XML 119 R16.htm IDEA: XBRL DOCUMENT

SIGNIFICANT ACQUISITIONS AND DIVESTITURES

12 Months Ended

Dec. 31, 2019

SIGNIFICANT ACQUISITIONS AND DIVESTITURES

We made no acquisitions or divestitures during 2019.

2018 Activity

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

Pursuant to the Contribution Agreements, SRII Opco acquired (a) (i) all of the limited partner interests in Alta Mesa and (ii) 100% of the economic interests and 90% of the voting interests in Alta Mesa GP, ((i) and (ii) collectively, the “AM Contribution”) and (b) 100% of the economic interests in KFM (the “KFM Contribution”). SRII Opco GP, LLC, a Delaware limited liability company (“SRII Opco GP”), the sole general partner of SRII Opco, is a wholly owned subsidiary of AMR. As a result of the Business Combination, our only significant asset was our ownership at that time of an approximate 44.2% partnership interest in SRII Opco. SRII Opco owns all of the economic interests in each of Alta Mesa and KFM. SRII Opco was deemed to be a variable interest entity (“VIE”) and we were deemed to be the primary beneficiary of SRII Opco and have control of SRII Opco through our voting control of SRII Opco GP. Accordingly, we consolidate both SRII Opco and SRII Opco GP, including their consolidated subsidiaries, in our financial results.

Immediately prior to the Business Combination, Alta Mesa distributed its non-STACK oil and gas assets and related liabilities to High Mesa.

At the closing of the Business Combination:


•	we issued (i) 40,000,000 shares of our Class A Common Stock and (ii) warrants to purchase 13,333,333 shares of our Class A Common Stock to Riverstone VI SR II Holdings, L.P. (“Fund VI Holdings”) pursuant to the terms of that certain

Forward Purchase Agreement, dated as of March 17, 2017 (the “Forward Purchase Agreement”) for cash proceeds of $400 million to us;

•

we contributed $1,338 million in cash representing (i) the proceeds from the Forward Purchase Agreement and (ii) the net proceeds, after redemptions and payment of deferred underwriting compensation, of the Trust Account, less transaction fees, amounts due Silver Run Sponsor II, LLC. (our “Sponsor”) and reimbursement of seller transaction fees and costs to SRII Opco, in exchange for (i) 169,371,730 of the common units (approximately 44.2%) representing limited partner interests in SRII Opco (the “SRII Opco Common Units”) and (ii) 62,966,651 warrants to purchase SRII Opco Common Units (“SRII Opco Warrants”);


•	we caused SRII Opco to issue 213,402,398 SRII Opco Common Units (approximately 55.8%) to the Contributors in exchange for the ownership interests in Alta Mesa, Alta Mesa GP and KFM;


•	we agreed to cause SRII Opco to issue up to 59,871,031 SRII Opco Common Units to High Mesa and KFM Holdco if the earn-out conditions were met pursuant to the terms of the Contribution Agreements;


•	the Company issued to each of the Contributors a number of shares of Class C common stock, par value $0.0001 per share (the “Class C Common Stock”), equal to the number of the SRII Opco Common Units received by each such Contributor;


•	SRII Opco distributed $814.8 million to KFM Holdco in partial payment for the ownership interests in KFM; and


•	SRII Opco entered into an amended and restated voting agreement with the owners of the remaining 10% voting interests in Alta Mesa GP whereby such other owners agreed to vote their interests in Alta Mesa GP as directed by SRII Opco.

Holders of our Class C Common Stock, together with holders of Class A Common Stock, voting as a single class, have the right to vote on all matters properly submitted to a vote of the stockholders, but holders of Class C Common Stock are not entitled to any dividends or liquidating distributions from us. The Contributors generally have the right to cause SRII Opco to redeem all or a portion of their SRII Opco Common Units in exchange for shares of our Class A Common Stock or, at SRII Opco’s option, an equivalent amount of cash. However, we may, at our option, effect a direct exchange of cash or Class A Common Stock for such SRII Opco Common Units in lieu of such a redemption by SRII Opco. Upon the future redemption or exchange of SRII Opco Common Units held by a Contributor, a corresponding number of shares of Class C Common Stock will be canceled.

