S-1/A 1 d567344ds1a.htm S-1/A S-1/A
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Index to Financial Statements

As filed with the Securities and Exchange Commission on July 24, 2018.

Registration No. 333-225927

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Riviera Resources, LLC

to be converted as described herein to

a corporation named

Riviera Resources, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1311   82-5121920

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

600 Travis Street

Houston, Texas 77002

(281) 840-4000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

David B. Rottino

President, Chief Executive Officer and Director

600 Travis Street

Houston, Texas 77002

(281) 840-4000

(Name, address, including zip code, and telephone number, including area code, of agent for services)

 

 

Copy to:

Julian J. Seiguer

Brooks W. Antweil

Kirkland & Ellis LLP

609 Main Street, Suite 4500

Houston, Texas 77002

(713) 836-3600

 

 

Approximate date of commencement of proposed sale of the securities to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 24, 2018

PRELIMINARY PROSPECTUS

 

LOGO

Riviera Resources, Inc.

Common Stock

(par value $0.01 per share)

 

 

This prospectus is being furnished to you in connection with the separation of Riviera Resources, Inc. from Linn Energy, Inc. (collectively with its consolidated subsidiaries, “LINN Energy”), following which Riviera Resources, Inc. will be an independent company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets (including Blue Mountain Midstream LLC), and returning capital to its stockholders. Unless otherwise indicated or the context otherwise requires, references herein to “Riviera Resources, Inc.,” “Riviera,” “we,” “our,” “us,” the “Company” and “our company” refer (i) prior to the consummation of our internal reorganization, to Linn Energy, Inc. and its consolidated subsidiaries, and (ii) after the consummation of such internal reorganization, to Riviera Resources, Inc. and its consolidated subsidiaries. In connection with the separation, LINN Energy will undergo an internal reorganization, and Riviera Resources, LLC will convert from a Delaware limited liability company to a Delaware corporation and change its name to Riviera Resources, Inc. (the “conversion”). After the conversion, LINN Energy will complete the separation by distributing all of the outstanding shares of common stock, par value $0.01 per share, of Riviera (the “Riviera common stock” or “our common stock”) to the holders of LINN Energy’s Class A common stock, par value $0.001 per share (“LINN common stock”) on a pro rata basis. We refer to this pro rata distribution as the “distribution” and we refer to the separation, including the internal reorganization, the conversion and the distribution, as the “spin-off.” As discussed in greater detail below, the distribution will be a taxable distribution for U.S. federal income tax purposes, and the tax treatment to stockholders of Linn Energy, Inc. (“LINN stockholders”) will depend on, among other things, the factors discussed in this prospectus. Each LINN stockholder will receive one share of our common stock for each share of LINN common stock held by such stockholder on August 3, 2018 (the “record date”). The distribution of shares will be made by way of direct registration in book-entry form only.

The distribution will be effective as of 5:00 p.m., Eastern Time, on August 7, 2018. Immediately after the distribution becomes effective, Riviera will be an independent reporting company, and eventually a publicly traded company.

No vote or other action of LINN stockholders is required in connection with the spin-off (except as provided herein). We are not asking you for a proxy and you should not send us a proxy. LINN stockholders will not be required to pay any consideration for the shares of Riviera common stock they receive in the spin-off, and they will not be required to surrender or exchange their shares of LINN common stock or take any other action, other than to provide any documentation that may be required as discussed under “Material U.S. Federal Income Tax Consequences of the Spin-Off,” in connection with the spin-off.

Immediately prior to the distribution, all of the outstanding shares of Riviera common stock will be indirectly owned by Linn Energy, Inc. Accordingly, there is currently no public market for Riviera common stock. We anticipate, however, that our common stock will begin trading sometime after the distribution date, on a date to be determined. We intend to have our common stock quoted for trading on the OTC Market, where we expect to qualify as a Securities and Exchange Commission (“SEC”) reporting company, under the ticker symbol “RVRA”.

 

 

In reviewing this prospectus, you should carefully consider the matters described in “Risk Factors” beginning on page 14 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is not an offer to sell, or a solicitation of an offer to buy, any securities.

The date of this prospectus is                     , 2018.


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Index to Financial Statements

TABLE OF CONTENTS

 

BASIS OF PRESENTATION

     ii  

QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF

     iv  

SUMMARY

     1  

RISK FACTORS

     14  

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

     29  

THE SPIN-OFF

     31  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF

     36  

USE OF PROCEEDS

     41  

DETERMINATION OF OFFERING PRICE

     42  

DIVIDEND POLICY

     43  

CAPITALIZATION

     44  

SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL DATA

     45  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED FINANCIAL INFORMATION

     49  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     57  

OUR BUSINESS

     94  

MANAGEMENT

     111  

EXECUTIVE COMPENSATION

     116  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     123  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     130  

DESCRIPTION OF CAPITAL STOCK

     132  

DESCRIPTION OF MATERIAL INDEBTEDNESS

     137  

SHARES ELIGIBLE FOR FUTURE SALE

     139  

LEGAL MATTERS

     141  

EXPERTS

     141  

WHERE YOU CAN FIND MORE INFORMATION

     141  

INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     F-1  

APPENDIX A—GLOSSARY OF OIL AND NATURAL GAS TERMS

     A-1  

 

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BASIS OF PRESENTATION

Unless otherwise indicated or the context otherwise requires, references herein to “Riviera Resources, Inc.,” “Riviera,” “we,” “our,” “us,” the “Company” and “our company” refer (i) prior to the consummation of our internal reorganization described under “The Spin-Off—Manner of Effecting the Spin-Off—Internal Reorganization,” to Linn Energy, Inc. and its consolidated subsidiaries, and (ii) after the consummation of such internal reorganization, to Riviera Resources, Inc. and its consolidated subsidiaries. Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” and “Parent” refer to Linn Energy, Inc. and its consolidated subsidiaries. References to “Successor” herein refer to the Company in periods subsequent to LINN Energy’s emergence from bankruptcy and references to “Predecessor” herein refer to the Company in periods prior to LINN Energy’s emergence from bankruptcy.

Riviera Resources, LLC (to be converted as described herein to a corporation named Riviera Resources, Inc.) is the registrant under the registration statement of which this prospectus forms a part and will be the financial reporting entity following the consummation of the spin-off. This prospectus includes certain historical consolidated and combined financial and other data for the Company. To effect the separation, Linn Energy, Inc. and certain of its direct and indirect subsidiaries will undertake an internal reorganization, following which Riviera Resources, Inc. will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan Resources LLC (“Roan”) and certain other immaterial assets. Upon completion of the internal reorganization, Linn Energy, Inc. will complete the spin-off by distributing to the LINN stockholders all of the issued and outstanding Riviera common stock. See “The Spin-Off—Manner of Effecting the Spin-Off—Internal Reorganization.”

We derived the selected historical statements of operations and cash flow data for the ten months ended December 31, 2017, for the two months ended February 28, 2017, and for the years ended December 31, 2016 and 2015, and the selected historical balance sheet data as of December 31, 2017 and 2016, from the audited consolidated and combined financial statements of Riviera included elsewhere in this prospectus. We derived the selected historical statements of operations and cash flow data for the three months ended March 31, 2018, and for the one month ended March 31, 2017, and the selected historical balance sheet data as of March 31, 2018 and 2017, from the unaudited condensed consolidated and combined financial statements of Riviera included elsewhere in this prospectus. We derived the selected historical statements of operations data for the years ended December 31, 2014 and 2013 and the selected historical balance sheet data as of December 31, 2015, 2014 and 2013, from the unaudited consolidated and combined financial statements of Riviera that are not included in this prospectus. We have prepared our unaudited condensed consolidated and combined financial statements on the same basis as our audited consolidated and combined financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations.

Our selected historical financial data is not necessarily indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from LINN Energy. For example, our historical consolidated and combined financial statements include certain costs that may not be representative of the future costs we will incur as an independent, public company. In addition, our historical consolidated and combined financial statements include our historical 50% equity interest in Roan, which will be retained by LINN Energy following the spin-off.

This prospectus also includes an unaudited pro forma condensed consolidated balance sheet as of March 31, 2018 and unaudited pro forma condensed consolidated and combined statement of operations for the three months ended March 31, 2018 and the year ended December 31, 2017, which present our consolidated and combined financial position and results of operations after giving effect to the spin-off, including the separation and the other transactions described under “Unaudited Pro Forma Condensed Consolidated and Combined

 

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Financial Information.” The unaudited pro forma condensed consolidated and combined financial data presented in this prospectus has been prepared for illustrative purposes only, is not necessarily indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from LINN Energy.

You should read the sections titled “Selected Historical Consolidated and Combined Financial Data” and “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information,” each of which is qualified in its entirety by reference to the audited and unaudited consolidated and combined financial statements and related notes included elsewhere in this prospectus and the financial and other information appearing elsewhere in this prospectus, including in the sections titled “Risk Factors,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unless otherwise indicated or the context otherwise requires, all information in this prospectus gives effect to the effectiveness of our certificate of incorporation and bylaws, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part.

Unless otherwise indicated or the context otherwise requires, all acreage, drilling location, well count, working interest and reserve information in this prospectus refers to the Company’s assets as of December 31, 2017. Such operational data include amounts attributable to the assets sold by the Company in 2018 pursuant to the New Mexico Assets Sale, the Altamont Bluebell Assets Sale, the West Texas Assets Sale, and the Oklahoma and Texas Assets Sale (each as defined herein). In addition, equity method investments include the Company’s share of Roan’s reserves. The Company’s historical 50% equity interest in Roan will be retained by LINN Energy following the spin-off. See “Summary—Recent Developments.”

 

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QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF

The following provides only a summary of the terms of the spin-off. For a more detailed description of the matters described below, see “The Spin-Off.”

Q: What is the spin-off?

A: The spin-off is the series of transactions by which we will separate from Linn Energy, Inc. In connection with the spin-off, LINN Energy will distribute to LINN stockholders all of the outstanding shares of Riviera common stock. We refer to this as the distribution. Following the spin-off, Riviera Resources, Inc. will be an independent reporting company, and eventually a publicly traded company, and LINN Energy will not retain any ownership interest in Riviera.

Q: What will I receive in the spin-off?

A: As a holder of LINN common stock, you will retain your shares of LINN common stock and will receive one share of Riviera common stock for each share of LINN common stock you own as of the record date. Thus, no fractional shares of Riviera common stock will be issued pursuant to the distribution. The number of shares of LINN common stock you own and your proportionate interest in LINN Energy will not change as a result of the spin-off. See “The Spin-Off.”

Q: What is Riviera Resources, Inc., and why is LINN Energy separating Riviera Resources, Inc.’s business and distributing Riviera Resources, Inc. common stock?

A: Immediately prior to the distribution, Riviera Resources, Inc. will be a direct, wholly owned subsidiary of Linn Energy, Inc. After the spin-off is completed, Riviera will be a new independent oil and natural gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets, and returning capital to its stockholders. Riviera will own (i) LINN Energy’s legacy properties located in the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Uinta Basin and Mid-Continent regions, and (ii) Blue Mountain Midstream LLC (“Blue Mountain”), a midstream company centered in the core of the Merge play in the Anadarko Basin. The LINN Energy board of directors has determined that the spin-off is in the best interests of LINN Energy, LINN stockholders and other constituents because the spin-off will provide a number of benefits, including: (1) enhanced strategic and management focus on the core business and growth of each company; (2) more efficient capital allocation, direct access to capital and expanded growth opportunities for each company; (3) the ability to implement a tailored approach to recruiting and retaining employees at each company; (4) improved investor understanding of the business strategy and operating results of each company; and (5) enhanced investor choice by offering investment opportunities in separate entities. For a more detailed discussion of the reasons for the spin-off, see “The Spin-Off—Reasons for the Spin-Off.”

Q: Why is the spin-off of Riviera structured as a spin-off?

A: LINN Energy believes that a spin-off offers the most efficient way to accomplish a separation of its legacy assets and midstream business from LINN Energy, a higher degree of certainty of completion in a timely manner and a lower risk of disruption to current business operations.

Q: What are the conditions to the distribution?

A: The distribution is subject to the satisfaction, or waiver by LINN Energy, of the following conditions:

 

    the final approval of the distribution by the LINN Energy board of directors, which approval may be given or withheld in its absolute and sole discretion;

 

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    the separation and distribution agreement by and between LINN Energy and Riviera (the “Separation and Distribution Agreement”) and the ancillary agreements contemplated by the Separation and Distribution Agreement shall have been executed by each party to those agreements;

 

    all conditions precedent to that certain second amendment (the “Credit Facility Amendment”) to LINN Energy’s senior secured reserve-based revolving loan facility (the “Revolving Credit Facility”) necessary to effectuate the spin-off shall have been satisfied or waived in accordance with its terms;

 

    our Registration Statement on Form S-1, of which this prospectus forms a part, shall have been declared effective by the SEC, with no stop order in effect with respect thereto, and no proceedings to suspend the effectiveness thereof pending before or threatened by the SEC;

 

    prior to the distribution date, this prospectus shall have been mailed to the LINN stockholders as of the record date;

 

    all material governmental approvals and other consents necessary to consummate the spin-off or any portion thereof shall have been obtained and be in full force and effect; and

 

    no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off.

See “The Spin-Off—Conditions to the Distribution.”

Q: Can LINN Energy decide to not proceed with the distribution even if all of the conditions to the distribution have been met?

A: Yes. Until the distribution has occurred, the LINN Energy board of directors has the right to not proceed with the distribution, even if all of the conditions are satisfied.

Q: What is being distributed in the spin-off?

A: Approximately 78,449,265 shares of Riviera common stock will be distributed in the spin-off, based on the number of shares of LINN common stock expected to be outstanding as of August 3, 2018, the record date, and assuming each holder of LINN common stock will receive one share of Riviera common stock for each share of LINN common stock. The actual number of shares of Riviera common stock distributed will be calculated as of the record date. The shares of Riviera common stock distributed by Linn Energy, Inc. will constitute all of the issued and outstanding shares of Riviera common stock immediately prior to the distribution. The number of shares of LINN common stock expected to be outstanding as of August 3, 2018, the record date, includes an aggregate of up to 2,015,329 shares of LINN common stock that certain of LINN Energy’s executive officers have the right to cause LINN Energy to repurchase on or prior to the distribution date. Any such shares that are repurchased by LINN Energy on or prior to the distribution date will be cancelled immediately prior to the distribution. As a result, no shares of Riviera common stock will be distributed in the spin-off in respect of such repurchased shares.

Q: When is the record date for the distribution?

A: The LINN Energy board of directors has designated the close of business as of 5:00 p.m., Eastern Time, on August 3, 2018, which we refer to as the “record date,” as the record ownership date for the distribution.

Q: When will the distribution occur?

A: The distribution date of the spin-off is August 7, 2018. We expect that it will take the distribution agent, acting on behalf of LINN Energy, up to two weeks after the distribution date to fully distribute the shares of Riviera common stock to LINN stockholders.

Q: What do I have to do to participate in the spin-off?

A: You are not required to take any action other than to provide any documentation that may be required as discussed under “Material U.S. Federal Income Tax Consequences of the Spin-Off,” including with respect to certain FIRPTA documentation that may be required by the applicable withholding agent. No stockholder

 

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approval of the distribution is required or sought. You are not being asked for a proxy. Other than to provide any documentation that may be required as discussed herein, no action is required on your part to receive your shares of Riviera common stock. You will neither be required to pay anything for the shares of Riviera common stock nor be required to surrender any shares of LINN common stock to participate in the spin-off.

Q: What if I hold my shares through a broker, bank or other nominee?

A: Holders of LINN common stock who hold their shares through a broker, bank or other nominee will have their brokerage account credited with shares of Riviera common stock. For additional information, those stockholders are encouraged to contact their broker, bank or nominee directly.

Q: Do I have appraisal rights in connection with the spin-off?

A: No. Holders of LINN common stock are not entitled to appraisal rights in connection with the spin-off.

Q: What are the U.S. federal income tax consequences of the spin-off?

A: The spin-off will be a taxable distribution. The material U.S. federal income tax consequences of the distribution are described in more detail under “Material U.S. Federal Income Tax Consequences of the Spin-Off.” Information regarding tax matters in this prospectus is for general information purposes only and does not constitute tax advice. STOCKHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THEM.

Q: How will Riviera common stock trade?

A: There is currently no public market for Riviera common stock. We intend to have our common stock quoted for trading on the OTC Market, where we expect to qualify as an SEC-reporting company, under the ticker symbol “RVRA”. We expect that our common stock will begin trading sometime after the distribution date, on a date to be determined. We cannot predict the trading prices for our common stock when such trading begins.

Q: Will my shares of LINN common stock continue to trade on the OTC Market?

A: Yes. LINN common stock will continue to trade on the OTC Market under the symbol “LNGG.”

Q: If I sell, on or before the distribution date, shares of LINN common stock that I held as of the record date, am I still entitled to receive shares of Riviera common stock distributable with respect to the shares of LINN common stock I sold?

A: We anticipate that, pursuant to Rule 11140 promulgated by the Financial Industry Regulatory Authority (“FINRA”), FINRA will set an “ex-distribution date” for our common stock as the first business day following the distribution date; however, we can provide no assurance as to the ex-distribution date that FINRA will ultimately set. If you hold shares of LINN common stock as of the record date for the distribution and choose to sell those shares after the record date for the distribution and on or before the distribution date, you will also be selling the right to receive the shares of Riviera common stock in connection with the spin-off (assuming that FINRA sets an ex-distribution date of the first business day following the distribution date). You are encouraged to consult with your broker or financial advisor regarding the specific implications of selling your LINN common stock prior to or on the distribution date.

 

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Q: Will the spin-off affect the trading price of my LINN common stock?

A: Yes. The trading price of shares of LINN common stock immediately following the distribution is expected to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of Riviera. However, we cannot predict the price at which the shares of LINN common stock will trade following the spin-off.

Q: Who will form the senior management team and board of directors of Riviera after the spin-off?

A: The executive officers and members of the board of directors of Riviera (“our board of directors”) following the spin-off will include: David B. Rottino, who will serve as our President and Chief Executive Officer and a director; Daniel Furbee, who will serve as our Executive Vice President and Chief Operating Officer; James G. Frew, who will serve as our Executive Vice President and Chief Financial Officer; Darren Schluter, who will serve as our Executive Vice President, Finance, Administration and Chief Accounting Officer; Holly Anderson, who will serve as our Executive Vice President and General Counsel; and Matthew Bonanno, Philip Brown, C. Gregory Harper, Evan Lederman and Andrew Taylor, as directors. Mr. Harper will also serve as President and Chief Executive Officer of Blue Mountain. See “Management” for more information on our executive officers and board of directors.

Q: What will the relationship be between LINN Energy and Riviera after the spin-off?

A: Following the spin-off, Riviera will be an independent reporting company, and eventually a publicly traded company, and LINN Energy will have no continuing stock ownership interest in Riviera. We will have entered into a Separation and Distribution Agreement and several other agreements with LINN Energy related to the spin-off. These agreements will govern the relationship between us and LINN Energy after completion of the spin-off and provide for the allocation between us and LINN Energy of various assets, liabilities, rights and obligations. These agreements will also include arrangements with respect to tax matters and transitional services to be provided by us to LINN Energy. In addition, certain members of our board of directors serve on the LINN Energy board of directors. See “Certain Relationships and Related Party Transactions—Agreements with LINN Energy Related to the Spin-Off” and “Management.”

Q: What will Riviera’s dividend policy be after the spin-off?

A: We do not intend, following the spin-off, to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain any earnings for the future operation and development of our business, including exploration, development and acquisition activities. Any decision to declare and pay dividends will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. There can be no assurance that a payment of a dividend will occur in the future. Any future payment of cash dividends would be subject to the restrictions in the Revolving Credit Facility and in the $200 million revolving credit facility that we expect Blue Mountain to enter into on the distribution date, with Royal Bank of Canada, as administrative agent, and certain other financial institutions party thereto, as lenders (the “Blue Mountain Credit Facility”). See “Dividend Policy.”

Q: What are the anti-takeover effects of the spin-off?

A: Some provisions of Delaware law, certain of our agreements with LINN Energy, and the certificate of incorporation of Riviera and the bylaws of Riviera (as each will be in effect immediately following the spin-off) may have the effect of making it more difficult to acquire control of Riviera in a transaction not approved by our board of directors. For example, our certificate of incorporation and bylaws will, among other things, require advance notice for stockholder proposals and nominations, place limitations on convening stockholder meetings and authorize our board of directors to issue one or more series of preferred stock. These obligations may delay,

 

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deter or prevent a takeover attempt or a removal of Riviera’s incumbent officers or directors that a Riviera stockholder might consider in his, her or its best interest. See “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation, Bylaws and Delaware Law” for more information.

Q: What are the risks associated with the spin-off?

A: There are a number of risks associated with the spin-off and ownership of Riviera common stock. These risks are discussed under “Risk Factors.”

Q: Who will be the distribution agent, transfer agent and registrar for Riviera common stock?

A: The distribution agent, transfer agent and registrar for Riviera common stock will be American Stock Transfer & Trust Company, LLC. For questions relating to the transfer or mechanics of the stock distribution, you should contact American Stock Transfer & Trust Company, LLC toll-free at (800) 937-5449.

Q: Where can I get more information?

A: If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent at:

American Stock Transfer & Trust Company, LLC

Operations Center

6201 15th Avenue

Brooklyn, New York 11219

Toll-Free Number: (800) 937-5449

Before the spin-off, if you have any questions relating to the spin-off, you should contact LINN Energy at:

Linn Energy, Inc.

Investor Relations

600 Travis Street

Houston, Texas 77002

Phone: (281) 840-4110

Email: ir@linnenergy.com

http://ir.linnenergy.com

After the spin-off, if you have any questions relating to Riviera, you should contact Riviera at:

Riviera Resources, Inc.

Investor Relations

600 Travis Street

Houston, Texas 77002

Phone: (281) 840-4110

Email: ir@rvraresources.com

http://rivieraresourcesinc.com

 

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SUMMARY

This summary highlights information contained in this prospectus and provides an overview of Riviera Resources, Inc., our spin-off from Linn Energy, Inc. and the distribution of our common stock by LINN Energy to its stockholders. For a more complete understanding of our business and the spin-off, you should read this entire prospectus carefully, particularly the sections titled “Risk Factors” and “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information” and our audited and unaudited consolidated and combined financial statements and the notes thereto included in this prospectus.

Our Company

We are currently an indirect subsidiary of Linn Energy, Inc. After the spin-off is completed, we will be an independent oil and natural gas company with a strategic focus on efficiently operating our mature low-decline assets, developing our growth-oriented assets, and returning capital to our stockholders. We will own (i) LINN Energy’s legacy properties located in the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Uinta Basin and Mid-Continent regions, and (ii) Blue Mountain, a midstream company centered in the core of the Merge play in the Anadarko Basin. LINN Energy will not retain any ownership interest in us following the spin-off.

