SIGNIFICANT ACQUISITIONS AND DIVESTITURES

2018 Activity

On February 9, 2018 (the “Closing Date”), AMR consummated the transactions contemplated by (i) the Contribution Agreement (“AM Contribution Agreement”), dated August 16, 2017, with us, the AM Contributor, High Mesa Holdings GP, LLC, the sole general partner of the AM Contributor, Alta Mesa Holdings GP, LLC, our sole general partner (“AMH GP”), and, solely for certain provisions therein, the equity owners of the AM Contributor, (ii) the Contribution Agreement (the “KFM Contribution Agreement”), dated August 16, 2017, with KFM Holdco, LLC, a Delaware limited liability company (the “KFM Contributor”), Kingfisher Midstream, LLC, and, solely for certain provisions therein, the equity owners of the KFM Contributor; and (iii) the Contribution Agreement (the “Riverstone Contribution Agreement” and, together with the AM Contribution Agreement and the KFM Contribution Agreement, the “Contribution Agreements”), dated August 17, 2017, with Riverstone VI Alta Mesa Holdings, L.P., a Delaware limited partnership (the “Riverstone Contributor” and together with the AM Contributor and the KFM Contributor, the “Contributors”).

Pursuant to the Contribution Agreements, SRII Opco, LP, a newly formed subsidiary of AMR (“SRII Opco”) acquired (a) (i) all of the limited partner interests in us and (ii) 100% of the economic interests and 90% of the voting interests in AMH GP ((i) and (ii) collectively, the “AM Contribution”) and (b) 100% of the economic interests in KFM (the “KFM Contribution”). The acquisition of us and Kingfisher pursuant to the Contribution Agreements is referred to herein as the “Business Combination” and the transactions contemplated by the Contribution Agreements are referred to herein as the “Transactions”. We are deemed to be a variable interest entity (“VIE”) and SRII Opco is our primary beneficiary since it controls our general partner, AMH GP, and has the power to direct our activities impacting our performance, as well as holding all of our equity at risk. Accordingly, our results of operations have been consolidated into SRII Opco. Similarly, AMR is the primary beneficiary of SRII Opco and controls SRII Opco, GP, LLC (“SRII Opco GP”), the general partner of SRII Opco. As a result, AMR controls and consolidates SRII Opco, and by extension, us.

KFM is considered a related party affiliate. We do not control or have significant influence over KFM as such control resides with SRII Opco’s general partner, SRII Opco GP. As AMR is the primary beneficiary of SRII Opco and controls SRII Opco GP, KFM’s financial results are also included in the consolidated financial statements of our ultimate parent, AMR.

Pursuant to the Transactions, AMR contributed $554.0 million in net cash to us at the closing of the Business Combination. We used a portion of the amount to repay all outstanding balances under a predecessor senior secured revolving credit facility (the “Alta Mesa Predecessor Credit Facility”).

The Business Combination has been accounted for using the acquisition method resulting in our assets acquired and liabilities assumed being recognized at their fair values as of the acquisition date by AMR, which were then pushed down to us.

Purchase Price

໿



(in thousands)	February 9, 2018 (As initially reported)		Measurement Period Adjustment ⁽¹⁾		February 9, 2018 (As adjusted)
Purchase Consideration: ⁽²⁾
SRII Opco Common Units issued ⁽³⁾	$	1,251,782	$	9,467	$	1,261,249
Estimated fair value of contingent earn-out purchase consideration ⁽⁴⁾	284,109		—		284,109
Total purchase price consideration	$	1,535,891	$	9,467	$	1,545,358

_________________


(1)	The measurement period adjustment relates to the issuance of 1,197,934 of additional SRII Opco Common Units, valued at approximately $7.90 per unit, to the AM Contributor based on a final closing statement agreed to by the parties during the three months ended June 30, 2018 (Successor).


(2)	The purchase price consideration was for 100% of the limited partner interests in us and 100% of the economic interests and 90% of the voting interests in AMH GP.


(3)	At closing, the Riverstone Contributor received consideration of 20,000,000 SRII Opco Common Units and the AM Contributor received consideration of 138,402,398 SRII Opco Common Units. The estimated fair value of an SRII Opco Common Unit was approximately $7.90 per unit and reflects discounts for holding requirements and liquidity.

(4)

For a period of seven years following Closing, the AM Contributor will be entitled to receive an earn-out consideration to be paid in the form of SRII Opco Common Units (and a corresponding number of shares of AMR Class C Common Stock) if the 20-day VWAP of the Class A Common Stock of AMR equals or exceeds the specified prices pursuant to the AM Contribution Agreement. Pursuant to ASC 805 and ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), we have determined that the fair value of the earn-out consideration was approximately $284.1 million, which was classified as equity. The fair value of the contingent equity earn-out consideration was determined using the Monte Carlo simulation valuation method based on Level 3 inputs as defined in the fair value hierarchy. The key inputs included the listed market price for Class A Common Stock, market volatility of a peer group of companies similar to AMR (due to the lack of trading activity in the Class A Common Stock), no dividend yield, an expected life of each earn-out threshold based on the remaining contractual term of the contingent liability earn-out period and a risk-free rate based on U.S. dollar overnight indexed swaps with a maturity equivalent to the earn-out’s expected life.