During 2019 and 2018, the Contributors redeemed 2,181,600 and 12,341,076, respectively of SRII Opco Common Units for an equal number of shares of Class A Common Stock through a direct exchange, whereby the combined 14,522,676 SRII Opco Common Units are now owned by us, and we issued an equal number of shares of our Class A Common Stock to them and canceled the related shares of our Class C Common Stock. Additionally, during 2018 we sold 3,101,510 of our Common Units in SRII Opco to SRII Opco to fund purchases of an equivalent number of our Class A common shares. As a result of these and other transactions, at December 31, 2019, we own approximately 47.75% of the limited partner interests in SRII Opco.

Pursuant to the Contribution Agreements, until February 2025, the Contributors were entitled to receive additional SRII Opco Common Units as earn-out consideration if the 20-day volume-weighted average price (“20-Day VWAP”) of our Class A Common Stock equals or exceeds the following prices (each such payment, an “Earn-Out Payment”):

໿



20-Day VWAP	Earn-Out Consideration Payable to AM Contributor	Earn-Out Consideration Payable to KFM Holdco, LLC
$14.00	10,714,285 SRII Opco Common Units	7,142,857 SRII Opco Common Units
$16.00	9,375,000 SRII Opco Common Units	6,250,000 SRII Opco Common Units
$18.00	13,888,889 SRII Opco Common Units	—
$20.00	12,500,000 SRII Opco Common Units	—

The Contributors were entitled to the earn-out consideration described above in connection with certain liquidity events of the Company, including a merger or sale of all or substantially all of our assets, if the consideration paid to holders of Class A Common Stock exceeds the above-specified 20-Day VWAP hurdles. The expected sale of substantially all of our assets by mid-April 2020 will not trigger any earn-out consideration.

We also contributed $560.0 million in cash to Alta Mesa at the closing of the Business Combination.

Purchase Price for Alta Mesa



(in thousands)	February 9, 2018
Purchase Consideration: ⁽¹⁾
SRII Opco Common Units issued ⁽²⁾	$	1,261,249
Estimated fair value of contingent earn-out purchase consideration ⁽³⁾	284,109
Settlement of preexisting working capital	5,476
Total purchase price consideration	$	1,550,834

_________________


(1)	The purchase price consideration was for 100% of the limited partner interests in Alta Mesa and 100% of the economic interests and 90% of the voting interests in Alta Mesa GP.

(2)

At closing, the Riverstone Contributor received 20,000,000 SRII Opco Common Units and High Mesa received 138,402,398 SRII Opco Common Units. Pursuant to a final closing statement during the second quarter of 2018, High Mesa received an additional 1,197,934 SRII Opco Common Units and an equivalent number of shares of our Class C Common Stock. The estimated fair value of an SRII Opco Common Unit was approximately $7.90 per unit and reflects discounts for holding requirements and liquidity.

(3)

For a period of seven years following Closing, High Mesa was to be entitled to receive earn-out consideration in the form of SRII Opco Common Units. We 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 earn-out 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 the Company (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 term of the 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 for KFM



(in thousands)	February 9, 2018
Purchase Consideration:
Cash ⁽¹⁾	$	809,812
SRII Opco Common Units issued ⁽²⁾	433,931
Estimated fair value of contingent earn-out purchase consideration ⁽³⁾	88,105
Settlement of preexisting working capital	(5,476		)
Total purchase price consideration	$	1,326,372

_________________


(1)	The cash consideration paid at February 9, 2018 was net of estimated net working capital adjustments, transaction expenses, capital expenditures and banking fees. Pursuant to a final closing statement during the second quarter of 2018, KFM Holdco remitted back to the Company $5.0 million in cash.


(2)	At closing, KFM Holdco, LLC received 55,000,000 SRII Opco Common Units. Pursuant to a final closing statement during the second quarter of 2018, KFM Holdco remitted back 89,680 SRII Opco Common Units and an equivalent number of shares of our Class C Common Stock. The SRII Common Units were valued at approximately $7.90 per unit, reflecting discounts for holding requirements and liquidity.

(3)

The KFM earn-out consideration was recognized at fair value and has been classified in stockholders’ equity. The fair value of the earn-out was determined using the Monte Carlo simulation valuation method based on Level 3 inputs. The key inputs included the quoted market price for the Company’s Class A Common Stock, market volatility of a peer group of companies similar to the Company (due to the lack of trading activity in the Company’s Class A Common Stock), no dividend yield, an expected life of each earn-out threshold based on the remaining term of the earn-out period and a risk-free rate based on U.S. dollar overnight indexed swaps.

Acquisition of acreage

In October 2018, we completed a transaction to acquire certain unproved oil and gas properties for $22.3 million, net of customary post-closing purchase price adjustments. The acquisition was funded utilizing borrowings under the Alta Mesa

RBL.