Relationship with LINN Energy

Linn Energy, Inc. is an independent oil and natural gas company that was formed on February 14, 2017, in connection with the reorganization of its predecessor, Linn Energy, LLC. Linn Energy, LLC was publicly traded on the NASDAQ stock exchange from January 2006 to February 2017. In May 2016, following the steep decline in oil and natural gas prices between 2014 and 2016, and after wide ranging efforts to proactively improve its capital structure, Linn Energy, LLC (together with certain of its direct and indirect subsidiaries and affiliates, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). During the pendency of the Chapter 11 proceedings, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. Linn Energy, Inc. emerged from bankruptcy effective February 28, 2017.

Following the spin-off, we will have an ongoing relationship with LINN Energy, which owns a 50% equity interest in Roan. Under the Transition Services Agreement, we will provide transitional services to LINN Energy for, among other things, finance, information technology, human resources and other services, for a limited time to help ensure an orderly transition following the distribution. For a more detailed description, see “Certain Relationships and Related Party Transactions—Agreements with LINN Energy Related to the Spin-Off.”

Certain members of our board of directors also serve on the LINN Energy board of directors. See “Management.”

Operating Regions

Our properties are located in six operating regions in the United States:

 

    Hugoton Basin, which includes oil and natural gas properties, as well as the Jayhawk natural gas processing plant, located in Kansas;

 

    East Texas, which includes oil and natural gas properties producing primarily from the Cotton Valley and Bossier Sandstone;

 

    North Louisiana, which includes oil and natural gas properties producing primarily from the Cotton Valley Sandstones;


 

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Index to Financial Statements
    Michigan/Illinois, which includes properties producing from the Antrim Shale formation located in northern Michigan and oil properties in southern Illinois;

 

    Uinta Basin, which includes non-operated properties located in the Dunkards Wash field in Utah (which was included in the Company’s previous Rockies operating region); and

 

    Mid-Continent, which includes properties in the Northwest STACK in northwestern Oklahoma, the Arkoma STACK located in southeastern Oklahoma, and various other oil and natural gas producing properties throughout Oklahoma, as well as the Chisholm Trail midstream business located in the Merge/SCOOP/STACK play (“Chisholm Trail”).

Our proved reserves at December 31, 2017, were approximately 1,968 Bcfe, of which approximately 70% were natural gas, 22% were natural gas liquids (“NGL”) and 8% were oil. Approximately 97% were classified as proved developed, with a total standardized measure of discounted future net cash flows of approximately $1.05 billion. At December 31, 2017, we operated 10,545, or approximately 66%, of our 15,918 gross productive wells.

In July 2017, Blue Mountain entered into a definitive agreement with BCCK Engineering, Inc. (“BCCK”) to construct the Chisholm Trail Cryogenic Gas Plant. Blue Mountain’s assets include the Chisholm Trail midstream business located in Oklahoma. Chisholm Trail is located in the Merge/SCOOP/STACK play in the Mid-Continent region and has approximately 108 miles of existing natural gas gathering pipeline and approximately 60 MMcf/d of current refrigeration capacity.

The Chisholm Trail Cryogenic Gas Plant was successfully commissioned in the second quarter of 2018. As of July 2018, the plant had an initial design capacity of approximately 150 MMcf/d of processing capacity, with an additional 100 MMcf/d expected to become available by the fourth quarter of 2018 as additional compression is brought on line. Infrastructure expansions are also underway to add low and high pressure gathering pipelines to accommodate incremental production throughput.

Recent Developments

Divestitures

Below are our completed divestitures in 2017 and 2018:

 

    On April 10, 2018, we completed the sale of our conventional properties located in New Mexico (the “New Mexico Assets Sale”) and received cash proceeds of approximately $15 million.

 

    On April 4, 2018, we completed the sales of our interest in properties located in Altamont Bluebell Field in Utah (the “Altamont Bluebell Assets Sale”) and received cash proceeds of approximately $129 million.

 

    On March 29, 2018, we completed the sale of our interest in conventional properties located in west Texas (the “West Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $108 million (including approximately $12 million of restricted cash released in April 2018), net of costs to sell of approximately $1 million, and we recognized a net gain of approximately $53 million.

 

    On February 28, 2018, we completed the sale of our Oklahoma waterflood and Texas Panhandle properties (the “Oklahoma and Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $112 million (including a deposit of approximately $12 million received in 2017), net of costs to sell of approximately $1 million, and we recognized a net gain of approximately $48 million.

 

    On November 30, 2017, we completed the sale of our interest in properties located in the Williston Basin. Cash proceeds received from the sale of these properties were approximately $255 million, net of costs to sell of approximately $3 million, and we recognized a net gain of approximately $116 million.


 

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    On November 30, 2017, we completed the sale of our interest in properties located in Wyoming. Cash proceeds received from the sale of these properties were approximately $193 million, net of costs to sell of approximately $2 million, and we recognized a net gain of approximately $175 million.

 

    On September 12, 2017, August 1, 2017, and July 31, 2017, we completed the sale of our interest in certain properties located in south Texas. Combined cash proceeds received from the sales of these properties were approximately $48 million, net of costs to sell of approximately $1 million, and we recognized a combined net gain of approximately $14 million.

 

    On August 23, 2017, July 28, 2017, and May 9, 2017, we completed the sale of our interest in certain properties located in Texas and New Mexico. Combined cash proceeds received from the sale of these properties were approximately $31 million and we recognized a combined net gain of approximately $29 million.

 

    On July 31, 2017, we completed the sale of our interest in properties located in the San Joaquin Basin in California (the “San Joaquin Basin Sale”). Cash proceeds received from the sale of these properties were approximately $253 million, net of costs to sell of approximately $4 million, and we recognized a net gain of approximately $120 million.

 

    On July 21, 2017, we completed the sale of our interest in properties located in the Los Angeles Basin in California (the “Los Angeles Basin Sale”). Cash proceeds received from the sale of these properties were approximately $93 million, net of costs to sell of approximately $2 million, and we recognized a net gain of approximately $2 million. We will receive an additional $7 million contingent payment if certain operational requirements are satisfied within one year from the date of sale.

 

    On June 30, 2017, we completed the sale of our interest in properties located in the Salt Creek Field in Wyoming. Cash proceeds received from the sale of these properties were approximately $73 million, net of costs to sell of approximately $1 million, and we recognized a net gain of approximately $30 million.

 

    On May 31, 2017, we completed the sale of our interest in properties located in western Wyoming. Cash proceeds received from the sale of these properties were approximately $559 million, net of costs to sell of approximately $6 million, and we recognized a net gain of approximately $277 million.

As a result of our strategic exit from California (completed by the San Joaquin Basin Sale and Los Angeles Basin Sale), we classified the assets and liabilities, results of operations and cash flows of our California properties as discontinued operations on the consolidated and combined financial statements included elsewhere in this prospectus.

Internal Reorganization

As part of the spin-off, LINN Energy will effect an internal reorganization, and Riviera Resources, LLC will convert from a Delaware limited liability company to a Delaware corporation and change its name to Riviera Resources, Inc. In connection with such conversion, all of the membership interests in our company will be converted into approximately 78,449,265 shares of common stock in Riviera Resources, Inc. Following the conversion, we will be subject to taxation at the company level.

Following the internal reorganization and conversion, Riviera Resources, Inc. will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan and certain other immaterial assets. Upon completion of the internal reorganization, LINN Energy will complete the spin-off by distributing to the LINN stockholders all of the issued and outstanding Riviera common stock. See “The Spin-Off—Manner of Effecting the Spin-Off—Internal Reorganization.”

After completion of the spin-off:

 

   

Riviera Resources, Inc. (OTC: RVRA) will be an independent oil and gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets, and



 

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Index to Financial Statements
 

returning capital to our stockholders. Riviera will own (i) LINN Energy’s legacy properties located in the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Uinta Basin and Mid-Continent regions, and (ii) Blue Mountain, a midstream company centered in the core of the Merge play in the Anadarko Basin.

 

    Linn Energy, Inc. (OTCQB: LNGG) will continue to be an independent, publicly traded company and will own a 50% equity interest in Roan, which is focused on the accelerated development of the Merge/SCOOP/STACK play in Oklahoma.

Other Information

We were formed as a Delaware limited liability company in April 2018. Our principal executive offices are located at 600 Travis Street, Houston, Texas 77002. The main telephone number is (281) 840-4000. Our website address is www.rivieraresourcesinc.com. Information contained on, or connected to, our website or LINN Energy’s website does not and will not constitute a part of this prospectus or the registration statement on Form S-1 of which this prospectus is a part.



 

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Index to Financial Statements

Summary of the Spin-Off

 

Distributing Company

Linn Energy, Inc., a Delaware corporation, which holds all of our common stock prior to the distribution. After the distribution, LINN Energy will not own any shares of Riviera common stock.

 

Distributed Company

Riviera Resources, Inc., a Delaware corporation, and immediately prior to the spin-off, an indirect subsidiary of Linn Energy, Inc. After the spin-off, Riviera Resources, Inc. will be an independent reporting company, and eventually a publicly traded company.

 

Distributed Securities

All of the outstanding shares of Riviera common stock.

 

Record Date

The record date for the distribution is 5:00 p.m., Eastern Time, on August 3, 2018.

 

Distribution Date

The distribution date is expected to be August 7, 2018.

 

Distribution Ratio

Each holder of LINN common stock will receive one share of Riviera common stock for each share of LINN common stock held at 5:00 p.m., Eastern Time, on August 3, 2018.

 

  Immediately following the spin-off, Riviera Resources, Inc. expects to have approximately 16 record holders of shares of common stock and approximately 78,449,265 shares of common stock outstanding, based on the number of record holders on July 19, 2018 and the number of shares of LINN common stock outstanding on July 24, 2018 and assuming each holder of LINN common stock will receive one share of Riviera common stock for each share of LINN common stock. The actual number of shares to be distributed will be determined as of the record date and will reflect any repurchases of shares of LINN common stock and issuances of shares of LINN common stock in respect of awards under Linn Energy, Inc. equity-based incentive plans between the date the LINN Energy board of directors declares the dividend for the distribution and the record date for the distribution.

 

The Distribution

On the distribution date, Linn Energy, Inc. will release the shares of Riviera common stock to the distribution agent to distribute to LINN stockholders. The distribution of shares will be made by way of direct registration in book-entry form only, meaning that no physical share certificates will be issued. It is expected that it will take the distribution agent up to two weeks to issue shares of Riviera common stock to you or to your bank or brokerage firm electronically on your behalf by way of direct registration in book-entry form. You will not be required to make any payment, surrender or exchange your shares of LINN common stock or take any other action, other than to provide any documentation that may be required as discussed under “Material U.S. Federal Income Tax Consequences of the Spin-Off,” including with respect to certain FIRPTA documentation that may be required by the applicable withholding agent, to receive your shares of Riviera common stock.


 

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Conditions to the Distribution

We expect that the distribution will be effective as of 5:00 p.m., Eastern Time, on August 7, 2018, the distribution date. The distribution is subject to the satisfaction, or waiver by LINN Energy, of the following conditions:

 

    the final approval of the distribution by the LINN Energy board of directors, which approval may be given or withheld in its absolute and sole discretion;

 

    the Separation and Distribution Agreement and the ancillary agreements contemplated by the Separation and Distribution Agreement shall have been executed by each party to those agreements;

 

    all conditions precedent to the Credit Facility Amendment necessary to effectuate the spin-off shall have been satisfied or waived in accordance with its terms;

 

    our Registration Statement on Form S-1, of which this prospectus forms a part, shall have been declared effective by the SEC, with no stop order in effect with respect thereto, and no proceedings to suspend the effectiveness thereof pending before or threatened by the SEC;

 

    prior to the distribution date, this prospectus shall have been mailed to the LINN stockholders as of the record date;

 

    all material governmental approvals and other consents necessary to consummate the spin-off or any portion thereof shall have been obtained and be in full force and effect; and

 

    no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off.

 

  We are not aware of any material U.S. federal, non-U.S. or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with the rules and regulations of the SEC, approval of our application to be quoted on the OTC Market by the Financial Industry Regulatory Authority (“FINRA”), and the declaration of effectiveness of the Registration Statement on Form S-1, of which this prospectus forms a part, by the SEC, in connection with the distribution. LINN Energy and Riviera cannot assure you that any or all of these conditions will be met and Linn Energy, Inc. may waive any of the conditions to the distribution. In addition, until the distribution has occurred, the LINN Energy board of directors has the right to not proceed with the distribution, even if all of the conditions are satisfied. For more information, see “The Spin-Off—Conditions to the Distribution.”


 

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Index to Financial Statements

Reasons for the Spin-Off

The LINN Energy board of directors and management believe the benefits of the spin-off will include:

 

    enhanced strategic and management focus on the core business and growth of each company;

 

    more efficient capital allocation, direct access to capital and expanded growth opportunities for each company;

 

    the ability to implement a tailored approach to recruiting and retaining employees at each company;

 

    improved investor understanding of the business strategy and operating results of each company; and

 

    enhanced investor choice by offering investment opportunities in separate entities.

 

Trading Market and Symbol

We intend to have our common stock quoted for trading on the OTC Market, where we expect to qualify as an SEC-reporting company, under the ticker symbol “RVRA”. We do not expect that our common stock will trade on or before the distribution date. Trading of shares of our common stock is expected to begin on a date to be determined after the distribution date if and when our trading symbol application with FINRA is approved.

 

  We also anticipate that FINRA will set an “ex-distribution date” for our common stock as the first business day following the distribution date; however, we can provide no assurance as to the ex-distribution date that FINRA will ultimately set. If you hold shares of LINN common stock as of the record date for the distribution and choose to sell those shares after the record date for the distribution and on or before the distribution date, you will also be selling the right to receive the shares of Riviera common stock in connection with the spin-off (assuming that FINRA sets an ex-distribution date of the first business day following the distribution date).

 

Tax Consequences of the Spin-Off

The internal reorganization preceding the distribution should not result in any material U.S. federal income tax consequences to holders of LINN common stock.

 

 

A U.S. Holder receiving our shares in the distribution will be treated as receiving a distribution to the extent of the fair market value of the shares received on the distribution date. That distribution will be treated as taxable dividend income to the extent of such U.S. Holder’s ratable share of LINN Energy’s current and accumulated earnings and profits, if any (including any additional earning and profits recognized by LINN Energy as a result of the distribution). Any amount that exceeds LINN Energy’s earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in its shares of LINN common stock (thus reducing such adjusted tax basis) with any remaining amounts being treated as capital gain. For a more detailed discussion see “Material



 

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Index to Financial Statements
 

U.S. Federal Income Tax Consequences of the Spin-Off,” included elsewhere in this prospectus.

 

  A Non-U.S. Holder receiving our shares in the distribution may be subject to U.S. federal withholding tax unless the Non-U.S. Holder provides certain valid documentation certifying such holder’s qualification for a reduced rate or exemption. In addition, a Non-U.S. Holder receiving our shares in the distribution may be subject to U.S. federal income tax in certain other circumstances. In particular, a Non-U.S. Holder that owned, directly or indirectly, at any time since LINN Energy’s formation, more than 5% of the shares of LINN common stock and that is not eligible for any treaty exemption may be subject to U.S. federal income tax on any gain recognized by such Non-U.S. Holder on the distribution. For a more detailed discussion of the circumstances that could produce taxable gain for a Non-U.S. Holder in connection with the distribution, see “Material U.S. Federal Income Tax Consequences of the Spin-Off.”

 

  Each stockholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to such stockholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws.

 

Relationship with LINN Energy after the Spin-Off

Before our spin-off from LINN Energy, we will enter into a Separation and Distribution Agreement and several other agreements with LINN Energy related to the spin-off. These agreements will govern the relationship between us and LINN Energy after completion of the spin-off and provide for the allocation between us and LINN Energy of various assets, liabilities, rights and obligations. These agreements include:

 

    a Separation and Distribution Agreement with Linn Energy, Inc., which will provide for the allocation of assets and liabilities between us and LINN Energy and will establish the rights and obligations between the parties following the distribution;

 

    a Transition Services Agreement with Linn Energy, Inc., pursuant to which we will provide certain services to Linn Energy, Inc. on an interim basis following the distribution; and

 

    a Tax Matters Agreement with LINN Energy, regarding the sharing of tax liabilities incurred, and tax assets generated, before and after completion of the spin-off and certain indemnification rights with respect to tax matters.

 

  We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with LINN Energy Related to the Spin-Off,” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off.”

 

  Certain members of our board of directors also serve on the LINN Energy board of directors. See “Management.”


 

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Index to Financial Statements

Dividend Policy

We do not intend, following the spin-off, to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain any earnings for the future operation and development of our business, including exploration, development and acquisition activities. Any decision to declare and pay dividends will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. There can be no assurance that a payment of a dividend will occur in the future. Any future payment of cash dividends would be subject to the restrictions in the Revolving Credit Facility and the Blue Mountain Credit Facility. See “Dividend Policy.”

 

Transfer Agent

American Stock Transfer & Trust Company, LLC.

 

Risk Factors

We face both general and specific risks and uncertainties relating to our business, regulation, the spin-off and our common stock. We also are subject to risks relating to our relationship with LINN Energy and our being an independent company following the spin-off. You should carefully read the risk factors set forth in the section titled “Risk Factors” in this prospectus.


 

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Index to Financial Statements

Summary Historical and Unaudited Pro Forma Condensed Consolidated and Combined Financial Data

The following table presents summary historical and unaudited pro forma condensed consolidated and combined financial data of Riviera. Following the spin-off, Riviera will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan and certain other immaterial assets. Riviera will be the financial reporting entity following the consummation of the spin-off.

We derived the summary historical statements of operations and cash flow data for the ten months ended December 31, 2017, for the two months ended February 28, 2017, and for the years ended December 31, 2016 and 2015, and the summary historical balance sheet data as of December 31, 2017 and 2016, from the audited consolidated and combined financial statements of Riviera included elsewhere in this prospectus. We derived the selected historical statements of operations and cash flow data for the three months ended March 31, 2018, and for the one month ended March 31, 2017, and the selected historical balance sheet data as of March 31, 2018 and 2017, from the unaudited condensed consolidated and combined financial statements of Riviera included elsewhere in this prospectus. This summary historical financial data is not necessarily indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from LINN Energy. For example, our historical consolidated and combined financial statements include certain costs that may not be representative of the future costs we will incur as an independent, public company. In addition, our historical consolidated and combined financial statements include our historical 50% equity interest in Roan, which will be retained by LINN Energy following the spin-off.

The summary unaudited pro forma condensed consolidated balance sheet as of March 31, 2018 and summary unaudited pro forma condensed consolidated and combined statements of operations for the three months ended March 31, 2018 and the year ended December 31, 2017 present our consolidated and combined financial position and results of operations after giving effect to the spin-off and related transactions as well as the other transactions described under “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information.” The summary unaudited pro forma condensed consolidated balance sheet data as of March 31, 2018 has been prepared to reflect the spin-off and related transactions as if they had been completed as of March 31, 2018. The summary unaudited pro forma condensed consolidated and combined statement of operations data for the three months ended March 31, 2018 and the year ended December 31, 2017 have been prepared to reflect the spin-off and related transactions, as well as the other transactions described under “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information,” as if they had been completed as of January 1, 2017. The summary unaudited pro forma financial data is presented for illustrative purposes only, is not necessarily indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from LINN Energy. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and we believe such assumptions are reasonable under the circumstances.

The summary historical and unaudited pro forma condensed consolidated and combined financial data below should be read together with the audited and unaudited consolidated and combined financial statements and related notes thereto, as well as the sections titled “Capitalization,” “Selected Historical Consolidated and Combined Financial Data,” “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Material Indebtedness,” and the other financial information included elsewhere in this prospectus.



