JOINT VENTURES

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

JOINT VENTURES

NOTE 5

JOINT VENTURES

Noncontrolling Interests

The following table presents the changes in noncontrolling interests for our consolidated JVs (described in greater detail below), which are reported in equity and mezzanine equity on the consolidated balance sheets for the years ended December 31, 2019 and 2018:

	Equity Attributable to Noncontrolling Interests									Mezzanine Equity – Redeemable Noncontrolling Interest
	Ares JV			BSP JV			Total			Ares JV
	(in millions)
Balance, December 31, 2017	$	—		$	94		$	94		$	—
Net (loss) income attributable to noncontrolling interests	(11		)	13			2			99
Contributions from noncontrolling interest holders, net	33			49			82			714
Distributions to noncontrolling interest holders	(7		)	(57		)	(64		)	(57		)
Balance, December 31, 2018	$	15		$	99		$	114		$	756
Net (loss) income attributable to noncontrolling interests	(7		)	17			10			117
Contributions from noncontrolling interest holders, net	—			49			49			—
Distributions to noncontrolling interest holders	(8		)	(72		)	(80		)	(71		)
Balance, December 31, 2019	$	—		$	93		$	93		$	802

Ares Management L.P. (Ares)

In February 2018, we entered into a midstream JV with ECR Corporate Holdings L.P. (ECR), a portfolio company of Ares Management L.P. (Ares). This JV (Ares JV) holds the Elk Hills power plant (a 550-megawatt natural gas fired power plant) and a 200 million cubic foot per day cryogenic gas processing plant. We hold 50% of the Class A common interest and 95.25% of the Class C common interest in the Ares JV. ECR holds 50% of the Class A common interest, 100% of the Class B preferred interest and 4.75% of the Class C common interest. We received $750 million in proceeds upon entering into the Ares JV, before $3 million of transaction costs.

The Class A common and Class B preferred interests held by ECR are reported as redeemable noncontrolling interest in mezzanine equity due to an embedded optional redemption feature. The Class C common interest held by ECR is reported in equity on our consolidated balance sheets.

The Ares JV is required to distribute each month its excess cash flow over its working capital requirements first to the Class B holders and then to the Class C common interests, on a pro-rata basis. The Class B preferred interest has a deferred payment feature whereby a portion of the monthly distributions may be deferred for the first three years to the fourth and fifth year. The deferred amounts accrue an additional return. Distributions to the Class B preferred interest holders are reported as a reduction to mezzanine equity on our consolidated balance sheets.

We can cause the Ares JV to redeem ECR's Class A and Class B interests, in whole, but not in part, at any time by paying $750 million for the Class B interest and $60 million for the Class A interest, plus any previously accrued but unpaid preferred distributions and a make-whole payment if the redemption happens prior to five years from inception. We have the option to extend the redemption period for up to an additional two and one-half years, in which case the interests can be redeemed for $750 million for the Class B interest and $80 million for the Class A interest, plus any previously accrued but unpaid preferred distributions and a make-whole payment if the redemption happens prior to seven and one-half years from inception. If the Ares JV does not exercise its redemption option at the end of the seven and one-half year period, ECR can either sell its Class A and Class B interests or cause the sale or lease of the Ares JV assets.

Our consolidated statements of operations reflect the full operations of our Ares JV, with ECR's share of net income reported in net income attributable to noncontrolling interests.

Additionally, in 2018, an Ares-led investor group purchased approximately 2.3 million shares of our common stock in a private placement for an aggregate purchase price of $50 million.

Benefit Street Partners (BSP)

In February 2017, we entered into a development joint venture with BSP (BSP JV) where BSP will contribute up to $250 million, subject to agreement of the parties, in exchange for a preferred interest in the BSP JV. BSP is entitled to preferential distributions and, if it receives cash distributions equal to a predetermined threshold, the preferred interest is automatically redeemed in full with no additional payment. To date, BSP funded a total of $200 million in four equal tranches, before transaction costs. The funds contributed by BSP were used to develop certain of our oil and natural gas properties.

The BSP JV holds net profits interests (NPI) in existing and future cash flow from certain of our properties and the proceeds from the NPI are used by the BSP JV to (1) pay quarterly minimum distributions to BSP, (2) make distributions to BSP until the predetermined threshold is achieved, and (3) pay for additional development costs within the project area, upon mutual agreement between members.

Our consolidated results reflect the full operations of the BSP JV, with BSP's share of net income being reported in net income attributable to noncontrolling interests on our consolidated statements of operations.

Other

Alpine JV

In July 2019, we entered into a development joint venture with Alpine Energy Capital, LLC (Alpine) to develop portions of our Elk Hills field (Alpine JV). Alpine is a joint venture between subsidiaries of Colony Capital, Inc. (Colony) and Equity Group Investments. Alpine committed to invest $320 million, which may be increased to a total investment of $500 million, subject to the mutual agreement of the parties. The initial commitment is expected to be invested over a period of up to three years in accordance with a 275-well development plan. Alpine will fund 100% of the drilling and completion costs of these wells, in which they will earn a 90% working interest. If Alpine receives an agreed upon return, our working interest in those wells will increase from 10% to 82.5%. Our consolidated financial statements reflect only our working interest share in the productive wells.

In connection with the Alpine JV, Colony received a warrant to purchase up to 1.25 million shares of our common stock at an exercise price of $40 per share. Colony will be entitled to exercise the warrant in tranches as funding milestones are achieved. Each tranche will have a five-year term commencing on the date on which such tranche becomes exercisable. As of December 31, 2019, 200,000 shares of our common stock were exercisable under this warrant. Colony may elect, in its sole discretion, to pay cash or to exercise the warrant on a cashless basis, pursuant to which Colony will not be required to pay cash for shares of our common stock upon exercise of the warrant but will instead receive fewer shares.

MIRA JV

In April 2017, we entered into a development joint venture with Macquarie Infrastructure and Real Assets Inc. (MIRA) to develop certain of our oil and natural gas properties in exchange for a 90% working interest in the related properties (MIRA JV). MIRA funded 100% of the drilling and completion costs of agreed-upon wells in the drilling program. Our 10% working interest increases to 75% if MIRA receives cash distributions equal to a predetermined threshold return. Of the initial agreed-upon capital program of $140 million, $138 million was funded through December 31, 2019. Our consolidated results reflect only our working interest share in the productive wells.