total liabilities and stockholders’ equity	$	457,328	$	1,414,298	$	1,682,028	$	725	$	(1,619,225)	$	1,935,154

Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Year Ended December 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	124,861	$	16	$	—	$	124,877
Other revenues		—		2,384		586		—		—		2,970
Total operating revenues		—		2,384		125,447		16		—		127,847
Operating costs and expenses
Lease operating		—		—		32,633		7		—		32,640
Production and ad valorem taxes		—		—		7,768		—		—		7,768
Exploration		—		—		6,673		—		—		6,673
Depletion, depreciation and amortization		—		—		153,831		99		—		153,930
Accretion of ARO liability		—		—		1,263		—		—		1,263
General and administrative		—		12,028		17,244		368		—		29,640
Other operating		—		—		199		—		—		199
Total operating expenses		—		12,028		219,611		474		—		232,113
Operating income (loss)		—		(9,644)		(94,164)		(458)		—		(104,266)
Other income (expense)
Interest expense		—		(53,080)		(47)		—		—		(53,127)
Gain on debt extinguishment		—		99,530		—		—		—		99,530
Net gain (loss) on commodity derivatives		—		(51,264)		—		—		—		(51,264)
Other income (expense)		784		(321)		73		—		—		536
Other income (expense), net		784		(5,135)		26		—		—		(4,325)
Income (loss) before income tax		784		(14,779)		(94,138)		(458)		—		(108,591)
Equity interest in income		(66,804)		—		—		—		66,804		—
Income tax provision (benefit)		(23,468)		(318)		—		—		—		(23,786)
Net income (loss)		(42,552)		(14,461)		(94,138)		(458)		66,804		(84,805)
Net income (loss) attributable to non-controlling interests		—		—		—		—		(42,253)		(42,253)
Net income (loss) attributable to controlling interests	$	(42,552)	$	—	$	—	$	—	$	—	$	(42,552)
Dividends and accretion on preferred stock		(2,669)		—		—		—		—		(2,669)
Net income (loss) attributable to common shareholders	$	(45,221)	$	—	$	—	$	—	$	—	$	(45,221)

Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Year Ended December 31, 2015


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	194,555	$	—	$	—	$	194,555
Other revenues		—		1,960		884		—		—		2,844
Total operating revenues		—		1,960		195,439		—		—		197,399
Operating costs and expenses
Lease operating		—		—		41,027		—		—		41,027
Production and ad valorem taxes		—		—		12,130		—		—		12,130
Exploration		—		—		6,551		—		—		6,551
Depletion, depreciation and amortization		—		—		205,407		91		—		205,498
Accretion of ARO liability		—		—		1,087		—		—		1,087
General and administrative		—		13,565		19,707		116		—		33,388
Other operating				—		4,188		—				4,188
Total operating expenses		—		13,565		290,097		207		—		303,869
Operating income (loss)		—		(11,605)		(94,658)		(207)		—		(106,470)
Other income (expense)
Interest expense		—		(63,160)		(1,298)		—		—		(64,458)
Net gain (loss) on commodity derivatives		—		158,753		—		—		—		158,753
Other income (expense)		1,984		(1,663)		(4)		—		—		317
Other income (expense), net		1,984		93,930		(1,302)		—		—		94,612
Income (loss) before income tax		1,984		82,325		(95,960)		(207)		—		(11,858)
Equity interest in income		(4,728)		—		—		—		4,728		—
Income tax provision (benefit)		(363)		(2,418)		—		—		—		(2,781)
Net income (loss)		(2,381)		84,743		(95,960)		(207)		4,728		(9,077)
Net income (loss) attributable to non-controlling interests		—		—		—		—		(6,696)		(6,696)
Net income (loss) attributable to controlling interests	$	(2,381)	$	—	$	—	$	—	$	—	$	(2,381)

Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Year Ended December 31, 2014


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	378,401	$	—	$	—	$	378,401
Other revenues		—		1,154		1,042		—		—		2,196
Total operating revenues		—		1,154		379,443		—		—		380,597
Operating costs and expenses
Lease operating		—		—		37,760		—		—		37,760
Production and ad valorem taxes		—		—		22,556		—		—		22,556
Exploration		—		—		3,453		—		—		3,453
Depletion, depreciation and amortization		—		—		181,578		91		—		181,669
Accretion of ARO liability		—		—		770		—		—		770
General and administrative		—		4,493		21,181		89		—		25,763
Total operating expenses		—		4,493		267,298		180		—		271,971
Operating income (loss)		—		(3,339)		112,145		(180)		—		108,626
Other income (expense)
Interest expense		—		(40,365)		(1,510)		—		—		(41,875)
Net gain (loss) on commodity derivatives		—		189,641		—		—		—		189,641
Other income (expense)		—		(4,851)		297		—		—		(4,554)
Other income (expense), net		—		144,425		(1,213)		—		—		143,212
Income (loss) before income tax		—		141,086		110,932		(180)		—		251,838
Equity interest in income		63,197		—		—		—		(63,197)		—
Income tax provision (benefit)		22,061		4,157		—		—		—		26,218
Net income (loss)		41,136		136,929		110,932		(180)		(63,197)		225,620
Net income (loss) attributable to non-controlling interests		—		—		—		—		184,484		184,484
Net income (loss) attributable to controlling interests	$	41,136	$	—	$	—	$	—	$	—	$	41,136

Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	(42,552)	$	(14,461)	$	(94,138)	$	(458)	$	66,804	$	(84,805)
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(105,877)		(70,695)		196,547		157,334		(66,804)		110,505
Net cash (used in) / provided by operations		(148,429)		(85,156)		102,409		156,876		—		25,700
Cash flows from investing activities
Additions to oil and gas properties		—		—		(107,586)		(156,876)		—		(264,462)
Proceeds from sales of assets		—		—		1,645		—		—		1,645
Acquisition of other property, plant and equipment		—		—		(310)		—		—		(310)
Current period settlements of matured derivative contracts		—		132,265		—		—		—		132,265
Net cash (used in) / provided by investing		—		132,265		(106,251)		(156,876)		—		(130,862)
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		130,000		—		—		—		130,000
Repayment under long-term debt		—		(62,000)		—		—		—		(62,000)
Purchase of senior notes		—		(84,589)		—		—		—		(84,589)
Payment of dividends on preferred stock		(1,615)		—		—		—		—		(1,615)
Net distributions paid to JEH unitholders		23,674		(40,993)		—		—		—		(17,319)
Proceeds from sale of common stock		65,446		—		—		—		—		65,446
Proceeds from sale of preferred stock		87,988		—		—		—		—		87,988
Net cash (used in) / provided by financing		175,493		(57,582)		—		—		—		117,911
Net increase (decrease) in cash		27,064		(10,473)		(3,842)		—		—		12,749
Cash
Beginning of period		100		12,448		9,325		20		—		21,893
End of period	$	27,164	$	1,975	$	5,483	$	20	$	—	$	34,642

Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2015


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	(2,381)	$	84,743	$	(95,960)	$	(207)	$	4,728	$	(9,077)
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(120,398)		(202,359)		405,214		197		(4,728)		77,926
Net cash (used in) / provided by operations		(122,779)		(117,616)		309,254		(10)		—		68,849
Cash flows from investing activities
Additions to oil and gas properties		—		—		(311,305)		—		—		(311,305)
Proceeds from sales of assets		—		—		41		—		—		41
Acquisition of other property, plant and equipment		—		—		(1,101)		—		—		(1,101)
Current period settlements of matured derivative contracts		—		144,145				—		—		144,145
Net cash (used in) / provided by investing		—		144,145		(312,365)		—		—		(168,220)
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		85,000		—		—		—		85,000
Repayment under long-term debt		—		(335,000)		—		—		—		(335,000)
Proceeds from senior notes		—		236,475		—		—		—		236,475
Payment of debt issuance costs		—		(1,556)		—		—		—		(1,556)
Proceeds from sale of common stock, net of expense		122,779		—		—		—		—		122,779
Net cash (used in) / provided by financing		122,779		(15,081)		—		—		—		107,698
Net increase (decrease) in cash		—		11,448		(3,111)		(10)		—		8,327
Cash												—
Beginning of period		100		1,000		12,436		30		—		13,566
End of period	$	100	$	12,448	$	9,325	$	20	$	—	$	21,893

Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2014


							Non-
					Guarantor		Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	41,136	$	136,929	$	110,932	$	(180)	$	(63,197)	$	225,620
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(40,778)		(326,859)		343,999		140		63,197		39,699
Net cash (used in) / provided by operations		358		(189,930)		454,931		(40)		—		265,319
Cash flows from investing activities
Additions to oil and gas properties		—		—		(474,619)		—		—		(474,619)
Net adjustments to purchase price of properties acquired		—		—		15,709		—		—		15,709
Proceeds from sales of assets		—		—		448		—		—		448
Acquisition of other property, plant and equipment		—		—		(1,683)		—		—		(1,683)
Current period settlements of matured derivative contracts		—		(3,654)		—		—		—		(3,654)
Net cash (used in) / provided by investing		—		(3,654)		(460,145)		—		—		(463,799)
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		170,000		—		—		—		170,000
Repayment under long-term debt		—		(468,000)		—		—		—		(468,000)
Proceeds from senior notes		—		500,000		—		—		—		500,000
Payment of debt issuance costs		—		(13,416)		—		—		—		(13,416)
Purchases of treasury stock		(358)		—		—		—		—		(358)
Net cash (used in) / provided by financing		(358)		188,584		—		—		—		188,226
Net increase (decrease) in cash		—		(5,000)		(5,214)		(40)		—		(10,254)
Cash
Beginning of period		100		6,000		17,650		70		—		23,820
End of period	$	100	$	1,000	$	12,436	$	30	$	—	$	13,566