 

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Table of Contents
Index to Financial Statements
    Pro Forma     Successor           Predecessor  
    Three
Months
Ended
March 31,
2018
    Year Ended
December 31,
2017
    Three
Months
Ended

March 31,
2018
    Ten
Months
Ended
December 31,
2017
    One
Month
Ended
March 31,
2017
          Two
Months
Ended

February 28,
2017
    Year Ended
December 31,
 
                  2016     2015  
(in thousands)                                          

Statements of operations data:

                   

Revenues and other:

                   

Oil, natural gas and natural gas liquids sales

  $ 136,876     $ 773,218     $ 136,876     $ 709,363     $ 80,325         $ 188,885     $ 874,161     $ 1,065,795  

Gains (losses) on oil and natural gas derivatives

    (15,030     106,224       (15,030     13,533       (11,959         92,691       (164,330     1,027,014  

Marketing revenues

    46,267       89,579       46,267       82,943       2,914           6,636       36,505       43,876  

Other revenues

    5,894       30,748       5,894       20,839       2,028           9,915       93,308       97,771  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 
    174,007       999,769       174,007       826,678       73,308           298,127       839,644       2,234,456  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Expenses:

                   

Lease operating expenses

    47,884       239,964       47,884       208,446       24,630           49,665       296,891       352,077  

Transportation expenses

    19,094       122,032       19,094       113,128       13,723           25,972       161,574       167,023  

Marketing expenses

    41,755       73,828       41,755       69,008       2,539           4,820       29,736       35,278  

General and administrative expenses

    44,779       147,094       44,779       117,347       10,408           71,745       237,841       285,996  

Exploration costs

    1,202       3,230       1,202       3,137       55           93       4,080       9,473  

Depreciation, depletion and amortization

    28,465       144,579       28,465       133,711       17,847           47,155       342,614       513,508  

Impairment of long-lived assets

    —         —         —         —         —             —         165,044       5,024,944  

Taxes, other than income taxes

    8,452       53,434       8,452       47,553       7,077           14,877       67,644       97,683  

(Gains) losses on sale of assets and other, net

    (106,075     (361,918     (106,075     (623,072     484           829       16,257       (194,805
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 
    85,556       422,243       85,556       69,258       76,763           215,156       1,321,681       6,291,177  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Other income and (expenses):

                   

Interest expense, net of amounts capitalized

    (404     (5,469     (404     (12,380     (4,200         (16,725     (184,870     (456,749

Gain on extinguishment of debt

    —         —         —         —         —             —         —         708,050  

Earnings from equity method investments

    221       667       25,345       11,840       39           157       699       685  

Other, net

    (170     (6,382     (170     (6,233     (388         (149     (2,345     (13,988
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 
    (353     (11,184     24,771       (6,773     (4,549         (16,717     (186,516     237,998  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 


 

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Table of Contents
Index to Financial Statements
    Pro Forma     Successor           Predecessor  
    Three
Months
Ended
March 31,
2018
    Year Ended
December 31,
2017
    Three
Months
Ended

March 31,
2018
    Ten
Months
Ended
December 31,
2017
    One
Month
Ended
March 31,
2017
          Two
Months
Ended

February 28,
2017
    Year Ended
December 31,
 
                  2016     2015  
(in thousands)                                          

Reorganization items, net

    (1,951     —         (1,951     (8,533     (2,565         2,521,137       336,120       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    86,147       566,342       111,271       742,114       (10,569         2,587,391       (332,433     (3,818,723

Income tax expense (benefit)

    34,262       320,449       40,332       389,914       (4,446         (166     11,300       (6,307
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  $ 51,885     $ 245,893       70,939       352,200       (6,123         2,587,557       (343,733     (3,812,416
 

 

 

   

 

 

                 

Income (loss) from discontinued operations, net of income taxes

        —         82,995       457           (548     (18,354     9,586  
     

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss)

      $ 70,939     $ 435,195     $ (5,666       $ 2,587,009     $ (362,087   $ (3,802,830
     

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

 

    Successor           Predecessor  
    Three Months
Ended
March 31,
2018
    Ten Months
Ended
December 31,
2017
    One Month
Ended
March 31,
2017
          Two Months
Ended
February 28,
2017
    Year Ended
December 31,
 
              2016     2015  
(in thousands)                              

Cash flow data:

               

Net cash provided by (used in):

               

Operating activities

  $ 50,866     $ 231,021     $ 17,763         $ 152,714     $ 875,306     $ 1,127,700  

Investing activities

    160,260       1,257,352       (22,384         (58,756     (230,438     (276,023

Financing activities

    (427,589     (1,111,473     (48,595         (437,730     (164,150     (850,886

 

          Successor           Predecessor  
    Pro Forma
March 31,
2018
    March 31,
2018
    December 31,
2017
          December 31,  
            2016     2015  
(in thousands)                              

Balance sheet data:

             

Total assets

  $ 1,978,542     $ 2,472,220     $ 2,868,125         $ 4,444,151     $ 6,018,375  

Current portion of long-term debt, net

    —         —         —             1,937,729       2,841,518  

Long-term debt, net

    —         —         —             —         4,447,308  

Liabilities subject to compromise

    —         —         —             4,280,005       —    

Total equity (deficit)

    1,508,214       2,001,892       2,339,046           (2,587,009     (2,110,804


 

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    Successor           Predecessor  
    Three Months
Ended
March 31,
2018
    Ten Months
Ended
December 31,
2017
    One Month
Ended
March 31,
2017
          Two Months
Ended
February 28,
2017
    Year Ended
December 31,
 
              2016     2015  

Production data:

               

Average daily production—Continuing operations:

               

Natural gas (MMcf/d)

    266       386       496           495       511       549  

Oil (MBbls/d)

    8.5       17.8       20.8           20.2       22.1       27.4  

NGL (MBbls/d)

    14.1       20.5       23.1           21.4       25.4       25.6  

Total (MMcfe/d)

    401       616       759           745       796       867  

Average daily production—Equity method investments: (1)

               

Total (MMcfe/d)

    113       30       —             —         —         —    

Average daily production—Discontinued operations: (2)

               

Total (MMcfe/d)

    —         14       29           30       32       30  

 

    Successor           Predecessor  
    December 31,
2017
          December 31,  
        2016     2015  
 

Reserves data: (3)

         

Proved reserves—Continuing operations:

         

Natural gas (Bcf)

    1,377           2,290       2,212  

Oil (MMBbls)

    27           73       74  

NGL (MMBbls)

    72           104       97  

Total (Bcfe)

    1,968           3,350       3,240  

Proved reserves—Equity method investments: (1)

         

Total (Bcfe)

    694           —         —    

Proved reserves—Discontinued operations:

         

Total (Bcfe)

    —             170       195  

 

(1)  Represents the Company’s historical 50% equity interest in Roan, which will be retained by LINN Energy following the spin-off.
(2)  Production of the Company’s California properties reported as discontinued operations for 2017 is for the period from January 1, 2017 through July 31, 2017.
(3)  In accordance with SEC regulations, reserves were estimated using the average price during the 12-month period, determined as an unweighted average of the first-day-of-the-month price for each month, excluding escalations based upon future conditions. The average price used to estimate reserves is held constant over the life of the reserves.


 

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RISK FACTORS

You should carefully consider each of the following risk factors and all of the other information set forth in this prospectus. The risk factors generally have been separated into four groups: business risks, regulatory risks, risks relating to the spin-off and risks relating to our common stock. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our company in each of these categories of risks. However, the risks and uncertainties we face are not limited to those set forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock could decline.

Risks Relating to Our Business

We may be subject to risks in connection with divestitures.

In 2017 and the first quarter of 2018, we completed divestitures of a significant portion of our assets, as discussed in “Summary—Recent Developments.” In connection with these or other future transactions, we may sell our core or non-core assets in order to increase capital resources available for other core assets, create organizational and operational efficiencies or for other purposes. Various factors could materially affect our ability to dispose of such assets, including the approvals of governmental agencies or third parties and the availability of purchasers willing to acquire the assets with terms we deem acceptable. Though we continue to evaluate various options for the divestiture of such assets, there can be no assurance that this evaluation will result in any specific action.

Sellers often retain certain liabilities or agree to indemnify buyers for certain matters related to the sold assets. The magnitude of any such retained liability or of the indemnification obligation is difficult to quantify at the time of the transaction and ultimately could be material. Also, as is typical in divestiture transactions, third parties may be unwilling to release us from guarantees or other credit support provided prior to the sale of the divested assets. As a result, after a divestiture, we may remain secondarily liable for the obligations guaranteed or supported to the extent that the buyer of the assets fails to perform these obligations.

Commodity prices are volatile, and prolonged depressed prices or a further decline in prices would reduce our revenues, profitability and net cash provided by operating activities and would significantly affect our financial condition and results of operations.

Our revenues, profitability, cash flow and the carrying value of our properties depend on the prices of and demand for oil, natural gas and NGL. Historically, the oil, natural gas and NGL markets have been very volatile and are expected to continue to be volatile in the future, and prolonged depressed prices or a further decline in prices will significantly affect our financial results and impede our growth. Changes in oil, natural gas and NGL prices have a significant impact on the value of our reserves and on our net cash provided by operating activities. In addition, revenues from certain wells may exceed production costs and nevertheless not generate sufficient return on capital. Prices for these commodities may fluctuate widely in response to relatively minor changes in the supply of and demand for them, market uncertainty and a variety of additional factors that are beyond our control, such as:

 

    the domestic and foreign supply of and demand for oil, natural gas and NGL;

 

    the price and level of foreign imports;

 

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Index to Financial Statements
    the level of consumer product demand;

 

    weather conditions;

 

    overall domestic and global economic conditions;

 

    political and economic conditions in oil and natural gas producing and consuming countries;

 

    the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain price and production controls;

 

    the impact of the U.S. dollar exchange rates on oil, natural gas and NGL prices;

 

    technological advances affecting energy consumption;

 

    domestic and foreign governmental regulations and taxation;

 

    the impact of energy conservation efforts;

 

    the proximity and capacity of pipelines and other transportation facilities; and

 

    the price and availability of alternative fuels.

Prolonged depressed prices or a further decline in prices would reduce our revenues, profitability and net cash provided by operating activities and would significantly affect our financial condition and results of operations.

Future declines in commodity prices, changes in expected capital development, increases in operating costs or adverse changes in well performance may result in write-downs of the carrying amounts of our assets, which could materially and adversely affect our results of operations in the period incurred.

We evaluate the impairment of our oil and natural gas properties on a field-by-field basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Future declines in oil, natural gas and NGL prices, changes in expected capital development, increases in operating costs or adverse changes in well performance, among other things, may result in us having to make material write-downs of the carrying amounts of our assets, which could materially and adversely affect our results of operations in the period incurred.

Disruptions in the capital and credit markets, continued low commodity prices and other factors may restrict our ability to raise capital on favorable terms, or at all.

Disruptions in the capital and credit markets, in particular with respect to companies in the energy sector, could limit our ability to access these markets or may significantly increase our cost to borrow. Continued low commodity prices, among other factors, have caused some lenders to increase interest rates, enact tighter lending standards which we may not satisfy, and in certain instances have reduced or ceased to provide funding to borrowers. If we are unable to access the capital and credit markets on favorable terms or at all, it could adversely affect our business and financial condition.

LINN Energy emerged from bankruptcy in February 2017, which could adversely affect our business and relationships.

It is possible that LINN Energy’s having filed for bankruptcy and its emergence from bankruptcy could adversely affect our business and relationships with customers, vendors, royalty and working interest owners, employees, service providers and suppliers. Due to uncertainties, many risks exist, including the following:

 

    vendors or other contract counterparties could terminate their relationship or require financial assurances or enhanced performance;

 

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Index to Financial Statements
    the ability to renew existing contracts and compete for new business may be adversely affected;

 

    the ability to attract, motivate and/or retain key executives and employees may be adversely affected;

 

    employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and

 

    competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted.

The occurrence of one or more of these events could adversely affect our business, operations, financial condition and reputation. We cannot assure you that LINN Energy’s having been subject to bankruptcy protection will not adversely affect our operations in the future.

Our financial information after the impact of fresh start accounting and numerous divestitures may not be meaningful to investors.

Upon LINN Energy’s emergence from bankruptcy, we adopted fresh start accounting and, as a result, our assets and liabilities were recorded at fair value as of the fresh start reporting date, which differ materially from the recorded values of assets and liabilities on our historical consolidated and combined balance sheets. As a result of the adoption of fresh start accounting, along with the numerous divestitures of properties in 2017 and the first quarter of 2018, our historical results of operations and period-to-period comparisons of those results and certain other financial data may not be meaningful or indicative of future results. The lack of comparable historical financial information may discourage investors from purchasing our common stock.

We may not be able to obtain funding under the Revolving Credit Facility because of a decrease in our borrowing base, or obtain new financing, which could adversely affect our operations and financial condition.

On August 4, 2017, LINN Energy entered into the Revolving Credit Facility with $500 million in borrowing commitments and an initial borrowing base of $500 million. The maximum commitment amount was $390 million at March 31, 2018. As of March 31, 2018, there were no borrowings outstanding under the Revolving Credit Facility and there was approximately $343 million of available borrowing capacity (which includes a $47 million reduction for outstanding letters of credit). As of the date of this prospectus, a subsidiary of LINN Energy is the borrower under the Revolving Credit Facility. In connection with the Credit Facility Amendment, Riviera became a guarantor under the Revolving Credit Facility. Prior to the consummation of the spin-off, the borrower under the Revolving Credit Facility is expected to become a subsidiary of Riviera.

Redeterminations of the borrowing base under the Revolving Credit Facility are based primarily on reserve reports using lender commodity price expectations at such time. The borrowing base will be redetermined semi-annually, on April 1 and October 1. The next scheduled borrowing base redetermination will take place on October 1, 2018. Any reduction in the borrowing base will reduce our available liquidity, and, if the reduction results in the outstanding amount under the Revolving Credit Facility exceeding the borrowing base, we will be required to repay the deficiency. We may not have the financial resources in the future to make any mandatory deficiency principal prepayments required under the Revolving Credit Facility, which could result in an event of default.

In the future, we may not be able to access adequate funding under the Revolving Credit Facility as a result of (i) a decrease in our borrowing base due to the outcome of a borrowing base redetermination, or (ii) an unwillingness or inability on the part of our lending counterparties to meet their funding obligations. Since the process for determining the borrowing base under the Revolving Credit Facility involves evaluating the estimated value of some of our oil and natural gas properties using pricing models determined by the lenders at that time, a decline in those prices used, or further downward reductions of our reserves, likely will result in a

 

16


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Index to Financial Statements

redetermination of our borrowing base and a decrease in the available borrowing amount at the time of the next scheduled redetermination. In such case, we would be required to repay any indebtedness in excess of the borrowing base.

The Revolving Credit Facility also restricts our ability to obtain new financing. If additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us, or at all. If net cash provided by operating activities or cash available under the Revolving Credit Facility is not sufficient to meet our capital requirements, the failure to obtain such additional debt or equity financing could result in a curtailment of our development operations, which in turn could lead to a decline in our reserves.

We may be unable to maintain compliance with the covenants in the Revolving Credit Facility and the Blue Mountain Credit Facility, which could result in an event of default under the Revolving Credit Facility or the Blue Mountain Credit Facility that, if not cured or waived, would have a material adverse effect on our business and financial condition.

Under the Revolving Credit Facility, LINN Energy is required, and following the spin-off, we will be required, to maintain (i) a maximum total net debt to last twelve months EBITDA ratio of 4.0 to 1.0, and (ii) a minimum adjusted current ratio of 1.0 to 1.0, as well as various affirmative and negative covenants. In addition, upon Blue Mountain’s execution of the Blue Mountain Credit Facility in connection with the spin-off, Blue Mountain will be required to maintain (i) for certain periods, a ratio of consolidated total debt (subject to certain carve-outs) to the sum of (a) total debt (subject to certain carve-outs) and (b) consolidated owners’ equity interest in Blue Mountain and its subsidiaries no greater than 0.35 to 1.00, and (ii) subject to satisfaction of certain conditions and for certain periods, (a) a ratio of consolidated EBITDA to consolidated interest expense no less than 2.50 to 1.00, (b) a ratio of consolidated net debt to consolidated EBITDA (the “consolidated total leverage ratio”) no greater than 4.50 to 1.00 or 5.00 to 1.00, as applicable, and (c) in case certain other kinds of debt are outstanding, a ratio of consolidated net debt secured by a lien on property of Blue Mountain to consolidated EBITDA no greater than 3.00 to 1.00. If we were to violate any of the covenants under the Revolving Credit Facility or the Blue Mountain Credit Facility and were unable to obtain a waiver or amendment, it would be considered a default after the expiration of any applicable grace period. If we were in default under the Revolving Credit Facility or the Blue Mountain Credit Facility, then the lenders may exercise certain remedies including, among others, declaring all borrowings outstanding thereunder, if any, immediately due and payable. This could adversely affect our operations and our ability to satisfy our obligations as they come due.

Restrictive covenants in the Revolving Credit Facility and the Blue Mountain Credit Facility could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.

Restrictive covenants in the Revolving Credit Facility and the Blue Mountain Credit Facility will impose significant operating and financial restrictions on us and our subsidiaries. These restrictions will limit our ability to, among other things:

 

    incur additional liens;

 

    incur additional indebtedness;

 

    merge, consolidate or sell our assets;

 

    pay dividends or make other distributions or repurchase or redeem our stock;

 

    make certain investments; and

 

    enter into transactions with our affiliates.

The Revolving Credit Facility and the Blue Mountain Credit Facility will also require us to comply with certain financial maintenance covenants as discussed above. A breach of any of these covenants could result in a

 

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Index to Financial Statements

default under the Revolving Credit Facility or the Blue Mountain Credit Facility, as applicable. If a default occurs and remains uncured or unwaived, the administrative agent or majority lenders under each of the Revolving Credit Facility and the Blue Mountain Credit Facility may elect to declare all borrowings outstanding thereunder, if any, together with accrued interest and other fees, to be immediately due and payable. The administrative agent or majority lenders under the Revolving Credit Facility and the Blue Mountain Credit Facility would also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay our indebtedness when due or declared due, the applicable administrative agent will also have the right to proceed against the collateral pledged to it to secure the indebtedness under the Revolving Credit Facility or the Blue Mountain Credit Facility, as applicable. If such indebtedness were to be accelerated, our assets may not be sufficient to repay in full our secured indebtedness.

We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants in the Revolving Credit Facility and the Blue Mountain Credit Facility. The restrictions contained in the Revolving Credit Facility and the Blue Mountain Credit Facility could:

 

    limit our ability to plan for, or react to, market conditions, to meet capital needs or otherwise restrict our activities or business plan; and

 

    adversely affect our ability to finance our operations, enter into acquisitions or to engage in other business activities that would be in our interest.

Our commodity derivative activities could result in financial losses or could reduce our income, which may adversely affect our net cash provided by operating activities, financial condition and results of operations.

To achieve more predictable net cash provided by operating activities and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas, we have entered into commodity derivative contracts for a portion of our production. Commodity derivative arrangements expose us to the risk of financial loss in some circumstances, including situations when production is less than expected. If we experience a sustained material interruption in our production or if we are unable to perform our drilling activity as planned, we might be forced to satisfy all or a portion of our derivative obligations without the benefit of the sale of our underlying physical commodity, which may adversely affect our net cash provided by operating activities, financial condition and results of operations.

We may be unable to hedge anticipated production volumes on attractive terms or at all, which would subject us to further potential commodity price uncertainty and could adversely affect our net cash provided by operating activities, financial condition and results of operations.

While we have hedged a portion of our estimated production for 2018 and 2019, our anticipated production volumes remain mostly unhedged. Based on current expectations for future commodity prices, reduced hedging market liquidity and potential reduced counterparty willingness to enter into new hedges with us, we may be unable to hedge anticipated production volumes on attractive terms or at all, which would subject us to further potential commodity price uncertainty and could adversely affect our net cash provided by operating activities, financial condition and results of operations.

Counterparty failure may adversely affect our derivative positions.

We cannot be assured that our counterparties will be able to perform under our derivative contracts. If a counterparty fails to perform and the derivative arrangement is terminated, our net cash provided by operating activities, financial condition and results of operations would be adversely affected.

Unless we replace our reserves, our future reserves and production will decline, which would adversely affect our net cash provided by operating activities, financial condition and results of operations.

Producing oil, natural gas and NGL reservoirs are characterized by declining production rates that vary depending on reservoir characteristics and other factors. The overall rate of decline for our production will

 

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Index to Financial Statements

change if production from our existing wells declines in a different manner than we have estimated and may change when we drill additional wells, make acquisitions and under other circumstances. Thus, our future oil, natural gas and NGL reserves and production and, therefore, our cash flow and income, are highly dependent on our success in efficiently developing our current reserves and economically finding or acquiring additional recoverable reserves. We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs, which would adversely affect our net cash provided by operating activities, financial condition and results of operations. In addition, given general market conditions, we may be unable to finance potential acquisitions of reserves on terms that are acceptable to us or at all. Our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired to the extent cash flow from operations is reduced and external sources of capital become limited or unavailable.

Our estimated reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

No one can measure underground accumulations of oil, natural gas and NGL in an exact manner. Reserve engineering requires subjective estimates of underground accumulations of oil, natural gas and NGL and assumptions concerning future oil, natural gas and NGL prices, production levels and operating and development costs. As a result, estimated quantities of proved reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. An independent petroleum engineering firm prepares estimates of our proved reserves. Some of our reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Also, we make certain assumptions regarding future oil, natural gas and NGL prices, production levels and operating and development costs that may prove incorrect. Any significant variance from these assumptions by actual amounts could greatly affect our estimates of reserves, the economically recoverable quantities of oil, natural gas and NGL attributable to any particular group of properties, the classifications of reserves based on risk of recovery and estimates of the future net cash flows. Decreases in commodity prices can result in a reduction of our estimated reserves if development of those reserves would not be economic at those lower prices. Numerous changes over time to the assumptions on which our reserve estimates are based, as described above, often result in the actual quantities of oil, natural gas and NGL we ultimately recover being different from our reserve estimates.

The present value of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated oil, natural gas and NGL reserves. We base the estimated discounted future net cash flows from our proved reserves on an unweighted average of the first-day-of-the month price for each month during the 12-month calendar year and year-end costs. However, actual future net cash flows from our oil and natural gas properties also will be affected by factors such as:

 

    actual prices we receive for oil, natural gas and NGL;

 

    the amount and timing of actual production;

 

    capital and operating expenditures;

 

    the timing and success of development activities;

 

    supply of and demand for oil, natural gas and NGL; and

 

    changes in governmental regulations or taxation.

In addition, the 10% discount factor required to be used under the provisions of applicable accounting standards when calculating discounted future net cash flows, may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general.

 

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Our development operations require substantial capital expenditures. We may be unable to obtain needed capital or financing on satisfactory terms, which could adversely affect our ability to sustain our operations at current levels and could lead to a decline in our reserves.

The oil and natural gas industry is capital intensive. We make and expect to continue to make substantial capital expenditures in our business for the development and production of oil, natural gas and NGL reserves. These expenditures will reduce our cash available for other purposes. Our net cash provided by operating activities and access to capital are subject to a number of variables, including:

 

    our proved reserves;

 

    the level of oil, natural gas and NGL we are able to produce from existing wells;

 

    the prices at which we are able to sell our oil, natural gas and NGL;

 

    the level of operating expenses; and

 

    our ability to acquire, locate and produce new reserves.

If our net cash provided by operating activities decreases, we may have limited ability to obtain the capital or financing necessary to sustain our operations at current levels and could lead to a decline in our reserves.

We may decide not to drill some of the prospects we have identified, and locations that we decide to drill may not yield oil, natural gas and NGL in commercially viable quantities.

Our prospective drilling locations are in various stages of evaluation, ranging from a prospect that is ready to drill to a prospect that will require additional geological and engineering analysis. Based on a variety of factors, including future oil, natural gas and NGL prices, the generation of additional seismic or geological information, the current and future availability of drilling rigs and other factors, we may decide not to drill one or more of these prospects. In addition, the cost of drilling, completing and operating a well is often uncertain, and cost factors can adversely affect the economics of a well. Our efforts will be uneconomic if we drill dry holes or wells that are productive but do not produce enough oil, natural gas and NGL to be commercially viable after drilling, operating and other costs. As a result, we may not be able to increase or sustain our reserves or production, which in turn could have an adverse effect on our business, financial condition, results of operations and cash flows.

Drilling for and producing oil, natural gas and NGL are high risk activities with many uncertainties that could adversely affect our financial position, results of operations and cash flows.

Our drilling activities are subject to many risks, including the risk that we will not discover commercially productive reservoirs. Drilling for oil, natural gas and NGL can be uneconomic, not only from dry holes, but also from productive wells that do not produce sufficient revenues to be commercially viable. In addition, our drilling and producing operations may be curtailed, delayed or canceled as a result of other factors, including:

 

    the high cost, shortages or delivery delays of equipment and services;

 

    unexpected operational events;

 

    adverse weather conditions;

 

    facility or equipment malfunctions;

 

    title problems;

 

    pipeline ruptures or spills;

 

    compliance with environmental and other governmental requirements;

 

    unusual or unexpected geological formations;

 

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    loss of drilling fluid circulation;

 

    formations with abnormal pressures;

 

    fires;

 

    blowouts, craterings and explosions; and

 

    uncontrollable flows of oil, natural gas and NGL or well fluids.

Any of these events can cause increased costs or restrict our ability to drill the wells and conduct the operations which we currently have planned. Any delay in the drilling program or significant increase in costs could adversely affect our financial position, results of operations and cash flows.

