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Members' Equity and Unit-Based Compensation
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Members' Equity and Unit Based Compensation Members’ Equity and Unit-Based Compensation
The Company has two classes of membership units, with the following units authorized, issued, and outstanding as of December 31, 2022, December 31, 2021 and November 30, 2021:
AUTHORIZEDISSUED AND OUTSTANDING
Common units450,000,000 450,000,000 
Management incentive units1,000,000 953,750 
Common Units
Common units issued to date have been issued at $1 per unit, with an aggregate capital commitment from all common members of $450 million. There initially shall be five managers on the board of managers, with three managers designated by JFG (such designated managers are each a “Jefferies Manager”) and two managers designated by 3B. For voting purposes, each manager is entitled to one vote, and the affirmative vote of a majority of the board of managers, including at least one Jefferies Manager, is required to ratify any significant decisions of the Company.
Certain executives of the Company, as a result of their ownership of 3B, were granted the right to put all of their common units back to the Company in exchange for their pro rata share of the oil and gas interests then owned by the Company beginning in May 2017 (the “Common Unit Exchange Option”). In connection with the Company Agreement, the terms of the Common Unit Exchange Option were modified, where it may only be exercised on January 1, 2021 or on the annual anniversary thereafter and subject to additional conditions. Such conditions include, but are not limited to, that the Company is not in the process of an initial public offering; common unit holders have either received distributions resulting in, or the fair value of the Company’s net assets are such that the Company would achieve, a specified rate of return (“Flip Threshold”); and 3B reimburses the common unit holders for its pro rata share of liabilities in excess of cash balances at the time of exercise. Further, 3B must discharge any principal and interest outstanding related to the Initial Loans. As a result of the Common Unit Exchange Option resulting in the transfer of a portion of the oil and gas interests in proportion to 3B’s percentage holding of the common units, the Common Unit Exchange Option is considered to be a transaction that does not occur at fair market value.
In addition to the Common Unit Exchange Option, in the event of termination of any or both of the executives that hold common units, the Company has the option to repurchase the common units held by 3B in exchange for cash (the “Common Unit Call Option”). The Common Unit Call Option would be executed at fair market value on the date of the transaction.
As a result of 3B’s receipt of in-substance nonrecourse notes (the “Initial Loans”) that are each collateralized by all of the common units held by 3B, for accounting purposes the Company has granted 3B an in-substance call option that is within the scope of accounting guidance related to share-based compensation (the “Common Unit Option Grant”), which was fully vested on the date of grant in 2014. Due to the nature and terms of the Common Unit Exchange Option described above, the Common Unit Option Grant is classified as a liability award, remeasured at fair market value at each reporting date with the change in fair market value recorded to earnings. As of December 31, 2022, the aggregate intrinsic value of the Common Unit Option Grant was de minimis, as the optionality was forfeited due to these executives agreeing to settle their common units in exchange for JFG forgiving the Initial Loans and any accrued interest upon completion of the Spin-Off on January 13, 2023.
Management Incentive Units
Management incentive units may be issued by the Company to eligible employees and/or consultants. All MIUs are nonvoting and provide the MIU holders the opportunity to participate in distributions after the common unit holders have received a return equal to the Flip Threshold (as defined). In connection with the Company Agreement, the terms and conditions of the MIUs were modified from the Company’s original LLC agreement. Such modifications included, but were not limited to, a reset and change in the Flip Threshold, as well as changes to specific terms and conditions of MIU holder put rights and Company call rights.
MIUs have been granted to the founding members of management (“Founder MIUs”) and certain other employees of the Company (“Non-Founder MIUs”). Holders of Non-Founder MIUs may put at least 25% percent of their vested MIUs to the Company for cash at estimated fair market value as of the date of the transaction, on or after January 1, 2022, subject to conditions that include, but are not limited to, continued employment and no pending initial public offering (the “Non-Founder MIU Put Option”). Holders of the Founder MIUs may put at least 10% percent of their vested MIUs to the Company on or after January 1, 2021 for either (1) cash at estimated fair market value as of the date of the transaction or (2) interests in the Company’s oil and gas properties with a fair market value equal to the fair market value of the MIU as of the date of the transaction, subject to conditions that include, but are not limited to, the Company is not in the process of an initial public offering; common unit holders have either received distributions resulting in, or the fair value of the Company’s net assets are such that the common unit holders would achieve the Flip Threshold, and the 2018 Notes have been repaid or are to be repaid out of proceeds from the exercise of the put option (the “Founder MIU Put Option”). In addition, the Company has the right to repurchase Founder MIUs and Non-Founder MIUs at fair market value upon the termination of employment for any reason (the “MIU Call Option”). With respect to the Flip Threshold, as of April 2018 management determined that the achievement of the Flip Threshold was probable.
MIUs are subject to vesting requirements and forfeiture provisions specific to the Founder MIUs and Non-Founder MIUs, as outlined in the Company Agreement, employment agreement, grant letters, and other supporting MIU documentation. All unvested MIUs vest upon a final exit event (as defined), and are cancelled in the event of termination of the grantee. In the event of termination for Cause (as defined) all vested MIUs are forfeited for no consideration.
