16. Subsidiary Guarantors

The 2022 Notes and the 2023 Notes are guaranteed on a senior unsecured basis by the Company and by all of JEH’s current subsidiaries (except Jones Energy Finance Corp. and two immaterial subsidiaries) and certain future subsidiaries, including any future subsidiaries that guarantee any indebtedness under the Revolver. 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.

As of December 31, 2016, the 2022 Notes and the 2023 Notes were 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. These subsidiaries have since become guarantors during the first quarter of 2017 and are therefore presented accordingly in the accompanying condensed consolidated guarantor financial information.

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 March 31, 2017, the Company held 63,373,033 JEH Units and all of the preferred units representing membership interests in JEH, and the remaining 29,832,098 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.

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 shareholders 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 Class B shareholders 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

March 31, 2017


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Assets
Current assets
Cash	$	4,781	$	239	$	3,668	$	20	$	—	$	8,708
Accounts receivable, net
Oil and gas sales		—		—		25,787		—		—		25,787
Joint interest owners		—		—		6,533		—		—		6,533
Other		—		3,907		311		—		—		4,218
Commodity derivative assets		—		30,101		—		—		—		30,101
Other current assets		342		224		6,712		—		—		7,278
Intercompany receivable		17,581		1,175,883		—		—		(1,193,464)		—
Total current assets		22,704		1,210,354		43,011		20		(1,193,464)		82,625
Oil and gas properties, net, at cost under the successful efforts method		—		—		1,764,947		—		—		1,764,947
Other property, plant and equipment, net		—		—		2,325		595		—		2,920
Commodity derivative assets		—		17,767		—		—		—		17,767
Other assets		—		4,867		895		—		—		5,762
Investment in subsidiaries		548,561		—		—		—		(548,561)		—
Total assets	$	571,265	$	1,232,988	$	1,811,178	$	615	$	(1,742,025)	$	1,874,021
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	31	$	29	$	55,697	$	—	$	—	$	55,757
Oil and gas sales payable		—		—		28,112		—		—		28,112
Accrued liabilities		58		14,813		10,077		—		—		24,948
Commodity derivative liabilities		—		8,717		—		—		—		8,717
Other current liabilities		639		1,984		600		—		—		3,223
Intercompany payable		—		—		1,583,080		2,849		(1,585,929)		—
Total current liabilities		728		25,543		1,677,566		2,849		(1,585,929)		120,757
Long-term debt		—		701,586		—		—		—		701,586
Deferred revenue		—		6,591		—		—		—		6,591
Commodity derivative liabilities		—		178		—		—		—		178
Asset retirement obligations		—		—		20,035		—		—		20,035
Liability under tax receivable agreement		41,720		—		—		—		—		41,720
Other liabilities		—		316		633		—		—		949
Deferred tax liabilities		85		2,841		—		—		—		2,926
Total liabilities		42,533		737,055		1,698,234		2,849		(1,585,929)		894,742
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at March 31, 2017		89,162		—		—		—		—		89,162
Stockholders’/ members' equity
Members' equity		—		495,933		112,944		(2,234)		(606,643)		—
Class A common stock, $0.001 par value; 63,395,635 shares issued and 63,373,033 shares outstanding at March 31, 2017		63		—		—		—		—		63
Class B common stock, $0.001 par value; 29,832,098 shares issued and outstanding at March 31, 2017		30		—		—		—		—		30
Treasury stock, at cost: 22,602 shares at March 31, 2017		(358)		—		—		—		—		(358)
Additional paid-in-capital		470,107		—		—		—		—		470,107
Retained earnings (deficit)		(30,272)		—		—		—		—		(30,272)
Stockholders' equity		439,570		495,933		112,944		(2,234)		(606,643)		439,570
Non-controlling interest		—		—		—		—		450,547		450,547
Total stockholders’ equity		439,570		495,933		112,944		(2,234)		(156,096)		890,117
Total liabilities and stockholders’ equity	$	571,265	$	1,232,988	$	1,811,178	$	615	$	(1,742,025)	$	1,874,021

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		—		—		1,743,588		—		—		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	$	1,786,958	$	638	$	(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		—		—		1,566,941		2,796		(1,569,737)		—
Total current liabilities		3,874		27,874		1,642,991		2,805		(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		—		—		19,458		—		—		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		1,662,972		2,805		(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	$	1,786,958	$	638	$	(1,727,888)	$	1,886,700

Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Three Months Ended March 31, 2017