Our business relies on certain key personnel.

Our management believes that our continued success will depend to a significant extent upon the efforts and abilities of certain of our key personnel. The loss of the services of any of these key personnel could have a material adverse effect on our business. We do not maintain “key man” life insurance on any of our officers or other employees.

We have limited control over the activities on properties we do not operate.

Other companies operate some of the properties in which we have an interest. As of December 31, 2017, non-operated wells represented approximately 34% of our owned gross wells, or approximately 11% of our owned net wells. We have limited ability to influence or control the operation or future development of these non-operated properties, including timing of drilling and other scheduled operations activities, compliance with environmental, safety and other regulations, or the amount of capital expenditures that we are required to fund with respect to them. The failure of an operator of our wells to adequately perform operations, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our best interest could reduce our production and revenues, and lead to unexpected future costs.

Our business depends on gathering and transportation facilities. Any limitation in the availability of those facilities would interfere with our ability to market the oil, natural gas and NGL we produce, which could adversely affect our business, results of operations and cash flows.

The marketability of our oil, natural gas and NGL production depends in part on the availability, proximity and capacity of gathering systems and pipelines. The amount of oil, natural gas and NGL that can be produced and sold is subject to limitation in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage to the gathering or transportation system, or lack of contracted capacity on such systems. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, we are provided only with limited, if any, notice as to when these circumstances will arise and their duration. In addition, some of our wells are drilled in locations that are not serviced by gathering and transportation pipelines, or the gathering and transportation pipelines in the area may not have sufficient capacity to transport additional production. As a result, we may not be able to sell the oil, natural gas and NGL production from these wells until the necessary gathering and transportation systems are constructed. Any significant curtailment in gathering system or pipeline capacity, or significant delay in the construction of necessary gathering and transportation facilities, would interfere with our ability to market the oil, natural gas and NGL we produce, and could adversely affect our business, results of operations and cash flows.

 

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Risks Relating to Regulation of Our Business

Because we handle oil, natural gas and NGL and other hydrocarbons, we may incur significant costs and liabilities in the future resulting from a failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment.

The operations of our wells, gathering systems, turbines, pipelines and other facilities are subject to stringent and complex federal, state and local environmental laws and regulations. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. There is an inherent risk that we may incur environmental costs and liabilities due to the nature of our business, the substances we handle and the ownership or operation of our properties. Certain environmental statutes, including the Resource Conservation and Recovery Act (“RCRA”), Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and analogous state laws and regulations, impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed of or otherwise released. In addition, an accidental release from one of our wells or gathering pipelines could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage and fines or penalties for related violations of environmental laws or regulations.

Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase our compliance costs and the cost of any remediation that may become necessary, and these costs may not be recoverable from insurance. For a more detailed discussion of environmental and regulatory matters impacting our business, see “Our Business—Government Regulation.”

We are subject to complex and evolving federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of doing business.

Our operations are regulated extensively at the federal, state and local levels. Environmental and other governmental laws and regulations have resulted in delays and increased the costs to plan, design, drill, install, operate and abandon oil and natural gas wells. Under these laws and regulations, we could also be liable for personal injuries, property damage and other damages. Failure to comply with these laws and regulations may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling projects.

Part of the regulatory environment in which we operate includes, in some cases, legal requirements for obtaining environmental assessments, environmental impact studies and/or plans of development before commencing drilling and production activities. In addition, our activities are subject to the regulations regarding conservation practices and protection of correlative rights. These regulations affect our operations and limit the quantity of oil, natural gas and NGL we may produce and sell. A major risk inherent in our drilling plans is the need to obtain drilling permits from state and local authorities. Delays in obtaining regulatory approvals or drilling permits, the failure to obtain a drilling permit for a well or the receipt of a permit with unreasonable conditions or costs could have a material adverse effect on our ability to develop our properties. Additionally, the regulatory environment could change in ways that might substantially increase the financial and managerial costs of compliance with these laws and regulations and, consequently, adversely affect our financial condition and results of operations. For a description of the laws and regulations that affect us, see “Our Business—Government Regulation.”

We could also be affected by more stringent laws and regulations adopted in the future, including any related to climate change, engine emissions, greenhouse gases and hydraulic fracturing. Changes in environmental laws and regulations occur frequently, and any changes that result in delays or restrictions in permitting or development of projects or more stringent or costly construction, drilling, water management, or

 

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completion activities or waste handling, storage, transport, remediation or disposal, emission or discharge requirements could require significant expenditures by us or other operators of the properties to attain and maintain compliance and may otherwise have a material adverse effect on our results of operations or financial condition. Increased scrutiny of the oil and natural gas industry may occur as a result of the FY 2017-2019 National Enforcement Initiatives of the U.S. Environmental Protection Agency (“EPA”), through which the EPA will purportedly address incidences of noncompliance from natural gas extraction and production activities that may cause or contribute to significant harm to public health and/or the environment.

Legislation and regulation of hydraulic fracturing, including with respect to seismic activity allegedly related to hydraulic fracturing, could adversely affect our business.

Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons from tight formations. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. For a description of the laws and regulations that affect us, including our hydraulic fracturing operations, see “Our Business—Government Regulation.” If adopted, certain bills could result in additional permitting and disclosure requirements for hydraulic fracturing operations as well as various restrictions on those operations. Any such added regulation could lead to operational delays, increased operating costs and additional regulatory burdens, and reduced production of oil and natural gas, which could adversely affect our business, financial position, results of operations and net cash provided by operating activities.

Hydraulic fracturing operations require the use of a significant amount of water. Our inability to locate sufficient amounts of water, or dispose of or recycle water used in our drilling and production operations, could adversely impact our operations. Moreover, new environmental initiatives and regulations could include restrictions on our ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the development or production of natural gas.

Finally, in some instances, the operation of underground injection wells has been alleged to cause earthquakes in some of the states where we operate. Such issues have sometimes led to orders prohibiting continued injection or the suspension of drilling in certain wells identified as possible sources of seismic activity. Such concerns also have resulted in stricter regulatory requirements in some jurisdictions relating to the location and operation of underground injection wells. Future orders or regulations addressing concerns about seismic activity from well injection could affect us, either directly or indirectly, depending on the wells affected.

Legislation and regulation of greenhouse gases could adversely affect our business, and we are subject to risks associated with climate change.

In December 2009, the EPA determined that emissions of carbon dioxide, methane and other “greenhouse gases” (“GHG”) present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA has adopted and implemented regulations to restrict emissions of GHGs under existing provisions of the Clean Air Act (“CAA”). In May 2016, the EPA finalized rules that set additional emissions limits for volatile organic compounds and established new controls for emissions of methane from new, modified or reconstructed sources in the oil and natural gas source category, including production, processing, transmission and storage activities. The rule includes first-time standards to address emissions of methane from equipment and processes across the source category, including hydraulically fractured oil and natural gas well completions. In June 2017, the EPA issued a proposal to stay certain of these requirements for two years and reconsider the entirety of the 2016 rules; however, the rules currently remain in effect. In addition, in April 2018, a coalition of states filed a lawsuit in the U.S. District Court for the District of Columbia aiming to force the EPA to establish guidelines for limiting methane emissions from existing sources in the oil and natural gas sector; that lawsuit is pending. The EPA has also adopted rules requiring the monitoring and reporting of

 

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GHG emissions from specified sources in the United States, including, among other things, certain onshore oil and natural gas production facilities, on an annual basis. In addition, in 2015, the United States participated in the United Nations Climate Change Conference, which led to the creation of the Paris Agreement. The Paris Agreement requires member countries to review and “represent a progression” in their intended nationally determined contributions, which set GHG emission reduction goals every five years beginning in 2020. In June 2017, the United States announced its withdrawal from the Paris Agreement, although the earliest possible effective date of withdrawal is November 2020. Despite the planned withdrawal, certain U.S. city and state governments have announced their intention to satisfy their proportionate obligations under the Paris Agreement. Legislation has from time to time been introduced in Congress that would establish measures restricting GHG emissions in the United States, and a number of states have begun taking actions to control and/or reduce emissions of GHGs. Any such additional regulation could lead to operational delays, increased operating costs and additional regulatory burdens, and reduced production of oil and natural gas, which could adversely affect our business, financial position, results of operations and net cash provided by operating activities.

In addition, some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events. If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas produced or cause us to incur significant costs in preparing for or responding to those effects.

Uncertainty regarding derivatives legislation could have an adverse impact on our ability to hedge risks associated with our business.

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in 2010, expands federal oversight and regulation of the derivatives markets and entities, such as us, that participate in those markets. Those markets involve derivative transactions, which include certain instruments, such as interest rate swaps, forward contracts, option contracts, financial contracts and other contracts, used in our risk management activities. The Dodd-Frank Act requires that most swaps ultimately will be cleared through a registered clearing facility and that they be traded on a designated exchange or swap execution facility, with certain exceptions for entities that use swaps to hedge or mitigate commercial risk. The Dodd-Frank Act requirements relating to derivative transactions have not been fully implemented by the SEC and the Commodities Futures Trading Commission and the current presidential administration has indicated a desire to repeal and/or replace certain provisions of the Dodd-Frank Act. Uncertainty regarding the current law and any new regulations could increase the operational and transactional cost of derivatives contracts and affect the number and/or creditworthiness of available counterparties. In addition, we may transact with counterparties based in the European Union, Canada or other jurisdictions which are in the process of implementing regulations to regulate derivatives transactions, some of which are currently in effect and impose operational and transactional costs on our derivatives activities.

Certain U.S. federal income tax deductions currently available with respect to oil and natural gas exploration and production may be eliminated as a result of future legislation.

In past years, legislation has been proposed that would, if enacted into law, make significant changes to U.S. tax laws, including the elimination of certain key U.S. federal income tax incentives currently available to oil and natural gas exploration and production companies. These changes include, but are not limited to, (i) the repeal of the percentage depletion allowance for oil and natural gas properties, (ii) the elimination of current deductions for intangible drilling and development costs (“IDCs”), (iii) the elimination of the deduction for certain domestic production activities, and (iv) an extension of the amortization period for certain geological and geophysical expenditures. Although these provisions were largely unchanged in the Tax Cuts and Jobs Act of 2017 (which was signed on December 22, 2017), Congress could consider, and could include, some or all of these proposals as part of future tax reform legislation. It is unclear whether any of the foregoing or similar proposals will be considered and enacted as part of future tax reform legislation and if enacted, how soon any such changes could

 

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become effective. The passage of any legislation as a result of these proposals or any other similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that are currently available with respect to oil and natural gas exploration and development and any such change could have an adverse effect on our financial position, results of operations and cash flows.

Recent changes in United States federal income tax law may have an adverse effect on our cash flows, results of operations or financial condition overall.

The Tax Cuts and Jobs Act of 2017 may affect our cash flows, results of operations and financial condition. Among other items, the Tax Cuts and Jobs Act of 2017 repealed the deduction for certain U.S. production activities and provided for a new limitation on the deduction for interest expense. Given the scope of this law and the potential interdependency of its changes, it is difficult at this time to assess whether the overall effect of the Tax Cuts and Jobs Act of 2017 will be cumulatively positive or negative for our earnings and cash flow, but such changes may adversely impact our financial results.

Risks Relating to the Spin-Off

The distribution may not be completed on the terms or timeline currently contemplated, if at all.

While we are actively engaged in planning for the distribution, unanticipated developments could delay or negatively affect the distribution, including those related to the filing and effectiveness of appropriate filings with the SEC and receiving any required regulatory approvals. In addition, until the distribution has occurred, the LINN Energy board of directors has the right to not proceed with the distribution, even if all of the conditions are satisfied. Therefore, the spin-off may not be completed on the terms or timeline currently contemplated, if at all.

We may be unable to achieve some or all of the benefits that we expect to achieve from our spin-off from LINN Energy.

By separating from LINN Energy, there is a risk that we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of LINN Energy. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our results of operations and financial condition could be materially adversely affected.

We may have received better terms from unaffiliated third parties than the terms we received in our agreements with LINN Energy entered into in connection with the spin-off.

The agreements related to the spin-off from LINN Energy were negotiated in the context of the spin-off from LINN Energy while we were still part of LINN Energy. Although these agreements are intended to be on an arm’s-length basis, they may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of the separation are related to, among other things, allocations of assets and liabilities, rights and indemnification and other obligations between us and LINN Energy. To the extent that certain terms of those agreements provide for rights and obligations that could have been procured from third parties, we may have received better terms from third parties because third parties may have competed with each other to win our business. See “Certain Relationships and Related Party Transactions—Agreements with LINN Energy Related to the Spin-Off.”

Certain directors who serve on our board of directors will serve as directors of the LINN Energy board of directors, and ownership of shares of LINN common stock or equity awards of Linn Energy, Inc. by directors and executive officers of Riviera Resources, Inc. may create conflicts of interest or the appearance of conflicts of interest.

Certain of our directors who serve on our board of directors will continue to serve on the LINN Energy board of directors. This could create, or appear to create, potential conflicts of interest when our or LINN

 

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Energy’s management and directors face decisions that could have different implications for us and LINN Energy, including the resolution of any dispute regarding the terms of the agreements governing the spin-off and the relationship between us and LINN Energy after the spin-off, any commercial agreements entered into in the future between us and LINN Energy and the allocation of such directors’ time between us and LINN Energy.

Because of their current or former positions with LINN Energy, substantially all of our executive officers and some of our non-employee directors will own shares of LINN common stock. The continued ownership of LINN common stock by Riviera Resources, Inc.’s directors’ and executive officers’ following the spin-off creates or may create the appearance of conflicts of interest when these directors and executive officers are faced with decisions that could have different implications for us and LINN Energy.

We may have meaningful liabilities under certain of the separation-related agreements, including the Tax Matters Agreement.

We have agreed to contractually assume many liabilities that could arguably otherwise be treated as liabilities of LINN Energy. This includes, among other things, any tax liabilities of LINN Energy arising as a result of the Spin-Off as well as many other categories of potential tax liabilities with respect to LINN Energy’s operations prior to the Spin-Off.

Risks Relating to Our Common Stock

There is no existing market for our common stock, and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price of shares of our common stock may fluctuate widely.

There is currently no public market for our common stock. We intend to apply to have our common stock quoted and traded on the OTC Market. In order to have our common stock quoted for public trading on the OTC Market, which is an over-the-counter market, not an exchange, we must have a market maker registered with FINRA to sponsor our application for a trading symbol for that over-the-counter market. There is no assurance that we will find a market maker to sponsor our application to FINRA or that our application will be approved by FINRA. No trading of our common stock is expected before or on the distribution date. The common stock is expected to commence public trading if and when FINRA approves our trading symbol application. An active trading market for our common stock may not develop as a result of the distribution or be sustained in the future. The lack of an active trading market may make it more difficult for you to sell your shares and could lead to our share price being depressed or more volatile.

We cannot predict the prices at which our common stock may trade after the distribution. The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control, including:

 

    our business profile and market capitalization may not fit the investment objectives of LINN stockholders that receive shares of our common stock in the spin-off, and as a result, LINN stockholders may sell our shares after the distribution;

 

    success or failure of our business strategies;

 

    failure to achieve our growth and performance objectives;

 

    fluctuations in our quarterly or annual earnings, or those of other companies in our industry;

 

    our ability to obtain financing as needed;

 

    changes in laws and regulations affecting our business;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    announcements by us or our competitors of significant acquisitions or dispositions;

 

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    the failure of securities analysts to cover our common stock after the distribution or negative views about our common stock or our business expressed by securities analysts;

 

    changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

    the operating and stock price performance of other comparable companies;

 

    overall market fluctuations;

 

    future sales of our common stock;

 

    general economic and industry conditions; and

 

    the other factors described in these “Risk Factors” and other parts of this prospectus.

For many reasons, including the risks identified in this prospectus, the market price of our common stock following the spin-off may be more volatile than the market price of LINN common stock before the spin-off. These factors may result in short-term or long-term negative pressure on the value of our common stock. Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.

Funds associated with Fir Tree Inc., York Capital Management Global Advisors, LLC, Elliott Management Corporation and P. Schoenfeld Asset Management LP collectively owned approximately 51.7% of the LINN common stock as of July 13, 2018, and following the spin-off, such funds will own a percentage of the Riviera common stock that corresponds to their then-current holdings of LINN common stock. Circumstances may arise in which these stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions that, in their judgment, could enhance their investment in Riviera. Such transactions might adversely affect us or other holders of the Riviera common stock.

Our significant concentration of share ownership may adversely affect the trading price of the Riviera common stock.

As of July 13, 2018, approximately 51.7% of the LINN common stock was beneficially owned by four holders, and following the spin-off, such holders will own a percentage of the Riviera common stock that corresponds to their then-current holdings of LINN common stock. Each such holder has a representative on the Riviera board of directors. Our significant concentration of share ownership may adversely affect the trading price of the Riviera common stock because of the lack of trading volume in our common stock and because investors may perceive disadvantages in owning shares in companies with significant stockholders.

Your percentage ownership in Riviera may be diluted in the future.

Your percentage ownership in Riviera may be diluted in the future because of (i) equity awards that we expect will be issued to our directors, officers and employees and (ii) any future sales of stock by Riviera or any issuances thereof in connection with an acquisition.

Directors, officers and employees of LINN Energy currently hold restricted stock units with respect to LINN common stock. Upon completion of the spin-off, (i) holders of then-outstanding LINN Energy restricted stock units will receive one restricted stock unit with respect to our common stock in respect of each such outstanding LINN Energy restricted stock unit, and (ii) all outstanding but unvested LINN Energy restricted stock units will fully vest, without pro-ration, and be settled in LINN common stock. The Riviera restricted stock units will continue to vest subject to, and in accordance with, the terms applicable to the corresponding LINN Energy restricted stock units and are not subject to acceleration in connection with the spin-off.

 

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Provisions in our certificate of incorporation, bylaws and Delaware law may prevent or delay an acquisition of Riviera, which could decrease the trading price of our common stock.

Our certificate of incorporation, bylaws and Delaware corporate law contain or will contain provisions that are intended to deter or delay coercive takeover practices and inadequate takeover bids. For example, our certificate of incorporation and bylaws will require advance notice for stockholder proposals to nominate directors or present matters at stockholder meetings, place limitations on convening stockholder meetings and authorize our board of directors to issue one or more series of preferred stock. These provisions could enable our board of directors to delay or prevent a transaction that some, or a majority, of our stockholders may believe to be in their best interests and, in that case, may discourage or prevent attempts to remove and replace incumbent directors. These provisions may also discourage or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. Further information on such provisions in the certificate of incorporation and bylaws can be found in the section titled “Description of Capital Stock.”

Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation will provide that, subject to limited exceptions, the State of Delaware will be the sole and exclusive forum for derivative actions; claims related to a breach of a fiduciary duty, corporate law, our certificate of incorporation or our bylaws; or under the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees.

We have no plans to pay dividends on our common stock, and you may not receive funds without selling your common stock.

We do not intend, following the spin-off, to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain any earnings for the future operation and development of our business, including exploration, development and acquisition activities. Any decision to declare and pay dividends will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. There can be no assurance that a payment of a dividend will occur in the future.

 

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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

All statements contained in this prospectus, other than statements of historical fact, are “forward-looking” statements. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” the negative of such terms and other comparable expressions. These risks, uncertainties and contingencies include, but are not limited to, Riviera’s:

 

    business strategy;

 

    acquisition and disposition strategy;

 

    financial strategy;

 

    the benefits resulting from the spin-off;

 

    ability to comply with covenants under the Revolving Credit Facility and the Blue Mountain Revolving Credit Facility;

 

    risks and uncertainties related to LINN Energy’s 2017 emergence from bankruptcy;

 

    effects of legal proceedings;

 

    drilling locations;

 

    oil, natural gas and NGL reserves;

 

    realized oil, natural gas and NGL prices;

 

    production volumes;

 

    capital expenditures;

 

    economic and competitive advantages;

 

    credit and capital market conditions;

 

    regulatory changes;

 

    lease operating expenses, general and administrative expenses and development costs;

 

    future operating results;

 

    plans, objectives, expectations and intentions; and

 

    taxes.

The forward-looking statements contained in this prospectus are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our management’s best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, our management’s assumptions may prove to be inaccurate. We caution that the forward-looking statements contained in this prospectus are not guarantees of future performance, and we cannot assure any potential investor that such statements will be realized or the events will occur.

Actual results may differ materially from those anticipated or implied in forward-looking statements due to factors set forth in “Risk Factors” and elsewhere in this prospectus. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and

 

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competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, uncertainties that may delay or negatively impact the spin-off or cause the spin-off to not occur at all, uncertainties related to our ability to realize the anticipated benefits of the spin-off, unanticipated developments that delay or otherwise negatively affect the spin-off, unanticipated developments related to the impact of the spin-off on our relationships with our customers, vendors, royalty and working interest owners, employees, service providers and suppliers, LINN Energy and others with whom we have relationships, unanticipated developments resulting from possible disruption to our operations resulting from the spin-off, the potential impact of the spin-off and related transactions on our credit rating, as well as those factors set forth in “Risk Factors.” There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.

The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

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THE SPIN-OFF

Background

In April 2018, LINN Energy announced its intention to separate Riviera from LINN Energy. Following the spin-off of Riviera from LINN Energy, Riviera Resources, Inc. will be an independent reporting company, and eventually a publicly traded company.

As part of the spin-off, LINN Energy will effect an internal reorganization, and Riviera Resources, LLC will convert from a Delaware limited liability company to a Delaware corporation and change its name to Riviera Resources, Inc. In connection with such conversion, all of the membership interests in our company will be converted into approximately 78,449,265 shares of common stock in Riviera Resources, Inc. Following the conversion, we will be subject to taxation at the company level.

Following the internal reorganization and conversion, Riviera Resources, Inc. will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan and certain other immaterial assets. See “—Manner of Effecting the Spin-Off—Internal Reorganization.”

To complete the spin-off, LINN Energy will distribute to LINN stockholders all of the outstanding shares of Riviera common stock. The distribution will occur on the distribution date, which is expected to be August 7, 2018. Each holder of LINN common stock will receive one share of our common stock for each share of LINN common stock held at 5:00 p.m., Eastern Time, on August 3, 2018, the record date.

After completion of the spin-off:

 

    Riviera Resources, Inc. (OTC: RVRA) will be an independent oil and gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets, and returning capital to stockholders. Riviera will own (i) LINN Energy’s legacy properties located in the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Uinta Basin and Mid-Continent regions, and (ii) Blue Mountain, a midstream company centered in the core of the Merge play in the Anadarko Basin.

 

    Linn Energy, Inc. (OTCQB: LNGG) will continue to be an independent, publicly traded company and will own a 50% equity interest in Roan, which is focused on the accelerated development of the Merge/SCOOP/STACK play in Oklahoma.

