ACQUISITIONS

3 Months Ended

Mar. 31, 2020

ACQUISITIONS

ACQUISITIONS

3.ACQUISITION

Wing

On August 2, 2019 (the "Wing Acquisition Date"), our subsidiary, AR Midland, LP ("AR Midland") acquired from Wing Resources LLC and Wing Resources II LLC (collectively, "Wing") approximately 9,000 net royalty acres in the Midland Basin, with exposure to more than 400,000 gross acres, for a cash purchase price of $144.9 million (the "Wing Acquisition").  The purchase price was funded with cash on hand and borrowings under the Revolving Credit Facility discussed in Note 9 – Long-Term Debt.  The Wing Acquisition enhances our ownership position in the Permian Basin, expands our exposure to industry leading operators and furthers our business strategy to grow our Minerals segment.  Concurrent with the Wing Acquisition, JC Resources LP, an entity owned by Joseph W. Craft III, the Chairman, President and Chief Executive Officer of MGP ("Mr. Craft"), acquired from Wing, in a separate transaction, mineral interests that we elected not to acquire.

Because the mineral interests acquired in the Wing Acquisition include royalty interests in both producing properties and unproved properties, we have determined that the acquisition should be accounted for as a business combination and the underlying assets should be recorded at fair value as of the Wing Acquisition Date on our condensed consolidated balance sheet. During the three months ended March 31, 2020, we recorded adjustments to our mineral interests in proved and unproved properties due to additional information received about reserve and production quantities and projections that represented facts and circumstances that existed as of the Wing Acquisition Date.  In addition, we increased our receivables by $0.3 million as a result of information received from operators concerning royalty payments owed to us from production that occurred prior to the Wing Acquisition Date.

The following table summarizes the fair value allocation of assets acquired as of the Wing Acquisition Date incorporating measurement period adjustments made to the allocation:

	As Previously
	Reported		Adjustments		Adjusted
			(in thousands)
Mineral interests in proved properties	$	58,084		16,987	$	75,071
Mineral interests in unproved properties		84,976		(17,275)		67,701
Receivables		1,867		288		2,155
Net assets acquired	$	144,927			$	144,927

The fair value of the mineral interests was determined using a weighting of both income and market approaches.  Our income approach primarily comprised a discounted cash flow model.  The assumptions used in the discounted cash flow model included estimated production, projected cash flows, forward oil & gas prices and a weighted average cost of

capital.  Our market approach consisted of the observation of recent acquisitions in the Permian Basin to determine a market price for similar mineral interests.  Certain assumptions used in our valuation are not observable in active markets; therefore, the fair value measurements represent Level 3 fair value measurements.  The carrying value of the receivables represents the fair value given the short-term nature of the receivables.