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	40,677	$	—	$	—	$	40,677
Other revenues		—		458		98		—		—		556
Total operating revenues		—		458		40,775		—		—		41,233
Operating costs and expenses
Lease operating		—		—		8,806		—		—		8,806
Production and ad valorem taxes		—		—		(906)		—		—		(906)
Exploration		—		—		2,944		—		—		2,944
Depletion, depreciation and amortization		—		—		35,631		23		—		35,654
Accretion of ARO liability		—		—		201		—		—		201
General and administrative		—		2,993		5,004		44		—		8,041
Total operating expenses		—		2,993		51,680		67		—		54,740
Operating income (loss)		—		(2,535)		(10,905)		(67)		—		(13,507)
Other income (expense)
Interest expense		—		(12,814)		(73)		—		—		(12,887)
Net gain (loss) on commodity derivatives		—		22,320		—		—		—		22,320
Other income (expense)		668		(24)		(64)		—		—		580
Other income (expense), net		668		9,482		(137)		—		—		10,013
Income (loss) before income tax		668		6,947		(11,042)		(67)		—		(3,494)
Equity interest in income		(2,055)		—		—		—		2,055		—
Income tax provision (benefit)		—		21		—		—		—		21
Net income (loss)		(1,387)		6,926		(11,042)		(67)		2,055		(3,515)
Net income (loss) attributable to non-controlling interests		—		—		—		—		(2,128)		(2,128)
Net income (loss) attributable to controlling interests	$	(1,387)	$	—	$	—	$	—	$	—	$	(1,387)
Dividends and accretion on preferred stock		(2,027)		—		—		—		—		(2,027)
Net income (loss) attributable to common shareholders	$	(3,414)	$	—	$	—	$	—	$	—	$	(3,414)

Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Three Months Ended March 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	25,080	$	—	$	—	$	25,080
Other revenues		—		645		133		—		—		778
Total operating revenues		—		645		25,213		—		—		25,858
Operating costs and expenses
Lease operating		—		—		8,617		—		—		8,617
Production and ad valorem taxes		—		—		1,601		—		—		1,601
Exploration		—		—		162		—		—		162
Depletion, depreciation and amortization		—		—		41,739		23		—		41,762
Accretion of ARO liability		—		—		293		—		—		293
General and administrative		—		2,878		4,601		25		—		7,504
Total operating expenses		—		2,878		57,013		48		—		59,939
Operating income (loss)		—		(2,233)		(31,800)		(48)		—		(34,081)
Other income (expense)
Interest expense		—		(15,038)		240		—		—		(14,798)
Gain on debt extinguishment		—		90,652		—		—		—		90,652
Net gain (loss) on commodity derivatives		—		17,219		—		—		—		17,219
Other income (expense)		429		(200)		(4)		—		—		225
Other income (expense), net		429		92,633		236		—		—		93,298
Income (loss) before income tax		429		90,400		(31,564)		(48)		—		59,217
Equity interest in income		28,968		—		—		—		(28,968)		—
Income tax provision (benefit)		10,486		217		—		—		—		10,703
Net income (loss)		18,911		90,183		(31,564)		(48)		(28,968)		48,514
Net income (loss) attributable to non-controlling interests		—		—		—		—		29,603		29,603
Net income (loss) attributable to controlling interests	$	18,911	$	—	$	—	$	—	$	—	$	18,911

Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2017


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	(1,387)	$	6,926	$	(11,042)	$	(67)	$	2,055	$	(3,515)
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(23,060)		(11,848)		53,994		67		(2,055)		17,098
Net cash (used in) / provided by operations		(24,447)		(4,922)		42,952		—		—		13,583
Cash flows from investing activities
Additions to oil and gas properties		—		—		(47,110)		—		—		(47,110)
Net adjustments to purchase price of properties acquired		—		—		2,391		—		—		2,391
Proceeds from sales of assets		—		—		144		—		—		144
Acquisition of other property, plant and equipment		—		—		(192)		—		—		(192)
Current period settlements of matured derivative contracts		—		27,854		—		—		—		27,854
Net cash (used in) / provided by investing		—		27,854		(44,767)		—		—		(16,913)
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		30,000		—		—		—		30,000
Repayment of long-term debt		—		(53,000)		—		—		—		(53,000)
Payment of dividends on preferred stock		(1,840)		—		—		—		—		(1,840)
Net distributions paid to JEH unitholders		1,075		(1,637)		—		—		—		(562)
Net payments for share based compensation		—		(31)		—		—		—		(31)
Proceeds from sale of common stock		2,829		—		—		—		—		2,829
Net cash (used in) / provided by financing		2,064		(24,668)		—		—		—		(22,604)
Net increase (decrease) in cash		(22,383)		(1,736)		(1,815)		—		—		(25,934)
Cash
Beginning of period		27,164		1,975		5,483		20		—		34,642
End of period	$	4,781	$	239	$	3,668	$	20	$	—	$	8,708

Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	18,911	$	90,183	$	(31,564)	$	(48)	$	(28,968)	$	48,514
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(18,911)		(134,122)		70,677		48		28,968		(53,340)
Net cash (used in) / provided by operations		—		(43,939)		39,113		—		—		(4,826)
Cash flows from investing activities
Additions to oil and gas properties		—		—		(7,176)		—		—		(7,176)
Proceeds from sales of assets		—		—		3		—		—		3
Acquisition of other property, plant and equipment		—		—		40		—		—		40
Current period settlements of matured derivative contracts		—		42,298				—		—		42,298
Net cash (used in) / provided by investing		—		42,298		(7,133)		—		—		35,165
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		75,000		—		—		—		75,000
Purchase of senior notes		—		(73,427)		—		—		—		(73,427)
Net cash (used in) / provided by financing		—		1,573		—		—		—		1,573
Net increase (decrease) in cash		—		(68)		31,980		—		—		31,912
Cash												—
Beginning of period		100		12,448		9,325		20		—		21,893
End of period	$	100	$	12,380	$	41,305	$	20	$	—	$	53,805