Each holder of LINN common stock will continue to hold his, her or its shares in LINN Energy. No vote of LINN stockholders is required or is being sought in connection with the spin-off, including the internal reorganization, and LINN stockholders will not have any appraisal rights in connection with the spin-off.

The distribution is subject to the satisfaction or waiver of certain conditions. In addition, until the distribution has occurred, the LINN Energy board of directors has the right to not proceed with the distribution, even if all of the conditions are satisfied. See “—Conditions to the Distribution.”

Reasons for the Spin-Off

The LINN Energy board of directors believes that the spin-off is in the best interests of LINN Energy and LINN stockholders because the spin-off is expected to provide various benefits, including: (i) enhanced strategic and management focus for each company; (ii) more efficient capital allocation, direct access to capital and expanded growth opportunities for each company; (iii) the ability to implement a tailored approach to recruiting and retaining employees at each company; (iv) improved investor understanding of the business strategy and operating results of each company; and (v) enhanced investor choices by offering investment opportunities in separate entities.

 

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Enhanced Strategic and Management Focus. The spin-off should permit each company to tailor its business strategies to best address market opportunities in its geographic regions. In addition, the spin-off should allow the management of each company to enhance its strategic vision and focus on the core business and growth of each company. The spin-off should provide each company with the flexibility needed to pursue its own goals and serve its own needs.

More Efficient Capital Allocation, Direct Access to Capital and Expanded Growth Opportunities. After the spin-off, each company should be able to access the capital markets directly to fund its growth strategy and to establish a capital structure tailored to its business needs. Each company should be able to allocate capital and make investments as its management determines in order to grow its business.

Tailored Approach to Recruiting and Retaining Employees. After the spin-off, each company should be able to recruit and retain employees with expertise directly applicable to its needs under compensation policies appropriate for its specific business. In particular, following the distribution, the value of equity-based incentive compensation arrangements reflected in each company’s stock price should be more closely aligned with the performance of its business. Such equity-based compensation arrangements should also provide enhanced incentives for employee performance and improve the ability of each company to attract, retain and motivate qualified personnel, including management and key employees considered essential to that company’s future success.

Improved Investor Understanding. After the spin-off, investors will receive disclosure about our operating results and LINN Energy’s operating results on a stand-alone basis, which should enable them to better evaluate the financial performance of each company, as well as each company’s strategy within the context of its industry, thereby increasing the likelihood that each company’s common stock will be appropriately valued by the market.

Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities. The LINN Energy board of directors believes that Riviera and LINN Energy appeal to different types of investors with different investment goals and risk profiles. After the spin-off, investors will be able to pursue investment goals in either or both companies. In addition, the management of each company will be able to establish goals, implement business strategies and evaluate growth opportunities in light of investor expectations specific to that company’s respective business, without undue consideration of investor expectations for the other business. Each company will also be able to focus its public relations efforts on cultivating its own separate identity.

Manner of Effecting the Spin-Off

The general terms and conditions relating to the spin-off will be set forth in the Separation and Distribution Agreement between Riviera Resources, Inc. and Linn Energy, Inc.

Internal Reorganization

In advance of the spin-off, LINN Energy will effect an internal reorganization pursuant to which:

 

    on July 11, 2018, Linn Energy, Inc. formed a new corporate subsidiary (“New Linn”), which formed a new limited liability company subsidiary (“Merger Sub”);

 

    Linn Energy, Inc. will merge with and into Merger Sub, with Linn Energy, Inc. disappearing and Merger Sub surviving the merger;

 

    the current public shareholders of LINN common stock will receive identical common stock in New Linn in the merger, and New Linn will be renamed Linn Energy, Inc.;

 

    through a series of distributions, Linn Energy, Inc.’s indirect 50% equity interest in Roan will ultimately become held directly by Linn Energy, Inc.;

 

    through a series of distributions, Linn Energy, Inc.’s indirect 100% equity interest in Riviera Resources, LLC will ultimately become held directly by Linn Energy, Inc.;

 

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    Riviera Resources, LLC will convert from a Delaware limited liability company to a Delaware corporation and change its name to Riviera Resources, Inc., and in connection with such conversion, all of the membership interests in our company will be converted into shares of common stock in Riviera Resources, Inc.; and

 

    we will enter into an assignment agreement with Linn Energy, Inc. and Merger Sub, pursuant to which Linn Energy, Inc. will assign to us all of the membership interests in Merger Sub.

Immediately following the above-described internal reorganization, (i) Riviera Resources, Inc. will directly hold 100% of the equity interests in Merger Sub, which will hold all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan Resources LLC and certain other immaterial assets; and (ii) Linn Energy, Inc. will hold a 50% equity interest in Roan and certain other immaterial assets.

Distribution of Shares of Our Common Stock

Under the Separation and Distribution Agreement, the distribution will be effective as of 5:00 p.m., Eastern Time, on August 7, 2018, the distribution date. As a result of the spin-off, on the distribution date, each holder of LINN common stock will receive one share of our common stock for each share of LINN common stock that he, she or it owns as of 5:00 p.m., Eastern Time, on August 3, 2018, the record date. The actual number of shares to be distributed will be determined based on the number of shares of LINN common stock expected to be outstanding as of the record date. The actual number of shares of Riviera common stock to be distributed will be calculated as of the record date. The shares of Riviera common stock to be distributed by Linn Energy, Inc. will constitute all of the issued and outstanding shares of Riviera common stock immediately prior to the distribution.

On the distribution date, LINN Energy will release the shares of our common stock to our distribution agent to distribute to LINN stockholders. Our distribution agent will credit the shares of our common stock to the book-entry accounts of LINN stockholders established to hold their shares of our common stock. Our distribution agent will send these stockholders a statement reflecting their ownership of our common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For stockholders who own LINN common stock through a broker or other nominee, their shares of our common stock will be credited to these stockholders’ accounts by the broker or other nominee. It may take the distribution agent up to two weeks to distribute shares of our common stock to LINN stockholders or to their bank or brokerage firm electronically by way of direct registration in book-entry form.

LINN stockholders will not be required to make any payment or surrender or exchange their shares of LINN common stock or take any other action, other than to provide any documentation that may be required as discussed under “Material U.S. Federal Income Tax Consequences of the Spin-Off,” to receive their shares of our common stock. No vote of LINN stockholders is required or sought in connection with the spin-off, including the internal reorganization, and LINN stockholders have no appraisal rights in connection with the spin-off.

LINN stockholders may be asked to provide documentation indicating that distributions to them are not subject to withholding under FIRPTA, as discussed below. In the event that LINN Energy and/or applicable distribution agents are unable to confirm that a distribution to a particular shareholder is not subject to withholding under FIRPTA, a number of shares may be withheld from distribution and sold, as necessary, to fund applicable withholding requirements. Similarly, LINN Energy and/or applicable distribution agents or brokers may withhold a number of shares from distribution and sell those shares to fund any other withholding requirements that are determined to apply.

Results of the Spin-Off

After the spin-off, we will be an independent reporting company, and eventually a publicly traded company. Immediately following the spin-off, we expect to have approximately 16 record holders of shares of our common stock and approximately 78,449,265 shares of our common stock outstanding, based on the number of record

 

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holders on July 19, 2018 and the number of shares of LINN common stock outstanding on July 24, 2018 and assuming each holder of LINN common stock will receive one share of Riviera common stock for each share of LINN common stock. The actual number of shares to be distributed will be determined as of the record date and will reflect any repurchases of shares of LINN common stock and issuances of shares of LINN common stock in respect of awards under Linn Energy, Inc.’s equity-based incentive plans between the date the LINN Energy board of directors declares the dividend for the distribution and the record date for the distribution.

Upon completion of the spin-off, (i) holders of then-outstanding LINN Energy restricted stock units will receive one restricted stock unit with respect to our common stock in respect of each such outstanding LINN Energy restricted stock unit, and (ii) all outstanding but unvested LINN Energy restricted stock units will fully vest, without pro-ration, and be settled in LINN common stock. The Riviera restricted stock units will continue to vest subject to, and in accordance with, the terms applicable to the corresponding LINN Energy restricted stock units and are not subject to acceleration in connection with the spin-off. For information regarding the treatment of equity awards of directors and executive officers of Riviera Resources, Inc., see “Certain Relationships and Related Party Transactions—Agreements with LINN Energy Related to the Spin-Off—Issuance and Grant of Riviera Restricted Stock Units to Certain Related Persons.”

Before the spin-off, we will enter into several agreements with LINN Energy to effect the spin-off and provide a framework for our relationship with LINN Energy after the spin-off. These agreements will govern the relationship between us and LINN Energy after completion of the spin-off and provide for the allocation between us and LINN Energy of the assets, liabilities, rights and obligations of LINN Energy. See “Certain Relationships and Related Party Transactions—Agreements with LINN Energy Related to the Spin-Off.”

Trading in Riviera Common Stock

There is currently no public market for Riviera common stock. We intend to have our common stock quoted for trading on the OTC Market, where we expect to qualify as an SEC-reporting company, under the ticker symbol “RVRA”. We do not expect that our common stock will trade on or before the distribution date. Trading of shares of our common stock is expected to begin on a date to be determined after the distribution date if and when our trading symbol application with FINRA is approved. We cannot predict the trading prices for our common stock when trading begins.

Trading On or Prior to the Distribution Date

We also anticipate that FINRA will set an “ex-distribution date” for our common stock as the first business day following the distribution date; however, we can provide no assurance as to the ex-distribution date that FINRA will ultimately set. If you hold shares of LINN common stock as of the record date for the distribution and choose to sell those shares after the record date for the distribution and on or before the distribution date, you will also be selling the right to receive the shares of Riviera common stock in connection with the spin-off (assuming that FINRA sets an ex-distribution date of the first business day following the distribution date).

Conditions to the Distribution

We expect that the distribution will be effective as of 5:00 p.m., Eastern Time, on August 7, 2018, the distribution date. The distribution is subject to the satisfaction, or waiver by Linn Energy, Inc., of the following conditions:

 

    the final approval of the distribution by the LINN Energy board of directors, which approval may be given or withheld in its absolute and sole discretion;

 

    the Separation and Distribution Agreement and the ancillary agreements contemplated by the Separation and Distribution Agreement shall have been executed by each party to those agreements;

 

    all conditions precedent to the Credit Facility Amendment necessary to effectuate the spin-off shall have been satisfied or waived in accordance with its terms;

 

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    our Registration Statement on Form S-1, of which this prospectus forms a part, shall have been declared effective by the SEC, with no stop order in effect with respect thereto, and no proceedings to suspend the effectiveness thereof pending before or threatened by the SEC;

 

    prior to the distribution date, this prospectus shall have been mailed to the LINN stockholders as of the record date;

 

    all material governmental approvals and other consents necessary to consummate the spin-off or any portion thereof shall have been obtained and be in full force and effect; and

 

    no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off.

We are not aware of any material U.S. federal, non-U.S. or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with the rules and regulations of the SEC, approval of our application to be quoted on the OTC Market by FINRA, and the declaration of effectiveness of the Registration Statement on Form S-1, of which this prospectus forms a part, by the SEC, in connection with the distribution. LINN Energy and Riviera cannot assure you that any or all of these conditions will be met and Linn Energy, Inc. may waive any of the conditions to the distribution. In addition, until the distribution has occurred, the LINN Energy board of directors has the right to not proceed with the distribution, even if all of the conditions are satisfied. In the event that the LINN Energy board of directors determines to waive a material condition to the distribution, to modify a material term of the distribution or not to proceed with the distribution, LINN Energy intends to promptly issue a press release or other public announcement and file a Current Report on Form 8-K to report such event.

Reasons for Filing this Prospectus

This prospectus is being filed solely to provide information to LINN stockholders that are entitled to receive shares of Riviera common stock in the spin-off. This prospectus is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities or any securities of LINN Energy. We believe that the information in this prospectus is accurate as of the date set forth on the cover. Changes may occur after that date and neither LINN Energy nor we undertake any obligation to update the information except in the normal course of our respective public disclosure obligations.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF

The following is a summary of the material U.S. federal income tax consequences to the holders of shares of LINN common stock in connection with the spin-off. This summary is based on the Internal Revenue Code of 1986 (the “Code”), the regulations of the U.S. Department of the Treasury (“Treasury regulations”) promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect as of the date of this prospectus, and all of which are subject to differing interpretations and may change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below. This summary assumes that the spin-off will be consummated in accordance with the Separation and Distribution Agreement and as described in this prospectus.

For purposes of this summary, a “U.S. Holder” is a beneficial owner of LINN common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or a resident of the United States;

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust (i) with respect to which a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that has a valid election in place under applicable Treasury regulations to be treated as a U.S. person.

For purposes of this summary, a “Non-U.S. Holder” means a beneficial owner of shares of LINN common stock that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership) for U.S. federal income tax purposes.

This summary does not discuss all tax considerations that may be relevant to LINN stockholders in light of their particular circumstances, nor does it address the consequences to LINN stockholders subject to special treatment under the U.S. federal income tax laws, such as:

 

    persons acting as nominees or otherwise not as beneficial owners;

 

    dealers or traders in securities or currencies;

 

    broker-dealers;

 

    traders in securities that elect to use the mark-to-market method of accounting;

 

    tax-exempt entities;

 

    cooperatives;

 

    banks, trusts, financial institutions or insurance companies;

 

    persons who acquired shares of LINN common stock pursuant to the exercise of employee stock options or otherwise as compensation;

 

    stockholders who own, or are deemed to own, at least 10% or more, by voting power or value, of Linn Energy, Inc. equity;

 

    holders owning LINN common stock as part of a position in a straddle or as part of a hedging, conversion, constructive sale, synthetic security, integrated investment, or other risk reduction transaction for U.S. federal income tax purposes;

 

    regulated investment companies;

 

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    REITs;

 

    former citizens or former long-term residents of the United States or entities subject to Section 7874 of the Code;

 

    holders who are subject to the alternative minimum tax; or

 

    pass-through entities (such as entities treated as partnerships for U.S. federal income tax purposes).

This summary does not address the U.S. federal income tax consequences to LINN stockholders who do not hold shares of LINN common stock as a capital asset within the meaning of Section 1221 of the Code. Moreover, this summary does not address any state, local or non-U.S. tax consequences, or any federal tax other than U.S. federal income tax consequences (such as estate or gift tax consequences or the Medicare tax on certain investment income).

If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of LINN common stock, the tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partner and the partnership. Such a partner or partnership is urged to consult its tax advisor as to the U.S. federal income tax consequences of the spin-off.

WE URGE YOU TO CONSULT WITH YOUR TAX ADVISOR AS TO THE SPECIFIC U.S. FEDERAL, STATE AND LOCAL, AND NON-U.S. TAX CONSEQUENCES OF THE SPIN-OFF IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.

Treatment of the Distribution

The receipt of our common stock by holders of LINN common stock is expected to be taxable for U.S. federal income tax purposes.

Consequences to U.S. Holders

A U.S. Holder receiving our shares in the distribution will be treated as receiving a distribution to the extent of the fair market value of the shares received on the distribution date. That distribution will be treated as taxable dividend income to the extent of such U.S. Holder’s ratable share of LINN Energy’s current and accumulated earnings and profits, if any (including any additional earnings and profits recognized by LINN Energy as a result of the distribution). Any amount that exceeds LINN Energy’s earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in its shares of LINN common stock (thus reducing such adjusted tax basis) with any remaining amounts being treated as capital gain. Such capital gain will be long term capital gain if the holder’s holding period for the shares of LINN common stock exceeded one year at the distribution date. Any such taxable dividend income and capital gain should be included in the U.S. Holder’s income in the taxable year in which the distribution is received.

A U.S. holder’s tax basis in shares of our common stock received in the distribution generally will equal the fair market value of such shares on the distribution date, and the holding period for such shares will begin the day after the distribution date. The holding period for the holder’s shares of LINN common stock will not be affected by the fact that the distribution was taxable, and the adjusted tax basis in such shares will be affected to the extent described in the preceding paragraph. Corporate U.S. Holders may be entitled to a dividends-received deduction with respect to the distribution for U.S. federal income tax purposes, subject to limitations and requirements. Corporate U.S. Holders should be aware that under certain circumstances, a corporation that receives an “extraordinary dividend” (as defined in Section 1059 of the Code) is required to (i) reduce its tax basis (but not below zero) by the portion of such dividend that is not taxed because of the dividends received deduction and (ii) treat the non-taxed portion of such dividend as gain from the sale or exchange of LINN common stock for the taxable year in which such dividend is received (to the extent that the non-taxed portion of such dividend exceeds such holder’s tax basis).

 

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Individual and certain other non-corporate U.S. holders may qualify for preferential rates of taxation with respect to their taxable dividend income, provided that a minimum holding period and other requirements are satisfied. Such U.S. holders who receive an “extraordinary dividend” will be required to treat any losses on the sale of LINN common stock as long-term capital losses to the extent such taxable dividend income received by them qualifies for preferential rates of taxation.

U.S. holders should consult their tax advisors with respect to the potential application of the extraordinary dividend rules to the distribution of shares of our common stock.

Consequences to Non-U.S. Holders

Each Non-U.S. Holder will be treated as receiving a taxable distribution in an amount equal to the fair market value on the date of the distribution of our common stock received. This distribution generally would be treated first as a taxable dividend to the extent of the Non-U.S. Holder’s pro rata share of LINN Energy’s current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), then as a non-taxable return of capital to the extent of the Non-U.S. Holder’s basis in the LINN common stock, and finally as capital gain from the sale or exchange of LINN common stock with respect to any remaining value.

Ordinary Dividends

Even if a Non-U.S. Holder is eligible for a lower treaty rate, dividend payments will generally be subject to withholding at a 30% rate (rather than the lower treaty rate) unless the Non-U.S. Holder provides a valid IRS Form W-8BEN or W-8BEN-E (or applicable successor form) certifying such holder’s qualification for the reduced rate. If a Non-U.S. Holder holds the stock through a financial institution or other intermediary, the Non-U.S. Holder will be required to provide appropriate documentation to the intermediary, which then will be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. Non-U.S. Holders who do not timely provide the applicable withholding agent with the required certification, but who qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

Subject to the discussions below regarding backup withholding, if the common stock distributed to a Non-U.S. Holder in the distribution is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from U.S. federal withholding tax. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI (or applicable successor form), certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. If the common stock received by a Non-U.S. Holder in the distribution is effectively connected with the Non-U.S. Holder’s U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States), the fair market value on the date of the distribution of the common stock distributed (including any common stock withheld in respect of U.S. federal withholding tax) generally will be subject to U.S. federal income tax on a net income basis in the same manner as if such holder were a U.S. Holder. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) of all or a portion of its effectively connected earnings and profits for the taxable year.

Any withholding tax with respect to the distribution must be remitted in cash to the IRS. A Non-U.S. Holder’s broker or other applicable withholding agent may obtain the funds necessary to remit such withholding tax by selling (on the Non-U.S. Holder’s behalf) shares of our common stock that such Non-U.S. Holder would otherwise receive in the distribution. Such holder may bear brokerage or other costs for this withholding procedure. A Non-U.S. Holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the amounts withheld exceeded the holder’s U.S. tax liability for the year in which the distribution occurred.

 

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Non-Dividend Distributions

To the extent that the distribution is treated as capital gain from the sale or exchange of LINN common stock, such gain generally will not be subject to U.S. federal income tax unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the United States (and, if an income tax treaty applies, the gain is generally attributable to the U.S. permanent establishment maintained by such Non-U.S. Holder), (ii) in the case of gain realized by a Non-U.S. Holder that is an individual, such Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met or (iii) LINN Energy is or has been a United States real property holding corporation (“USRPHC”) for U.S. federal income tax purposes and, if the shares are “regularly traded on an established securities market,” such Non-U.S. Holder owned, directly or indirectly, at any time during the five-year period ending on the date of the distribution, more than 5% of the shares of LINN common stock and such Non-U.S. Holder is not eligible for any treaty exemption. The shares will be considered “regularly traded” if they are traded on an established securities market located in the United States and are regularly quoted by brokers or dealers making a market in the Shares.

With respect to item (iii) above, LINN Energy believes it has been, is, and at the time of the distribution will be, a United States real property holding corporation for U.S. federal income tax purposes. In addition, although not free from doubt, we believe that LINN Energy’s shares currently should be considered to be regularly traded. Assuming such treatment is respected, the Non-U.S. Holder will be taxable on gain recognized on the distribution only if the Non-U.S. Holder directly or indirectly holds or has held more than 5% of the shares of LINN Energy at any time during the applicable period described in item (iii) above and such Non-U.S. Holder is not eligible for any treaty exemption.

If LINN Energy is a USRPHC, the portion of the distribution that is in excess of of the sum of (1) the Non-U.S. Holder’s proportionate share of LINN Energy’s earnings and profits, plus (2) the Non-U.S. Holder’s basis in its LINN Energy stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). Any gain or loss on the distribution of the shares would be taken into account as if it were effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, and any such gain generally would be taxable to the Non-U.S. Holder at U.S. federal income tax rates applicable to capital gains. The collection of the tax would be enforced by a withholding at a rate of 15% of the amount by which the distribution exceeds the stockholder’s share of LINN Energy’s earnings and profits. We expect this withholding requirement to be satisfied by the applicable withholding agent’s (which may be LINN Energy or another party) sale of a sufficient number of shares of our common stock to fund such withholding. Additionally, in order to ensure compliance with the FIRPTA withholding requirements, prior to releasing our stock to any Holder, the applicable withholding agent may require each Holder to confirm that they are not subject to FIRPTA withholding, either because they are not a Non-U.S. Holder or because they are a Non-U.S. Holder that is not subject to FIRPTA withholding because they own 5% or less of LINN Energy’s stock and have never owned more than 5% of LINN Energy’s stock during a specified period of time.

A Non-U.S. Holder should consult its tax advisor regarding its entitlement to benefits and the various rules under applicable tax treaties.

Tax Consequences to LINN Energy

Any corporate-level income tax incurred on the distribution will be the joint and several liability of LINN Energy and us. Under the terms of the Tax Matters Agreement, we will be obligated to indemnify LINN Energy with respect to such liability. Pursuant to the terms of the Tax Matters Agreement, a Section 336(e) election may be made with respect to the distribution.

Information Reporting and Backup Withholding

In general, the fair market value of our common stock received by U.S. Holders in the distribution will be reported to the IRS unless the holder is an exempt recipient. Backup withholding, at a rate of 28% may apply unless the U.S. Holder (1) is an exempt receipt or (2) provides a certificate (generally on an IRS Form W-9)

 

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containing the holder’s name, address, correct federal taxpayer identification number and statement that the holder is a U.S. person and is not subject to backup withholding.