Purchase Price Allocation for Alta Mesa



(in thousands)	February 9, 2018 (As initially reported)		Measurement Period Adjustment (1)			February 9, 2018 (As adjusted)
Estimated Fair Value of Assets Acquired ⁽²⁾
Cash, cash equivalents and restricted cash	$	10,345	$	—		$	10,345
Accounts receivable	101,745		—			101,745
Other receivables	1,222		840			2,062
Receivables due from related party	907		—			907
Prepaid expenses and other	1,405		—			1,405
Derivatives	352		—			352
Property and equipment: ⁽³⁾
Oil and gas properties, successful efforts	2,314,858		(4,879		)	2,309,979
Other property and equipment, net	43,318		—			43,318
Notes receivable due from related party	12,454		—			12,454
Deposits and other long-term assets	10,286		—			10,286
Total fair value of assets acquired	2,496,892		(4,039		)	2,492,853
Estimated Fair Value of Liabilities Assumed ⁽²⁾
Accounts payable and accrued liabilities	210,867		(13,506		)	197,361
Accounts payable — affiliate	5,476		—			5,476
Advances from non-operators	6,803		—			6,803
Advances from related party	47,506		—			47,506
Asset retirement obligations ⁽³⁾	5,998		—			5,998
Derivatives	11,585		—			11,585
Long-term debt ⁽⁴⁾	667,700		—			667,700
Other long-term liabilities	5,066		—			5,066
Total fair value of liabilities assumed	961,001		(13,506		)	947,495
Total consideration and fair value	$	1,535,891	$	9,467		$	1,545,358

_________________


(1)	The measurement period adjustments were recognized in the reporting period in which the adjustments were determined. The measurement period adjustments relate to a change in the purchase consideration based on a final closing statement agreed to by the parties during the three months ended June 30, 2018 and certain adjustments to beginning balances.


(2)	The assets acquired and liabilities assumed relate to Alta Mesa’s STACK assets.

(3)

The estimated fair value of oil and gas properties and asset retirement obligations were determined using valuation techniques that convert future cash flows to a single discounted amount and involve the use of certain inputs that are not observable in the market (Level 3 inputs). Significant inputs include, but are not limited to recoverable reserves, production rates, future operating and development costs, future commodity prices, appropriate risk-adjusted discount rates, and other relevant data. These inputs required significant judgments and estimates by management at the time of the valuation. Actual results may vary from these estimates.


(4)	Represents the approximate fair value as of the acquisition date of (i) Alta Mesa’s $500.0 million aggregate principal amount of 7.875% senior unsecured notes due December 15, 2024, totaling approximately $533.6 million, based on Level 1 inputs, and (ii) outstanding borrowings under the Alta Mesa Predecessor Credit Facility of approximately $134.1 million as of the acquisition date.

Acquisition of acreage

In October 2018, we completed a transaction to acquire certain unproved oil and gas properties from Fenter Energy, LLC for $22.3 million, net of customary post-closing purchase price adjustments. The acquisition was funded utilizing borrowings under the Alta Mesa Eighth Amended and Restated Credit Agreement with Wells Fargo Bank, National Association (the “Alta Mesa RBL”).

2017 Activity

In December 2017, we sold our assets located in the Weeks Island field to Texas Petroleum Investment for approximately $22.5 million.

In September 2017, we acquired certain proved oil and gas properties from Brown & Borelli (the “B&B Acquisition”) for $8.2 million, using cash on hand. The fair value of the net assets acquired was approximately $9.9 million. Accordingly, a bargain purchase gain of $1.7 million was recognized at the time of the acquisition. The gain primarily resulted from growth in reserves and value between signing and closing of the transaction.

In July 2017, we acquired oil and gas properties in Oklahoma from an unaffiliated third party for $45.6 million, funded utilizing borrowings under Alta Mesa’ Predecessor credit facility.

2016 Activity

During 2016, we acquired approximately $10.6 million of oil and gas properties in Oklahoma which were primarily related to unevaluated leasehold.

On December 31, 2016, HMI, a related party, purchased from BCE-STACK Development LLC (“BCE”) and contributed interests in 24 producing wells (the “Contributed Wells”) to us. We recorded HMI’s equity contribution at the fair value of the wells contributed of approximately $65.7 million, plus contributed cash of $11.3 million, of which $7.9 million was collected subsequent to December 31, 2016.