Any backup withholding tax with respect to the distribution must be remitted in cash to the IRS. A U.S. Holder’s broker or other applicable withholding agent may obtain the funds necessary to remit such withholding tax by selling (on the U.S. Holder’s behalf) shares of our common stock that such U.S. Holder would otherwise receive in the distribution. Such holder may bear brokerage or other costs for this withholding procedure. A Non-U.S. Holder will not be subject to backup withholding with respect to the common stock received in the distribution, provided the holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN or W-8ECI or W-8BEN-E, or otherwise establishes an exemption. However, information returns will be filed with the IRS in connection with the common stock received by a non-U.S. Holder in the distribution, regardless of whether any tax was actually withheld. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Foreign Account Tax Compliance Act

Withholding taxes may also apply to certain types of payments made to “foreign financial institutions” (as defined in the Code) and certain other non-U.S. entities (including payments to U.S. stockholders that hold shares of our common stock through such a foreign financial institution or non- U.S. entity). Specifically, a 30% withholding tax may be imposed on dividends on, and gross proceeds from the sale or other disposition of, stock paid to a foreign financial institution or to a non-financial foreign entity, unless (i) the foreign financial institution undertakes certain diligence and reporting, (ii) the non-financial foreign entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (i) above, in order to avoid the imposition of such withholding, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts to the IRS (or, in some cases, local tax authorities), and withhold 30% on payments it makes to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these provisions may be subject to different rules. Under the applicable Treasury Regulations and IRS guidance, the withholding provisions described above generally (i) apply to payments of dividends, and (ii) will apply to payments of gross proceeds from a sale or other disposition of our capital stock on or after January 1, 2019. You should consult your tax advisor regarding these withholding provisions.

THE FOREGOING IS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION TO HOLDERS OF LINN COMMON STOCK UNDER CURRENT LAW. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF HOLDERS. EACH HOLDER OF LINN COMMON STOCK SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO SUCH HOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

 

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USE OF PROCEEDS

We will not receive any proceeds from the distribution of our common stock in the spin-off.

 

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DETERMINATION OF OFFERING PRICE

No consideration will be paid for the shares of our common stock in the spin-off.

 

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DIVIDEND POLICY

We do not intend, following the spin-off, to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain any earnings for the future operation and development of our business, including exploration, development and acquisition activities. Any decision to declare and pay dividends will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. There can be no assurance that a payment of a dividend will occur in the future. Any future payment of cash dividends would be subject to the restrictions in the Revolving Credit Facility and the Blue Mountain Credit Facility.

 

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CAPITALIZATION

The following table sets forth the cash, cash equivalents and capitalization of Riviera as of March 31, 2018 on a historical basis and on a pro forma basis to give effect to the spin-off and the related transactions, as if they occurred on March 31, 2018. Explanation of the pro forma adjustments made to the audited and unaudited consolidated and combined financial statements can be found under the section titled “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information.” The following table should be reviewed in conjunction with the sections titled “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated and combined financial statements and related notes thereto included elsewhere in this prospectus.

 

     March 31, 2018  
(in thousands, except per share amount)    Actual      Pro Forma (1)  

Cash and cash equivalents

   $ 227,196      $ 227,196  
  

 

 

    

 

 

 

Long-term debt

     —       

Equity

     

Net parent company investment

   $ 2,001,892      $ —    

Common stock, $0.01 par value; 270,000,000 shares authorized, 78,449,265 shares issued and outstanding, 78,449,265 pro forma

     —          784  

Additional paid in capital

     —          1,507,430  
  

 

 

    

 

 

 

Total Capitalization

   $ 2,001,892      $ 1,508,214  
  

 

 

    

 

 

 

 

(1)  See the section titled “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information.”

 

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SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL DATA

The following table presents selected historical financial data of Riviera. Following the spin-off, Riviera will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan and certain other immaterial assets. Riviera will be the financial reporting entity following the consummation of the spin-off.

We derived the selected historical statements of operations data for the ten months ended December 31, 2017, for the two months ended February 28, 2017, and for the years ended December 31, 2016 and 2015, and the selected historical balance sheet data as of December 31, 2017 and 2016, from the audited consolidated and combined financial statements of Riviera included elsewhere in this prospectus. We derived the selected historical statements of operations and cash flow data for the three months ended March 31, 2018, and for the one month ended March 31, 2017, and the selected historical balance sheet data as of March 31, 2018, from the unaudited condensed consolidated and combined financial statements of Riviera included elsewhere in this prospectus. We derived the selected historical statements of operations data for the years ended December 31, 2014 and 2013 and the selected historical balance sheet data as of December 31, 2015, 2014 and 2013 from the unaudited consolidated and combined financial statements of Riviera that are not included in this prospectus. We have prepared our unaudited condensed consolidated and combined financial statements on the same basis as our audited consolidated and combined financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations.

This selected historical consolidated and combined financial data is not necessarily indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from LINN Energy. For example, our historical consolidated and combined financial statements include certain costs that may not be representative of the future costs we will incur as an independent, public company. In addition, our historical consolidated and combined financial statements include our historical 50% equity interest in Roan, which will be retained by LINN Energy following the spin-off.

The selected historical consolidated and combined financial data below should be read together with the audited and unaudited consolidated and combined financial statements of Riviera, including the notes thereto, and the sections titled “Capitalization,” “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Material Indebtedness” and the other financial information included elsewhere in this prospectus included elsewhere in this prospectus.

 

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Table of Contents
Index to Financial Statements
    Successor           Predecessor  
    Three Months
Ended

March 31,
2018
    Ten Months
Ended
December 31,
2017
    One Month
Ended
March 31,
2017
          Two Months
Ended
February 28,
2017
    Year Ended December 31,  
              2016     2015     2014     2013  
(in thousands)                              

Statements of operations data:

                   

Revenues and other:

                   

Oil, natural gas and natural gas liquids sales

  $ 136,876     $ 709,363     $ 80,325         $ 188,885     $ 874,161     $ 1,065,795     $ 2,305,573     $ 2,022,916  

Gains (losses) on oil and natural gas derivatives

    (15,030     13,533       (11,959         92,691       (164,330     1,027,014       1,127,395       182,906  

Marketing revenues

    46,267       82,943       2,914           6,636       36,505       43,876       84,349       53,772  

Other revenues

    5,894       20,839       2,028           9,915       93,308       97,771       114,366       44,840  
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    174,007       826,678       73,308           298,127       839,644       2,234,456       3,631,683       2,304,434  
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

                   

Lease operating expenses

    47,884       208,446       24,630           49,665       296,891       352,077       441,094       356,715  

Transportation expenses

    19,094       113,128       13,723           25,972       161,574       167,023       165,489       125,864  

Marketing expenses

    41,755       69,008       2,539           4,820       29,736       35,278       81,210       36,259  

General and administrative expenses

    44,779       117,347       10,408           71,745       237,841       285,996       274,006       235,870  

Exploration costs

    1,202       3,137       55           93       4,080       9,473       125,037       5,251  

Depreciation, depletion and amortization

    28,465       133,711       17,847           47,155       342,614       513,508       758,996       809,608  

Impairment of long-lived assets

    —         —         —             —         165,044       5,024,944       2,050,387       828,317  

Taxes, other than income taxes

    8,452       47,553       7,077           14,877       67,644       97,683       168,986       136,501  

(Gains) losses on sale of assets and other, net

    (106,075     (623,072     484           829       16,257       (194,805     (487,146     3,674  
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    85,556       69,258       76,763           215,156       1,321,681       6,291,177       3,578,059       2,538,059  
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income and (expenses):

                   

Interest expense, net of amounts capitalized

    (404     (12,380     (4,200         (16,725     (184,870     (456,749     (496,210     (413,581

Gain (loss) on extinguishment of debt

            —                     —         —         708,050       —         (5,304

Earnings from equity method investments

    25,345       11,840       39           157       699       685       140       969  

Other, net

    (170     (6,233     (388         (149     (2,345     (13,988     (15,170     (8,449
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    24,771       (6,773     (4,549         (16,717     (186,516     237,998       (511,240     (426,365
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reorganization items, net

    (1,951     (8,533     (2,565         2,521,137       336,120       —         —         —    
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    111,271       742,114       (10,569         2,587,391       (332,433     (3,818,723     (457,616     (659,990

Income tax expense (benefit)

    40,332       389,914       (4,446         (166     11,300       (6,307     4,368       (2,199
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    70,939       352,200       (6,123         2,587,557       (343,733     (3,812,416     (461,984     (657,791

Income (loss) from discontinued operations, net of income taxes

    —         82,995       457           (548     (18,354     9,586       (12,381     (12,849
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 70,939     $ 435,195     $ (5,666       $ 2,587,009     $ (362,087   $ (3,802,830   $ (474,365   $ (670,640
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Index to Financial Statements
    Successor           Predecessor  
    Three Months
Ended
March 31,
2018
    Ten Months
Ended
December 31,
2017
    One Month
Ended
March 31,
2017
          Two Months
Ended
February 28,
2017
    Year Ended
December 31,
 
              2016     2015  
(in thousands)                              

Cash flow data:

               

Net cash provided by (used in):

               

Operating activities

  $ 50,866     $ 231,021     $ 17,763         $ 152,714     $ 875,306     $ 1,127,700  

Investing activities

    160,260       1,257,352       (22,384         (58,756     (230,438     (276,023

Financing activities

    (427,589     (1,111,473     (48,595         (437,730     (164,150     (850,886

 

          Successor           Predecessor  
    Pro Forma
March 31,
2018
    March 31,
2018
    December 31,
2017
          December 31,  
            2016     2015  
(in thousands)                              

Balance sheet data:

             

Total assets

  $ 1,978,542     $ 2,472,220     $ 2,868,125         $ 4,444,151     $ 6,018,375  

Current portion of long-term debt, net

    —         —         —             1,937,729       2,841,518  

Long-term debt, net

    —         —         —             —         4,447,308  

Liabilities subject to compromise

    —         —         —             4,280,005       —    

Total equity (deficit)

    1,508,214       2,001,892       2,339,046           (2,587,009     (2,110,804

 

    Successor           Predecessor  
    Three Months
Ended
March 31,
2018
    Ten Months
Ended
December 31,
2017
    One Month
Ended
March 31,
2017
          Two Months
Ended
February 28,
2017
    Year Ended
December 31,
 
              2016     2015  

Production data:

               

Average daily production—Continuing operations:

               

Natural gas (MMcf/d)

    266       386       496           495       511       549  

Oil (MBbls/d)

    8.5       17.8       20.8           20.2       22.1       27.4  

NGL (MBbls/d)

    14.1       20.5       23.1           21.4       25.4       25.6  

Total (MMcfe/d)

    401       616       759           745       796       867  

Average daily production—Equity method investments: (1)

               

Total (MMcfe/d)

    113       30       —             —         —         —    

Average daily production—Discontinued operations: (2)

               

Total (MMcfe/d)

    —         14       29           30       32       30  

 

    Successor     Predecessor  
    December 31,
2017
          December 31,  
        2016     2015  
 

Reserves data: (3)

         

Proved reserves—Continuing operations:

         

Natural gas (Bcf)

    1,377           2,290       2,212  

Oil (MMBbls)

    27           73       74  

NGL (MMBbls)

    72           104       97  

Total (Bcfe)

    1,968           3,350       3,240  

Proved reserves—Equity method investments: (1)

         

Total (Bcfe)

    694           —         —    

Proved reserves—Discontinued operations:

         

Total (Bcfe)

    —             170       195  

 

(1)  Represents the Company’s historical 50% equity interest in Roan, which will be retained by LINN Energy following the spin-off.
(2)  Production of the Company’s California properties reported as discontinued operations for 2017 is for the period from January 1, 2017 through July 31, 2017.

 

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Index to Financial Statements
(3)  In accordance with Securities and Exchange Commission regulations, reserves were estimated using the average price during the 12-month period, determined as an unweighted average of the first-day-of-the-month price for each month, excluding escalations based upon future conditions. The average price used to estimate reserves is held constant over the life of the reserves.

In presenting the financial data above in conformity with U.S. generally accepted accounting principles “(U.S. GAAP”), we are required to make estimates and assumptions that affect the amounts reported. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates,” for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

 

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Index to Financial Statements

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED FINANCIAL INFORMATION

Unless otherwise indicated or the context otherwise requires, references herein to “Riviera Resources, Inc.,” “Riviera,” “we,” “our,” “us,” the “Company” and “our company” refer (i) prior to the consummation of our internal reorganization described under “The Spin-Off—Manner of Effecting the Spin-Off—Internal Reorganization,” to Linn Energy, Inc. and its consolidated subsidiaries, and (ii) after the consummation of such internal reorganization, to Riviera Resources, Inc. and its consolidated subsidiaries. Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” and “Parent” refer to Linn Energy, Inc. and its consolidated subsidiaries. References to “Successor” herein refer to the Company in periods subsequent to LINN Energy’s emergence from bankruptcy and references to “Predecessor” herein refer to the Company in periods prior to LINN Energy’s emergence from bankruptcy.

In April 2018, Linn Energy announced its intention to separate Riviera from LINN Energy. To effect the separation, Linn Energy, Inc. and certain of its direct and indirect subsidiaries will undertake an internal reorganization, following which Riviera Resources, Inc. will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan Resources LLC (“Roan”) and certain other immaterial assets. Upon completion of the internal reorganization, Linn Energy, Inc. will complete the spin-off by distributing to the LINN Energy stockholders all of the issued and outstanding Riviera common stock. Following the spin-off, Riviera Resources, Inc. will be an independent reporting company, and eventually a publicly traded company, and LINN Energy will not retain any ownership interest in Riviera.

The pro forma financial information gives effect to the following:

 

   

Separation from LINN Energy: See “The Spin-Off—Manner of Effecting the Spin-Off” for a description of the transactions that will take place to effect the spin-off of Riviera from LINN Energy. The pro forma condensed consolidated and combined financial statements reflect the spin-off and related transactions, including the elimination of the Company’s equity interest in the net assets of Roan.

 

   

Roan Contribution: On August 31, 2017, LINN Energy, through certain of its subsidiaries, completed the transaction in which LINN Energy and Citizen Energy II, LLC (“Citizen”) each contributed certain upstream assets located in Oklahoma to a newly formed company, Roan (the “Roan Contribution”). In exchange for their respective contributions, LINN Energy and Citizen each received a 50% equity interest in Roan. The pro forma condensed consolidated and combined statement of operations reflects pro forma adjustments for the disposition of LINN Energy’s contributed net assets.

 

   

Jonah Assets Sale: On May 31, 2017, LINN Energy completed the sale of its interest in properties located in western Wyoming to Jonah Energy LLC (the “Jonah Assets Sale”). LINN Energy used the net cash proceeds received of approximately $559 million to repay in full its approximate $294 million term loan as well as repay a portion of the borrowings outstanding under its revolving loan.

 

   

Reorganization and Fresh Start Accounting: On May 11, 2016, Linn Energy, LLC and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16-60040. LINN Energy emerged from bankruptcy effective February 28, 2017 (the “Effective Date”). Upon emergence from bankruptcy on February 28, 2017, LINN Energy adopted fresh start accounting which resulted in it becoming a new entity for financial reporting purposes.

The unaudited pro forma condensed consolidated balance sheet gives effect to the spin-off as if it had been completed as of March 31, 2018. The unaudited pro forma condensed consolidated and combined statements of operations gives effect to (i) the spin-off, (ii) the Roan Contribution, (iii) the Jonah Assets Sale, and (iv) LINN Energy’s plan of reorganization and fresh start accounting, as if each had been completed as of January 1, 2017.

 

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The unaudited pro forma condensed consolidated and combined financial statements are for informational and illustrative purposes only, are not necessarily indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from LINN Energy. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and we believe such assumptions are reasonable under the circumstances. A number of factors may affect our results. See “Risk Factors” and “Cautionary Note About Forward-Looking Statements.”

The assumptions and estimates underlying the adjustments to the unaudited pro forma condensed consolidated and combined financial statements are described in the accompanying notes. The unaudited pro forma condensed consolidated and combined financial information should also be read in conjunction with the sections titled “Capitalization,” “Selected Historical Consolidated and Combined Financial Data,” “Our Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our audited and unaudited consolidated and combined financial statements and notes thereto, which are included elsewhere in this prospectus.

 

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RIVIERA RESOURCES, LLC

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 2018

(in thousands)

 

    Riviera
Historical
    Spin-Off Pro
Forma
Adjustments
        Riviera
Pro Forma
 

ASSETS

       

Current assets:

       

Cash and cash equivalents

  $ 227,196     $ —         $ 227,196  

Accounts receivable—trade, net

    130,527       —           130,527  

Derivative instruments

    7,287       —           7,287  

Restricted cash

    77,263       —           77,263  

Other current assets

    64,153       —           64,153  

Assets held for sale

    92,492       —           92,492  
 

 

 

   

 

 

     

 

 

 

Total current assets

    598,918       —           598,918  
 

 

 

   

 

 

     

 

 

 

Noncurrent assets:

       

Oil and natural gas properties (successful efforts method), net

    729,949       —           729,949  

Other property and equipment, net

    496,752       —           496,752  

Derivative instruments

    936       —           936  

Deferred income taxes

    149,179       (10,677   (a)     138,502  

Equity method investments

    490,503       (483,001   (a)     7,502  

Other noncurrent assets

    5,983       —           5,983  
 

 

 

   

 

 

     

 

 

 

Total noncurrent assets

    1,873,302       (493,678       1,379,624  
 

 

 

   

 

 

     

 

 

 

Total assets

  $ 2,472,220     $ (493,678     $ 1,978,542  
 

 

 

   

 

 

     

 

 

 

LIABILITIES AND EQUITY

       

Current liabilities:

       

Accounts payable and accrued expenses

  $ 262,148     $ —         $ 262,148  

Derivative instruments

    16,931       —           16,931  

Other accrued liabilities

    38,946       —           38,946  

Liabilities held for sale

    42,891       —           42,891  
 

 

 

   

 

 

     

 

 

 

Total current liabilities

    360,916       —           360,916  
 

 

 

   

 

 

     

 

 

 

Noncurrent liabilities:

       

Derivative instruments

    4,682       —           4,682  

Other noncurrent liabilities

    104,730       —           104,730  
 

 

 

   

 

 

     

 

 

 

Total noncurrent liabilities

    109,412       —           109,412  
 

 

 

   

 

 

     

 

 

 

Stockholders’ equity

       

Net parent company investment

    2,001,892       (1,508,214   (b)     —    
    —         (493,678   (a)     —    

Common stock, $0.01 par value

    —         784     (b)     784  

Additional paid-in capital

    —         1,507,430     (b)     1,507,430  
 

 

 

   

 

 

     

 

 

 
    2,001,892       (493,678       1,508,214  
 

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ capital

  $ 2,472,220     $ (493,678     $ 1,978,542  
 

 

 

   

 

 

     

 

 

 

The accompanying notes are an integral part of these pro forma condensed consolidated and combined financial statements.

 

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RIVIERA RESOURCES, LLC

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2018

(in thousands, except for per share amounts)

 

     Riviera
Historical
    Spin-Off
Pro Forma
Adjustments
        Riviera
Pro Forma
     

Revenues and other:

          

Oil, natural gas and natural gas liquids sales

   $ 136,876     $ —         $ 136,876    

Losses on oil and natural gas derivatives

     (15,030     —           (15,030  

Marketing revenues

     46,267       —           46,267    

Other revenues

     5,894       —           5,894    
  

 

 

   

 

 

     

 

 

   

Total current assets

     174,007       —           174,007    
  

 

 

   

 

 

     

 

 

   

Expenses:

          

Lease operating expenses

     47,884       —           47,884    

Transportation expenses

     19,094       —           19,094    

Marketing expenses

     41,755       —           41,755    

General and administrative expenses

     44,779       —           44,779    

Exploration costs

     1,202       —           1,202    

Depreciation, depletion and amortization

     28,465       —           28,465    

Impairment of long-lived assets

     —         —           —      

Taxes, other than income taxes

     8,452       —           8,452    

Gains on sale of assets and other, net

     (106,075     —           (106,075  
  

 

 

   

 

 

     

 

 

   
     85,556       —           85,556    
  

 

 

   

 

 

     

 

 

   

Other income and (expenses):

          

Interest expense, net of amounts capitalized

     (404     —           (404  

Earnings from equity method investments

     25,345       (25,124   (c)     221    

Other, net

     (170     —           (170  
  

 

 

   

 

 

     

 

 

   
     24,771       (25,124       (353  
  

 

 

   

 

 

     

 

 

   

Reorganization items, net

     (1,951     —           (1,951  
  

 

 

   

 

 

     

 

 

   

Income before income taxes

     111,271       (25,124       86,147    

Income tax expense

     40,332       (6,070   (d)     34,262    
  

 

 

   

 

 

     

 

 

   

Net income

   $ 70,939     $ (19,054     $ 51,885    
  

 

 

   

 

 

     

 

 

   

Net income per share:

          

Basic

         $ 0.66     (e)
        

 

 

   

Diluted

         $ 0.65     (f)
        

 

 

   

Weighted average shares outstanding:

          

Basic

           78,449     (e)
        

 

 

   

Diluted

           79,806     (f)
        

 

 

   

The accompanying notes are an integral part of these pro forma condensed consolidated and combined financial statements.

 

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RIVIERA RESOURCES, LLC

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2017

(in thousands, except for per share amounts)

 

    Predecessor     Successor                                                              
    Two Months
Ended
February 28,
2017
    Ten Months
Ended
December 31,
2017
    Pro Forma Adjustments                    
    Riviera
Historical
    Riviera
Historical
    Reorganization
and Fresh Start
Accounting
          Jonah Assets
Sale
          Roan
Contribution
          Spin-Off           Riviera
Pro
Forma
       

Revenues and other:

                         

Oil, natural gas and natural gas liquids sales

  $ 188,885     $ 709,363     $ —         $ (67,875 )      (l)     $ (57,155 )      (l)     $ —         $ 773,218    

Gains on oil and natural gas derivatives

    92,691       13,533       —           —           —           —           106,224    

Marketing revenues

    6,636       82,943       —           —           —           —           89,579    

Other revenues

    9,915       20,839       —           (4 )      (l)       (2 )      (l)       —           30,748    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   
    298,127       826,678       —           (67,879       (57,157       —           999,769    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Expenses:

                         

Lease operating expenses

    49,665       208,446       —           (7,992 )      (l)       (10,155 )      (l)       —           239,964    

Transportation expenses

    25,972       113,128       —           (9,386 )      (l)       (7,682 )      (l)       —           122,032    

Marketing expenses

    4,820       69,008       —           —           —           —           73,828    

General and administrative expenses

    71,745       117,347       (41,998 )      (g)       —           —           —           147,094    

Exploration costs

    93       3,137       —           —           —           —           3,230    

Depreciation, depletion and amortization

    47,155       133,711       (11,989 )      (h)       (16,198 )      (m)       (8,100 )      (m)       —           144,579    

Taxes, other than income taxes

    14,877       47,553       —           (6,853 )      (l)       (2,143 )      (l)       —           53,434    

(Gains) losses on sale of assets and other, net

    829       (623,072     —           276,913       (n)       (16,588 )      (n)       —           (361,918  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   
    215,156       69,258       (53,987       236,484         (44,668       —           422,243    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Other income and (expenses):

                         

Interest expense, net of amounts capitalized

    (16,725     (12,380     9,911       (i)       13,725       (o)       —           —           (5,469  

Earnings from equity method investments

    157       11,840       —           —           —           (11,330     (c)       667    

Other, net

    (149     (6,233     —           —           —           —           (6,382  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   
    (16,717     (6,773     9,911         13,725         —           (11,330       (11,184  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Reorganization items, net

    2,521,137       (8,533     (2,512,604 )      (j)       —           —               —      
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income before income taxes

    2,587,391       742,114       (2,448,706       (290,638       (12,489       (11,330       566,342    

Income tax expense (benefit)

    (166     389,914       44,023       (k)       (107,370 )      (k)       (1,692 )      (k)       (4,260     (k)       320,449    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations

  $ 2,587,557     $ 352,200     $ (2,492,729     $ (183,268     $ (10,797     $ (7,070     $ 245,893    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations per share—Basic

                        $ 3.13       (e)  
                       

 

 

   

Income from continuing operations per share—Diluted

                        $ 3.08       (f)  
                       

 

 

   

Weighted average shares outstanding—Basic

                          78,449       (e)  
                       

 

 

   

Weighted average shares outstanding—Diluted

                          79,806       (f)  
                       

 

 

   

The accompanying notes are an integral part of these pro forma condensed consolidated and combined financial statements.

 

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Note 1—Basis of Presentation

The unaudited pro forma condensed consolidated balance sheet as of March 31, 2018, is derived from the historical condensed consolidated balance sheet of Riviera, with adjustments to reflect the spin-off.

The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2018 is derived from the historical condensed consolidated statement of operations for Riviera with adjustments to reflect the spin-off.

The unaudited pro forma condensed consolidated and combined statement of operations for the year ended December 31, 2017, is derived from:

 

    the historical consolidated and combined statements of operations of Riviera;

 

    adjustments to reflect the spin-off;

 

    adjustments to reflect the Roan Contribution;

 

    adjustments to reflect the Jonah Assets Sale; and

 

    adjustments to reflect LINN Energy’s plan of reorganization and fresh start accounting.

The unaudited pro forma condensed consolidated balance sheet gives effect to the spin-off as if it had been completed as of March 31, 2018. The unaudited pro forma condensed consolidated and combined statements of operations gives effect to (i) the spin-off, (ii) the Roan Contribution, (iii) the Jonah Assets Sale, and (iv) LINN Energy’s plan of reorganization and fresh start accounting, as if each had been completed as of January 1, 2017. The transactions and events as well as the related adjustments are described below. In the opinion of Riviera’s management, all adjustments have been made that are necessary to present fairly, in accordance with Regulation S-X, the unaudited pro forma condensed consolidated and combined financial statements.

As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the condensed consolidated and combined financial statements on or after February 28, 2017, are not comparable with the condensed consolidated and combined financial statements prior to that date.

The historical consolidated and combined financial statements have been adjusted in the unaudited pro forma condensed consolidated and combined financial statements to give effect to pro forma events that are (1) directly attributable to the transactions and events, (2) factually supportable and (3) with respect to the unaudited pro forma condensed consolidated and combined statements of operations, expected to have a continuing impact on the results following the transactions and events.

Note 2—Description of Transactions

See above for a description of the transactions. The results of operations of the properties contributed to Roan were included in the historical financial statements of Riviera until the date of contribution, August 31, 2017, and subsequent earnings from LINN Energy’s equity interest in the net assets of Roan were included in the historical financial statements of Riviera from the date of contribution through December 31, 2017. Results of operations of the properties sold in the Jonah Assets Sale were included in the historical financial statements of Riviera until the date of the sale, May 31, 2017.

Note 3—Pro Forma Adjustments

 

(a) Reflects a reduction of deferred income taxes, based on an estimated tax rate of approximately 24.2%, and the elimination of the equity method investment in Roan as a result of the spin-off.

 

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(b) Reflects the pro forma recapitalization of equity. As of the distribution date, the net parent investment will be redesignated as stockholders’ equity and will be allocated between common stock and additional paid-in capital. Each holder of LINN common stock will receive one share of Riviera common stock for each share of LINN common stock. Common stock is estimated based on the number of shares of LINN common stock outstanding at June 30, 2018. The actual number of shares of Riviera common stock will be dependent upon the number of shares of LINN common stock outstanding upon distribution.

 

(c) Reflects the elimination of the equity earnings from Roan recorded subsequent to the Roan Contribution. Following the internal reorganization, Riviera will hold, directly or through its subsidiaries, all of the pre-transaction assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan.

 

(d) Reflects the adjustments to income tax expense based on an estimated tax rate of approximately 24.2% applied to the related pre-tax pro forma adjustment.

 

(e) Reflects the number of shares of our common stock used to compute the pro forma basic earnings per share for the three months ended March 31, 2018 and the year ended December 31, 2017, respectively, assuming a distribution ratio of one share of our common stock for every share of LINN common stock outstanding. The number of shares of LINN common stock used to determine the assumed distribution reflects shares of LINN common stock outstanding on July 24, 2018. The actual number of shares of Riviera common stock will be dependent upon the number of shares of LINN common stock outstanding upon distribution.

 

(f) The number of shares of Riviera common stock used to compute diluted earnings per share is based on LINN Energy’s weighted average number of dilutive shares for the three months ended March 31, 2018. The actual number of diluted shares of Riviera common stock will be dependent upon the number of shares of LINN common stock outstanding on the record date as well as the equity awards issued upon distribution.

 

(g) Reflects the elimination of Effective Date share-based compensation expenses of approximately $50 million, which represent nonrecurring amounts directly attributable to the plan of reorganization and are not expected to have a continuing impact, partially offset by the recognition of approximately $8 million in additional recurring share-based compensation expenses.

 

(h) Reflects a reduction of depreciation, depletion and amortization expense based on new asset values and useful lives as a result of adopting fresh start accounting as of the Effective Date.

 

(i) Reflects a reduction of interest expense as a result of the plan of reorganization. As of the Effective Date, borrowings under the Successor’s credit facility included a term loan of $300 million and a revolving loan of $600 million, which incurred interest at rates of 8.33% and 4.33% per annum, respectively. The pro forma adjustment to interest expense was calculated as follows:

 

     Year Ended
December 31,
2017
 
     (in thousands)  

Reversal of Predecessor’s credit facility and term loan interest expense

   $ 15,265  

Reversal of amortization of debt costs on Predecessor’s credit facility

     1,338  

Reversal of Predecessor’s capitalized interest and other

     122  

Pro forma term loan interest expense on drawn amounts

     (2,484

Pro forma revolving loan interest expense on drawn amounts

     (4,330
  

 

 

 

Pro forma adjustments to decrease interest expense

   $ 9,911  
  

 

 

 

 

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(j) Reflects the elimination of nonrecurring reorganization items that were directly attributable to the Chapter 11 bankruptcy, which consist of the following:

 

     Predecessor                 Successor  
     Two Months
Ended
February 28,
2017
                Ten Months
Ended
December 31,
2017
 
(in thousands)                         

Loss on settlement of liabilities subject to compromise

   $ 3,914,964           $ —    

Recognition of an additional claim for the Predecessor’s second lien notes settlement

     (1,000,000        

Fresh start valuation adjustments

     (591,525           —    

Income tax benefit related to implementation of the plan of reorganization

     264,889             —    

Legal and other professional fees

     (46,961           (8,584

Terminated contracts

     (6,915           —    

Other

     (13,315           51  
  

 

 

         

 

 

 

Reorganization items, net

   $ 2,521,137           $ (8,533
  

 

 

         

 

 

 

 

(k) The Successor was formed as a C corporation. For federal and state income tax purposes (with the exception of the state of Texas), the Predecessor was a limited liability company treated as a partnership, in which income tax liabilities and/or benefits were passed through to the Predecessor’s unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Predecessor’s subsidiaries were C corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Predecessor did not directly pay federal and state income taxes and recognition was not given to federal and state income taxes for the operations of the Predecessor.

The pro forma adjustments to income tax expense (benefit) reflect the results of the Successor as a C corporation based on an estimated tax rate of 37.6% for the year ended December 31, 2017. As a result of the decrease in the federal statutory tax rate, a tax rate of approximately 24.2% is expected to be applied in future periods.

 

(l) Reflects the elimination of the revenues and direct operating expenses associated with the Jonah Assets Sale and the Roan Contribution.

 

(m) Reflects a reduction of depreciation, depletion and amortization expense as a result of the Jonah Assets Sale and the Roan Contribution.

 

(n) Reflects the net gain of approximately $277 million, net of costs to sell of approximately $6 million, associated with the Jonah Assets Sale and advisory fees of approximately $17 million associated with the Roan Contribution included in the historical statement of operations for the ten months ended December 31, 2017. The net gain and advisory fees are excluded from the pro forma statement of operations as they reflect nonrecurring charges not expected to have a continuing impact.

 

(o) Reflects a reduction of interest expense as a result of the repayment of debt of approximately $559 million from the net cash proceeds received from the Jonah Assets Sale.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of Riviera should be read in conjunction with “Summary—Summary Historical and Unaudited Pro Forma Condensed Consolidated and Combined Financial Data,” “Selected Historical Consolidated and Combined Financial Data” and our audited and unaudited consolidated and combined financial statements and related notes that appear elsewhere in this prospectus. In addition to historical consolidated and combined financial information, the following discussion contains forward-looking statements based on expectations, estimates and assumptions. Actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Note About Forward-Looking Statements” and “Risk Factors.”

Unless otherwise indicated or the context otherwise requires, references herein to “Riviera Resources, Inc.,” “Riviera,” “we,” “our,” “us,” the “Company” and “our company” refer (i) prior to the consummation of our internal reorganization described under “The Spin-Off—Manner of Effecting the Spin-Off—Internal Reorganization,” to Linn Energy, Inc. and its consolidated subsidiaries, and (ii) after the consummation of such internal reorganization, to Riviera Resources, Inc. and its consolidated subsidiaries. Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” and “Parent” refer to Linn Energy, Inc. and its consolidated subsidiaries. References to “Successor” herein refer to the Company in periods subsequent to LINN Energy’s emergence from bankruptcy and references to “Predecessor” herein refer to the Company in periods prior to LINN Energy’s emergence from bankruptcy.

Following the spin-off, Riviera Resources, Inc. will be a new independent oil and natural gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets (including Blue Mountain) and returning capital to its stockholders. As part of the spin-off, LINN Energy will effect an internal reorganization, and Riviera Resources, LLC will convert from a Delaware limited liability company to a Delaware corporation and change its name to Riviera Resources, Inc. In connection with such conversion, all of the membership interests in our company will be converted into approximately 78,449,265 shares of common stock in Riviera Resources, Inc. Following the conversion, we will be subject to taxation at the company level.

Following the internal reorganization and conversion, Riviera Resources, Inc. will hold, directly or through its subsidiaries, all of the pre-spin-off assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan and certain other immaterial assets. Riviera will be the financial reporting entity following the consummation of the spin-off.

Linn Energy, Inc. (formerly known as Linn Energy, LLC) is a successor issuer of Linn Energy, LLC pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As discussed further in Note 2 of the audited consolidated and combined financial statements included elsewhere in this prospectus, on May 11, 2016 (the “Petition Date”), Linn Energy, LLC and certain of its direct and indirect subsidiaries including subsidiaries of Linn Energy, LLC (collectively, the “Debtors”) filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16-60040. During the pendency of the Chapter 11 proceedings, the Debtors operated their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. LINN Energy emerged from bankruptcy effective February 28, 2017.

The reference to a “Note” herein refers to the accompanying Notes to Consolidated and Combined Financial Statements contained elsewhere in this prospectus.

 

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Executive Overview

We are currently an indirect subsidiary of LINN Energy. After the spin-off is completed, we will be an independent oil and natural gas company with a strategic focus on efficiently operating our mature low-decline assets, developing our growth-oriented assets, and returning capital to our stockholders. We will own (i) LINN Energy’s legacy properties located in the Hugoton Basin, East Texas, North Louisiana, Michigan/Illinois, the Uinta Basin and Mid-Continent regions, and (ii) Blue Mountain, a midstream company centered in the core of the Merge play in the Anadarko Basin. LINN Energy will not retain any ownership interest in us following the spin-off.

Our properties are located in six operating regions in the United States:

 

    Hugoton Basin, which includes oil and natural gas properties, as well as the Jayhawk natural gas processing plant, located in Kansas;

 

    East Texas, which includes oil and natural gas properties producing primarily from the Cotton Valley and Bossier Sandstone;

 

    North Louisiana, which includes oil and natural gas properties producing primarily from the Cotton Valley Sandstones;

 

    Michigan/Illinois, which includes properties producing from the Antrim Shale formation located in northern Michigan and oil properties in southern Illinois;

 

    Uinta Basin, which includes non-operated properties located in the Dunkards Wash field in Utah (which was included in the Company’s previous Rockies operating region); and

 

    Mid-Continent, which includes properties in the Northwest STACK in northwestern Oklahoma, the Arkoma STACK located in southeastern Oklahoma, and various other oil and natural gas producing properties throughout Oklahoma, as well as the Chisholm Trail midstream business located in the Merge/SCOOP/STACK play.

For a discussion of our operating regions, see “Business.”

For the three months ended March 31, 2018, our results included the following:

 

    oil, natural gas and NGL sales of approximately $137 million compared to $80 million and $189 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;

 

    average daily production of approximately 401 MMcfe/d compared to 759 MMcfe/d and 745 MMcfe/d for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;

 

    net income of approximately $71 million compared to a net loss of approximately $6 million and net income of approximately $2.6 billion for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;

 

    net cash provided by operating activities from continuing operations of approximately $51 million compared to approximately $15 million and $144 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively;

 

    capital expenditures of approximately $67 million compared to approximately $19 million and $46 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively; and

 

    five wells drilled (all successful) compared to 27 wells drilled (all successful) for the three months ended March 31, 2017.

 

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For the year ended December 31, 2017, our results included the following:

 

    oil, natural gas and NGL sales of approximately $709 million and $189 million for the ten months ended December 31, 2017, and the two months ended February 28, 2017, respectively, compared to $874 million for 2016;

 

    average daily production of approximately 616 MMcfe/d and 745 MMcfe/d for the ten months ended December 31, 2017, and the two months ended February 28, 2017, respectively, compared to 796 MMcfe/d for 2016;

 

    net income of approximately $435 million and $2.6 billion for the ten months ended December 31, 2017, and the two months ended February 28, 2017, respectively, compared to net loss of approximately $362 million for 2016;

 

    net cash provided by operating activities from continuing operations of approximately $215 million and $144 million for the ten months ended December 31, 2017, and the two months ended February 28, 2017, respectively, compared to net cash provided by operating activities of approximately $832 million for 2016;

 

    capital expenditures of approximately $299 million and $46 million for the ten months ended December 31, 2017, and the two months ended February 28, 2017, respectively, compared to $172 million for 2016; and

 

    90 wells drilled (all successful) compared to 212 wells drilled (211 successful) for 2016.

Factors Affecting Comparability of Results of Operations

Predecessor and Successor Reporting

As a result of the application of fresh start accounting (see Note 3 to the audited consolidated and combined financial statements and Note 2 to the unaudited condensed consolidated and combined financial statements), our consolidated and combined financial statements and certain note presentations are separated into two distinct periods, the period before February 28, 2017 (the “Effective Date”) (labeled Predecessor) and the period after that date (labeled Successor), to indicate the application of a different basis of accounting between the periods presented. Despite this separate presentation, there was continuity of our operations.

Chapter 11 Proceedings

On the Petition Date, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16-60040.

On December 3, 2016, the Debtors filed the Amended Joint Chapter 11 Plan of Reorganization of Linn Energy, LLC and Its Debtor Affiliates Other Than Linn Acquisition Company, LLC (“LAC”) and Berry Petroleum Company, LLC (the “Plan”). The Debtors subsequently filed amended versions of the Plan with the Bankruptcy Court.

On December 13, 2016, LAC and Berry filed the Amended Joint Chapter 11 Plan of Reorganization of Linn Acquisition Company, LLC and Berry Petroleum Company, LLC (the “Berry Plan” and together with the Plan, the “Plans”). LAC and Berry subsequently filed amended versions of the Berry Plan with the Bankruptcy Court.

On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the Plans (the “Confirmation Order”). On the Effective Date, the Debtors satisfied the conditions to effectiveness of the respective Plans, the Plans became effective in accordance with their respective terms and LINN Energy and Berry emerged from bankruptcy as stand-alone, unaffiliated entities.

 

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Index to Financial Statements

Plan of Reorganization

In accordance with the Plan, on the Effective Date:

 

    The Predecessor transferred all of its assets, including equity interests in its subsidiaries, other than LAC and Berry, to Linn Energy Holdco II, LLC (“Holdco II”), a newly formed wholly owned subsidiary of the Predecessor and the borrower under the credit agreement (as amended, the “Successor Credit Facility”) entered into in connection with the reorganization, in exchange for equity interests in Holdco II and the issuance of interests in the Successor Credit Facility to certain of the Predecessor’s creditors in partial satisfaction of their claims (the “Contribution”). Immediately following the Contribution, the Predecessor transferred equity interests in Holdco II to the Successor in exchange for approximately $530 million in cash, an amount of equity securities in the Successor not to exceed 49.90% of the outstanding equity interests of the Successor, which the Predecessor distributed to certain of its creditors in satisfaction of their claims, and the Successor’s agreement to honor certain obligations of the Predecessor under the Plan. In connection with this transfer, certain entities composing the Successor guaranteed the Successor Credit Facility. Contemporaneously with the reorganization transactions and pursuant to the Plan, (i) LAC assigned all of its rights, title and interest in the membership interests of Berry to Berry Petroleum Corporation, (ii) all of the equity interests in LAC and the Predecessor were canceled and (iii) LAC and the Predecessor commenced liquidation, which is expected to be completed following the resolution of the respective companies’ outstanding claims.

 

    The holders of claims under the Predecessor’s Sixth Amended and Restated Credit Agreement (“Predecessor Credit Facility”) received a full recovery, consisting of a cash paydown and their pro rata share of the $1.7 billion Successor Credit Facility. As a result, all outstanding obligations under the Predecessor Credit Facility were canceled.

 

    Holdco II, as borrower, entered into the Successor Credit Facility with the holders of claims under the Predecessor Credit Facility, as lenders, and Wells Fargo Bank, National Association, as administrative agent, providing for a new reserve-based revolving loan with up to $1.4 billion in borrowing commitments and a new term loan in an original principal amount of $300 million.

 

    The holders of the Company’s 12.00% senior secured second lien notes due December 2020 (the “Second Lien Notes”) received their pro rata share of (i) 17,678,889 shares of LINN common stock; (ii) certain rights to purchase shares of LINN common stock in the rights offerings, as described below; and (iii) $30 million in cash. The holders of the Company’s 6.50% senior notes due May 2019, 6.25% senior notes due November 2019, 8.625% senior notes due 2020, 7.75% senior notes due February 2021 and 6.50% senior notes due September 2021 (collectively, the “Unsecured Notes”) received their pro rata share of (i) 26,724,396 shares of LINN common stock; and (ii) certain rights to purchase shares of LINN common stock in the rights offerings, as described below. As a result, all outstanding obligations under the Second Lien Notes and the Unsecured Notes and the indentures governing such obligations were canceled.

 

    The holders of general unsecured claims (other than claims relating to the Second Lien Notes and the Unsecured Notes) against the LINN Debtors (the “LINN Unsecured Claims”) received their pro rata share of cash from two cash distribution pools totaling $40 million, as divided between a $2.3 million cash distribution pool for the payment in full of allowed LINN Unsecured Claims in an amount equal to $2,500 or less (and larger claims for which the holders irrevocably agreed to reduce such claims to $2,500), and a $37.7 million cash distribution pool for pro rata distributions to all remaining allowed general LINN Unsecured Claims. As a result, all outstanding LINN Unsecured Claims were fully satisfied, settled, released and discharged as of the Effective Date.

 

    All units of the Predecessor that were issued and outstanding immediately prior to the Effective Date were extinguished without recovery. On the Effective Date, the Successor issued in the aggregate 89,229,892 shares of LINN common stock. No cash was raised from the issuance of the LINN common stock on account of claims held by the Predecessor’s creditors.

 

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    The Successor entered into a registration rights agreement with certain parties, pursuant to which the Company agreed to, among other things, file a registration statement with the SEC within 60 days of the Effective Date covering the offer and resale of “Registrable Securities” (as defined therein).

 

    By operation of the Plan and the Confirmation Order, the terms of the Predecessor’s board of directors expired as of the Effective Date. The Successor formed a new board of directors, consisting of the Chief Executive Officer of the Predecessor, one director selected by the Successor and five directors selected by a six-person selection committee.

Divestitures

Below are our completed divestitures in 2017 and 2018:

 

    On April 10, 2018, we completed the sale of our conventional properties located in New Mexico (the “New Mexico Assets Sale”) related to a definitive purchase and sale agreement entered into in March 2018 and received cash proceeds of approximately $15 million.

 

    On April 4, 2018, we completed the sales of our interest in properties located in Altamont Bluebell Field in Utah (the “Altamont Bluebell Assets Sale”) related to a definitive purchase and sale agreement entered into in January 2018 and received cash proceeds of approximately $129 million.

 

    On March 29, 2018, we completed the sale of our interest in conventional properties located in west Texas (the “West Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $108 million (including approximately $12 million of restricted cash released in April 2018), net of costs to sell of approximately $1 million, and we recognized a net gain of approximately $53 million.

 

    On February 28, 2018, we completed the sale of our Oklahoma waterflood and Texas Panhandle properties (the “Oklahoma and Texas Assets Sale”). Cash proceeds received from the sale of these properties were approximately $112 million (including a deposit of approximately $12 million received in 2017), net of costs to sell of approximately $1 million, and we recognized a net gain of approximately $48 million.

 

    On November 30, 2017, we completed the sale of our interest in properties located in the Williston Basin (the “Williston Assets Sale”). Cash proceeds received from the sale of these properties were approximately $255 million, net of costs to sell of approximately $3 million, and we recognized a net gain of approximately $116 million.

 

    On November 30, 2017, we completed the sale of our interest in properties located in Wyoming (the “Washakie Assets Sale”). Cash proceeds received from the sale of these properties were approximately $193 million, net of costs to sell of approximately $2 million, and we recognized a net gain of approximately $175 million.

 

    On September 12, 2017, August 1, 2017, and July 31, 2017, we completed the sale of our interest in certain properties located in south Texas (the “South Texas Assets Sales”). Combined cash proceeds received from the sales of these properties were approximately $48 million, net of costs to sell of approximately $1 million, and we recognized a combined net gain of approximately $14 million.

 

    On August 23, 2017, July 28, 2017, and May 9, 2017, we completed the sale of our interest in certain properties located in Texas and New Mexico (the “Permian Assets Sales”). Combined cash proceeds received from the sale of these properties were approximately $31 million and we recognized a combined net gain of approximately $29 million.

 

    On July 31, 2017, we completed the sale of our interest in properties located in the San Joaquin Basin in California (the “San Joaquin Basin Sale”). Cash proceeds received from the sale of these properties were approximately $253 million, net of costs to sell of approximately $4 million, and we recognized a net gain of approximately $120 million.

 

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    On July 21, 2017, we completed the sale of our interest in properties located in the Los Angeles Basin in California (the “Los Angeles Basin Sale”). Cash proceeds received from the sale of these properties were approximately $93 million, net of costs to sell of approximately $2 million, and we recognized a net gain of approximately $2 million. We will receive an additional $7 million contingent payment if certain operational requirements are satisfied within one year from the date of sale.

 

    On June 30, 2017, we completed the sale of our interest in properties located in the Salt Creek Field in Wyoming (the “Salt Creek Assets Sale”). Cash proceeds received from the sale of these properties were approximately $73 million, net of costs to sell of approximately $1 million, and we recognized a net gain of approximately $30 million.

 

    On May 31, 2017, we completed the sale of our interest in properties located in western Wyoming (the “Jonah Assets Sale”). Cash proceeds received from the sale of these properties were approximately $559 million, net of costs to sell of approximately $6 million, and we recognized a net gain of approximately $277 million.

As a result of our strategic exit from California (completed by the San Joaquin Basin Sale and Los Angeles Basin Sale), we classified the assets and liabilities, results of operations and cash flows of our California properties as discontinued operations on the consolidated and combined financial statements included elsewhere in this prospectus.

Roan Resources LLC

Historically, a subsidiary of the Company also owned a 50% equity interest in Roan, which is focused on the accelerated development of the Merge/SCOOP/STACK play in Oklahoma. The Company’s equity earnings (losses), consisting of its share of Roan’s earnings or losses, are included in the consolidated and combined financial statements. However, following a series of internal restructuring transactions in connection with the separation, the equity interest in Roan will be owned by Linn Energy, Inc. and will no longer be affiliated with the Company. As such, equity earnings (losses) in Roan will not be included in the Company’s consolidated and combined financial statements in periods subsequent to the spin-off.

Construction of Cryogenic Plant

In July 2017, Blue Mountain entered into a definitive agreement with BCCK to construct the Chisholm Trail Cryogenic Gas Plant. Blue Mountain’s assets include the Chisholm Trail midstream business located in Oklahoma. Chisholm Trail is located in the Merge/SCOOP/STACK play in the Mid-Continent region and has approximately 108 miles of existing natural gas gathering pipeline and approximately 60 MMcf/d of current refrigeration capacity.

The Chisholm Trail Cryogenic Gas Plant was successfully commissioned in the second quarter of 2018. As of July 2018, the plant had an initial design capacity of approximately 150 MMcf/d of processing capacity, with an additional 100 MMcf/d expected to become available by the fourth quarter of 2018 as additional compression is brought on line. Infrastructure expansions are also underway to add low and high pressure gathering pipelines to accommodate incremental production throughput.

Financing Activities

Credit Facility

On April 30, 2018, we entered into the Credit Facility Amendment which, among other things, modified the borrowing base and maximum borrowing commitment amount to $425 million.

Commodity Derivatives

In April 2018, in connection with the closing of the Altamont Bluebell Assets Sale, we canceled our oil collars for 2018 and 2019. We paid net cash settlements of approximately $20 million for the cancellations.

 

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Results of Operations

Three Months Ended March 31, 2018 (Successor), One Month Ended March 31, 2017 (Successor) and Two Months Ended February 28, 2017 (Predecessor)

The following table reflects the Company’s results of operations for each of the Successor and Predecessor periods presented:

 

     Successor            Predecessor  
     Three Months
Ended
March 31,
2018
    One Month
Ended
March 31,
2017
           Two Months
Ended
February 28,
2017
 
(in thousands)                          

Revenues and other:

           

Natural gas sales

   $ 63,328     $ 38,070          $ 99,561  

Oil sales

     45,696       30,238            58,560  

NGL sales

     27,852       12,017            30,764  
  

 

 

   

 

 

        

 

 

 

Total oil, natural gas and NGL sales

     136,876       80,325            188,885  

Gains (losses) on oil and natural gas derivatives

     (15,030     (11,959          92,691  

Marketing and other revenues (1)

     52,161       4,942            16,551  
  

 

 

   

 

 

        

 

 

 
     174,007       73,308            298,127  
  

 

 

   

 

 

        

 

 

 

Expenses:

           

Lease operating expenses

     47,884       24,630            49,665  

Transportation expenses

     19,094       13,723            25,972  

Marketing expenses

     41,755       2,539            4,820  

General and administrative expenses (2)

     44,779       10,408            71,745  

Exploration costs

     1,202       55            93  

Depreciation, depletion and amortization

     28,465       17,847            47,155  

Taxes, other than income taxes

     8,452       7,077            14,877  

(Gains) losses on sale of assets and other, net

     (106,075     484            829  
  

 

 

   

 

 

        

 

 

 
     85,556       76,763            215,156  
  

 

 

   

 

 

        

 

 

 

Other income and (expenses)

     24,771       (4,549          (16,717
  

 

 

   

 

 

        

 

 

 

Reorganization items, net

     (1,951     (2,565          2,521,137  
  

 

 

   

 

 

        

 

 

 

Income (loss) from continuing operations before income taxes

     111,271       (10,569          2,587,391  

Income tax expense (benefit)

     40,332       (4,446          (166
  

 

 

   

 

 

        

 

 

 

Income (loss) from continuing operations

     70,939       (6,123          2,587,557  

Income (loss) from discontinued operations, net of income taxes

     —         457            (548
  

 

 

   

 

 

        

 

 

 

Net income (loss)

   $ 70,939     $ (5,666        $ 2,587,009  
  

 

 

   

 

 

        

 

 

 

 

(1) Marketing and other revenues for the two months ended February 28, 2017, include approximately $6 million of management fee revenues recognized by the Company from Berry. Management fee revenues are included in “other revenues” on the condensed consolidated and combined statement of operations.
(2) General and administrative expenses for the three months ended March 31, 2018, the one month ended March 31, 2017, and the two months ended February 28, 2017, include approximately $17 million, $4 million and $50 million, respectively, of noncash share-based compensation expenses. In addition, general and administrative expenses for the two months ended February 28, 2017, include expenses incurred by LINN Energy associated with the operations of Berry. On February 28, 2017, LINN Energy and Berry emerged from bankruptcy as stand-alone, unaffiliated entities.

 

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     Successor            Predecessor  
     Three Months
Ended
March 31,
2018
     One Month
Ended
March 31,
2017
           Two Months
Ended
February 28,
2017
 

Average daily production:

            

Natural gas (MMcf/d)

     266        496            495  

Oil (MBbls/d)

     8.5        20.8            20.2  

NGL (MBbls/d)

     14.1        23.1            21.4  

Total (MMcfe/d)

     401        759            745  
 

Average daily production—Equity method investments: (1)

            

Total (MMcfe/d)

     113        —              —    
 

Weighted average prices: (2)

            

Natural gas (Mcf)

   $ 2.65      $ 2.48          $ 3.41  

Oil (Bbl)

   $ 59.87      $ 46.90          $ 49.16  

NGL (Bbl)

   $ 21.91      $ 16.76          $ 24.37  
 

Average NYMEX prices:

            

Natural gas (MMBtu)

   $ 3.00      $ 2.63          $ 3.66  

Oil (Bbl)

   $ 62.87      $ 49.67          $ 53.04  
 

Costs per Mcfe of production:

            

Lease operating expenses

   $ 1.33      $ 1.05          $ 1.13  

Transportation expenses

   $ 0.53      $ 0.58          $ 0.59  

General and administrative expenses (3)

   $ 1.24      $ 0.44          $ 1.63  

Depreciation, depletion and amortization

   $ 0.79      $ 0.76          $ 1.07  

Taxes, other than income taxes

   $ 0.23      $ 0.30          $ 0.34  
 

Average daily production—Discontinued operations:

            

Total (MMcfe/d)

     —          29            30  

 

(1) Represents the Company’s historical 50% equity interest in Roan.
(2) Does not include the effect of gains (losses) on derivatives.
(3) General and administrative expenses for the three months ended March 31, 2018, the one month ended March 31, 2017, and the two months ended February 28, 2017, include approximately $17 million, $4 million and $50 million, respectively, of noncash share-based compensation expenses. In addition, general and administrative expenses for the two months ended February 28, 2017, include expenses incurred by LINN Energy associated with the operations of Berry. On February 28, 2017, LINN Energy and Berry emerged from bankruptcy as stand-alone, unaffiliated entities.

Revenues and Other

Oil, Natural Gas and NGL Sales

Oil, natural gas and NGL sales decreased by approximately $132 million or 49% to approximately $137 million for the three months ended March 31, 2018, from approximately $80 million and $189 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively, due to lower production volumes as a result of divestitures completed in 2017 and 2018 and lower commodity prices. Lower natural gas prices resulted in a decrease in revenues of approximately $9 million. Higher oil prices resulted in an increase in revenues of approximately $9 million. In addition, revenues decreased by approximately $1 million due to the impact of the new accounting standard related to revenues from contracts with customers, adopted on January 1, 2018. As of January 1, 2017, revenue is recognized net of transportation expenses if the processor is the customer and there is no redelivery of commodities to the Company. See Note 1 to the unaudited condensed consolidated and combined financial statements for additional details of the revenue accounting standard.

 

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Average daily production volumes decreased to approximately 401 MMcfe/d for the three months ended March 31, 2018, from approximately 759 MMcfe/d and 745 MMcfe/d for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. Lower natural gas, oil and NGL production volumes resulted in a decrease in revenues of approximately $64 million, $52 million and $15 million, respectively.

The following table sets forth average daily production by region:

 

     Successor            Predecessor  
     Three Months
Ended
March 31,
2018
     One Month
Ended
March 31,
2017
           Two Months
Ended
February 28,
2017
 

Average daily production (MMcfe/d):

            

Hugoton Basin

     158        168            158  

Mid-Continent

     57        128            110  

East Texas

     56        51            52  

Permian Basin

     39        46            49  

Rockies

     36        287            294  

Michigan/Illinois

     28        29            29  

North Louisiana

     27        26            28  

South Texas

     —          24            25  
  

 

 

    

 

 

        

 

 

 
     401        759            745  
  

 

 

    

 

 

        

 

 

 

Equity method investments

     113        —              —    
  

 

 

    

 

 

        

 

 

 

The increase in average daily production volumes in the East Texas region primarily reflect increased development capital spending in the region. The decrease in average daily production volumes in the Mid-Continent region primarily reflects lower production volumes as a result of the Roan Contribution on August 31, 2017, partially offset by increased development capital spending in the region. The decreases in average daily production volumes in the Rockies, Permian Basin and South Texas regions primarily reflect lower production volumes as a result of divestitures completed during 2017. See Note 4 to the unaudited condensed consolidated and combined financial statements for additional information of divestitures. In addition, the decreases in average daily production volumes in these and the remaining regions reflect lower production volumes as a result of reduced development capital spending driven by continued low commodity prices. Equity method investments represents the Company’s historical 50% equity interest in Roan.

Gains (Losses) on Oil and Natural Gas Derivatives

Losses on oil and natural gas derivatives were approximately $15 million for the three months ended March 31, 2018, compared to losses of approximately $12 million for the one month ended March 31, 2017, and gains of approximately $93 million for the two months ended February 28, 2017, representing a variance of approximately $96 million. Gains and losses on oil and natural gas derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized.

We determine the fair value of our oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. See “—Quantitative and Qualitative Disclosures About Market Risk” and Note 8 and Note 9 to the unaudited condensed consolidated and combined financial statements for additional details about our commodity derivatives. For information about the Company’s credit risk related to derivative contracts, see “—Liquidity and Capital Resources—Counterparty Credit Risk” below.

 

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Marketing and Other Revenues

Marketing revenues represent third-party activities associated with company-owned gathering systems, plants and facilities. Other revenues primarily include management fee revenues recognized by the Company from Berry (in the Predecessor period) and helium sales revenue. Marketing and other revenues increased by approximately $30 million or 143% to approximately $52 million for the three months ended March 31, 2018, from approximately $5 million and $17 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The increase was primarily due to the impact of the new accounting standard related to revenues from contracts with customers, adopted on January 1, 2018, and higher revenues generated by the Jayhawk natural gas processing plant in Kansas, principally driven by a change in contract terms, partially offset by management fee revenues from Berry included in the Predecessor period. As of January 1, 2018, the Company recognizes revenues for commodities received as noncash consideration in exchange for services provided by its midstream operations and revenues and associated cost of product for the subsequent sale of those same commodities. This recognition results in an increase to revenues and expenses with no impact on net income. See Note 1 to the unaudited condensed consolidated and combined financial statements for additional details of the revenue accounting standard.

Expenses

Lease Operating Expenses

Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $27 million or 36% to approximately $48 million for the three months ended March 31, 2018, from approximately $25 million and $50 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The decrease was primarily due to reduced labor costs for field operations as a result of cost savings initiatives and the divestitures completed in 2017 and 2018. Lease operating expenses per Mcfe increased to $1.33 per Mcfe for the three months ended March 31, 2018, from $1.05 per Mcfe and $1.13 per Mcfe for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively.

Transportation Expenses

Transportation expenses decreased by approximately $21 million or 52% to approximately $19 million for the three months ended March 31, 2018, from approximately $14 million and $26 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The decrease was due to reduced costs as a result of lower production volumes primarily as a result of the divestitures completed in 2017 and 2018 and due to the impact of the new accounting standard related to revenues from contracts with customers, adopted on January 1, 2018. As of January 1, 2018, revenue is recognized net of transportation expenses if the processor is the customer and there is no redelivery of commodities to the Company. See Note 1 to the unaudited condensed consolidated and combined financial statements for additional details of the revenue accounting standard. Transportation expenses per Mcfe decreased to $0.53 per Mcfe for the three months ended March 31, 2018, from $0.58 per Mcfe and $0.59 per Mcfe for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively.

Marketing Expenses

Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses increased by approximately $34 million to approximately $42 million for the three months ended March 31, 2018, from approximately $3 million and $5 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The increase was primarily due to the impact of the new accounting standard related to revenues from contracts with customers, adopted on January 1, 2018, and higher expenses associated with the Jayhawk natural gas processing plant in Kansas, principally driven by a change in contract terms. As of January 1, 2018, the Company recognizes revenues for

 

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commodities received as noncash consideration in exchange for services provided by its midstream operations and revenues and associated cost of product for the subsequent sale of those same commodities. This recognition results in an increase to revenues and expenses with no impact on net income. See Note 1 to the unaudited condensed consolidated and combined financial statements for additional details of the revenue accounting standard.

General and Administrative Expenses

General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. In addition, general and administrative expenses in the Predecessor period includes costs incurred by LINN Energy associated with the operations of Berry. General and administrative expenses decreased by approximately $37 million or 45% to approximately $45 million for the three months ended March 31, 2018, from approximately $10 million and $72 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The decrease was primarily due to lower noncash share-based compensation expenses principally driven by the immediate vesting of certain awards during the Predecessor period, lower salaries and benefits related expenses, the costs associated with the operations of Berry in the Predecessor period, lower various other administrative expenses including insurance and rent, partially offset by higher professional services expenses. General and administrative expenses per Mcfe were $1.24 per Mcfe for the three months ended March 31, 2018, compared to $0.44 per Mcfe and $1.63 per Mcfe for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. For professional services expenses related to the Chapter 11 proceedings, see “—Reorganization Items, Net.”

Exploration Costs

Exploration costs increased by approximately $1 million to approximately $1 million for the three months ended March 31, 2018, from approximately $55,000 and $93,000 for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The increase was primarily due to higher seismic data expenses.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization decreased by approximately $37 million or 56% to approximately $28 million for the three months ended March 31, 2018, from approximately $18 million and $47 million for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The decrease was primarily due to lower rates as a result of the application of fresh start accounting, as well as lower total production volumes. Depreciation, depletion and amortization per Mcfe was $0.79 per Mcfe for the three months ended March 31, 2018, compared to $0.76 per Mcfe and $1.07 per Mcfe for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively.

Taxes, Other Than Income Taxes

 

     Successor             Predecessor  
     Three Months
Ended
March 31,
2018
     One Month
Ended
March 31,
2017
            Two Months
Ended
February 28,
2017
 
(in thousands)                            

Severance taxes

   $ 4,406      $ 3,863           $ 9,107  

Ad valorem taxes

     3,957        3,168             5,744  

Other

     89        46             26  
  

 

 

    

 

 

         

 

 

 
   $ 8,452      $ 7,077           $ 14,877  
  

 

 

    

 

 

         

 

 

 

Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes and lower commodity prices. Ad valorem taxes, which are based on the value of

 

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reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2017 and 2018 and lower estimated valuations on certain of the Company’s properties.

(Gains) Losses on Sale of Assets and Other, Net

During the three months ended March 31, 2018, the Company recorded the following amounts related to divestitures (see Note 4 to the unaudited condensed consolidated and combined financial statements):

 

    Net gain of approximately $53 million, including costs to sell of approximately $1 million, on the West Texas Assets Sale; and

 

    Net gain of approximately $48 million, including costs to sell of approximately $1 million, on the Oklahoma and Texas Assets Sale.

Other Income and (Expenses)

 

     Successor            Predecessor  
     Three Months
Ended
March 31,
2018
    One Month
Ended
March 31,
2017
           Two Months
Ended
February 28,
2017
 
(in thousands)                          

Interest expense, net of amounts capitalized

   $ (404   $ (4,200        $ (16,725

Earnings from equity method investments

     25,345       39            157  

Other, net

     (170     (388          (149
  

 

 

   

 

 

        

 

 

 
   $ 24,771     $ (4,549        $ (16,717
  

 

 

   

 

 

        

 

 

 

Interest expense decreased primarily due to no outstanding debt during 2018, and lower amortization of financing fees. For the two months ended February 28, 2017, contractual interest, which was not recorded, on the Predecessor’s senior notes was approximately $37 million. For the three months ended March 31, 2018, interest expense is related to amortization of financing fees. See “—Liquidity and Capital Resources—Debt” below for additional details.

Equity method investments primarily include the Company’s historical 50% equity interest in Roan. The Company’s equity earnings consists of its share of Roan’s earnings and the amortization of the difference between the Company’s investment in Roan and Roan’s underlying net assets attributable to certain assets. See Note 6 to the unaudited condensed consolidated and combined financial statements for additional information.

Reorganization Items, Net

The Company incurred significant costs and recognized significant gains associated with the reorganization. Reorganization items represent costs and income directly associated with the Chapter 11 proceedings since the Petition Date, and also include adjustments to reflect the carrying value of certain liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments were determined.

 

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Table of Contents
Index to Financial Statements

The following table summarizes the components of reorganization items included on the condensed consolidated statements of operations:

 

     Successor            Predecessor  
     Three Months
Ended
March 31,
2018
    One Month
Ended
March 31,
2017
           Two Months
Ended
February 28,
2017
 
(in thousands)                          

Gain on settlement of liabilities subject to compromise

   $ —       $ —            $ 3,914,964  

Recognition of an additional claim for the Predecessor’s second lien notes settlement

     —         —              (1,000,000

Fresh start valuation adjustments

     —         —              (591,525

Income tax benefit related to implementation of the Plan

     —         —              264,889  

Legal and other professional fees

     (1,952     (2,570          (46,961

Terminated contracts

     —         —              (6,915

Other

     1       5            (13,315
  

 

 

   

 

 

        

 

 

 

Reorganization items, net

   $ (1,951   $ (2,565        $ 2,521,137  
  

 

 

   

 

 

        

 

 

 

Income Tax Expense (Benefit)

The Successor was formed as a C corporation. For federal and state income tax purposes (with the exception of the state of Texas), the Predecessor was a limited liability company treated as a partnership, in which income tax liabilities and/or benefits were passed through to the Predecessor’s unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Predecessor’s subsidiaries were C corporations subject to federal and state income taxes. The Company recognized income tax expense of approximately $40 million for the three months ended March 31, 2018, compared to an income tax benefit of approximately $4 million and $166,000 for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively.

Income (Loss) from Discontinued Operations, Net of Income Taxes

As a result of the Company’s strategic exit from California (completed by the San Joaquin Basin Sale and Los Angeles Basin Sale), the Company has classified the results of operations of its California properties as discontinued operations. Income from discontinued operations, net of income taxes was approximately $457,000 for the one month ended March 31, 2017, and losses of approximately $548,000 for the two months ended February 28, 2017. See Note 4 to the unaudited condensed consolidated and combined financial statements for additional information.

Net Income (Loss)

Net income decreased by approximately $2.5 billion to approximately $71 million for the three months ended March 31, 2018, from a net loss of approximately $6 million and net income of approximately $2.6 billion for the one month ended March 31, 2017, and the two months ended February 28, 2017, respectively. The decrease was primarily due to gains included in reorganization items in the Predecessor period, lower production revenue and losses compared to gains on commodity derivatives, partially offset by gains on sales of assets and lower expenses. See discussion above for explanations of variances.

 

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Table of Contents
Index to Financial Statements

Ten Months Ended December 31, 2017 (Successor), Two Months Ended February 28, 2017 (Predecessor) and Year Ended December 31, 2016 (Predecessor)

The following table reflects the Company’s results of operations for each of the Successor and Predecessor periods presented:

 

     Successor           Predecessor  
     Ten Months
Ended
December 31,
2017
          Two Months
Ended
February 28,
2017
    Year Ended
December 31,
2016
 
(in thousands)                         

Revenues and other:

          

Natural gas sales

   $ 317,529         $ 99,561     $ 426,307  

Oil sales

     258,055           58,560       315,472  

NGL sales

     133,779           30,764       132,382  
  

 

 

       

 

 

   

 

 

 

Total oil, natural gas and NGL sales

     709,363           188,885       874,161  

Gains (losses) on oil and natural gas derivatives

     13,533           92,691       (164,330

Marketing and other revenues (1)

     103,782           16,551       129,813