The Company accounts for Non-Founder MIUs as liability-based awards until the respective holder has borne the risk of unit ownership, at which point the value of the liability is reclassified outside of permanent equity. While the awards are classified as liabilities, compensation expense is recorded through the vesting period, and changes in the estimated fair market value of the liability, are recorded in earnings. Once reclassified outside of permanent equity increases in the estimated fair market value of the award are recorded through members’ equity. During the years ended December 31, 2022, November 30, 2021 and November 30, 2020 and the month ended December 31, 2021, the Company recorded an increase of $1.5 million, a reduction of $1.5 million, an increase of $1.0 million and an reduction of $1.0 million respectively, through members’ equity to adjust the Non-Founder MIUs to fair market value.
A summary of the Company’s activity related to Non-Founder MIUs for the years ended the years ended December 31, 2022, November 30, 2021 and November 30, 2020 and the month ended December 31, 2021, is presented below:
FOR THE YEAR ENDED DECEMBER 31,FOR THE MONTH ENDED DECEMBER 31,FOR THE YEARS ENDED NOVEMBER 30,
2022202120212020
Nonvested at period end28,75045,00045,00082,500
Granted during the period———50,000
Vested during the period16,250—37,50050,000
Forfeited during the period————
Fair value of MIUs vested during the period$0.2 million$— $ 0.7 million$ 0.7 million
As of December 31, 2022, there was no unrecognized compensation cost related to nonvested unit-based compensation arrangements.
As a result of each of the management founders’ receipt of an in-substance nonrecourse note (the “2018 Notes”) that are each collateralized by all of Founder MIUs held by the respective executive, for accounting purposes the Company has granted each of the management founders an in-substance call option that is within the scope of accounting guidance related to share-based compensation (the “Founder MIU Option Grant”). Due to the nature and terms of the Founder MIU Put Option described above, the Founder MIU Option Grant is classified as a liability award, remeasured at fair market value at each reporting date with the change in fair market value recorded to earnings.
Total compensation cost (income) recognized in the consolidated statements of operations within Unit-based compensation for the years ended the years ended December 31, 2022, November 30, 2021 and November 30, 2020 and the month ended December 31, 2021 is as follows:
FOR THE YEAR ENDED DECEMBER 31,FOR THE MONTH ENDED DECEMBER 31,FOR THE YEARS ENDED NOVEMBER 30,
(in thousands)2022202120212020
Common Unit Option Grant$(2,089)$383 $(569)$(1,308)
Founder MIU Option Grant(8,680)2,170 1,625 700 
Non-Founder MIUs3 75 353 64 
Total$(10,766)$2,628 $1,409 $(544)

As of December 31, 2022, the intrinsic value of the Founder MIU Option Grant and the Common Unit Option Grant, was determined to be de minimis given the limited amount of time until the instruments were settled and prevailing economic factors. The Option Grants were forfeited on January 13, 2023 with these executives agreeing to settle their common units and Founder MIUs in exchange of JFG forgiving the 2018 Notes and the Initial Notes and any accrued interest. The December 31, 2022 liability and the factors considered in valuing the liability at December 31, 2022 are excluded from the following tables due to the immaterial nature of these items. The liability recorded in the consolidated balance sheets within Unit-based compensation as of December 31, 2021and November 30, 2021 is as follows:
DECEMBER 31,NOVEMBER 30,
(in thousands)20212021
Common Unit Option Grant$2,090 $1,706 
Founder MIU Option Grant8,679 6,510 
Non-Founder MIUs211 136 
Total$10,980 $8,352 
Measurement of unit-based compensation
The Company records the Non-founder MIUs, Founder MIU Option Grant, and Common Unit Option Grant at fair value at the date of grant and at each balance sheet date, which results in compensation cost being measured at fair value. As noted above, vested Non-founder MIUs, where the respective holder has borne the risk of ownership, are recorded within temporary equity, with changes in fair value recorded within members’ equity.
The fair value of each of the Founder MIU Option Grant and the Common Unit Option Grant (collectively “the Options”) are estimated using a Black Scholes Model that uses the assumptions noted in the following tables. As the Company doesn’t have publicly-traded equity we incorporated data from a group of publicly-traded peer companies when estimating fair value, and because when estimating fair value management incorporates ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on the historical volatility of our identified peer group of companies. The expected term of the Options is determined based on the Time to Exit/Liquidity Event. The risk-free rate for periods within the expected life of the option is interpolated from the US constant maturity treasury rate, for a term corresponding to the expected term.
DECEMBER 31,NOVEMBER 30,
Founder MIU Option Grant202120212020
Expected volatility
105% - 140%
125% - 170%
130% - 145%
Weighted-average volatility140%150%137.5%
Expected dividends/distributions0%0%0%
Expected term (in years)0.512
Risk-free rate0.69%0.24%0.16%
DECEMBER 31,NOVEMBER 30,
Common Unit Option Grant202120212020
Expected volatility55%50%
60% - 65%
Weighted-average volatility50%50%62.5%
Expected dividends/distributions0%0%0%
Expected term (in years)0.512
Risk-free rate0.69%0.24%0.16%

Distributions
Distributions of funds associated with common units follow a prescribed framework, which is outlined in detail in the Company Agreement. In general, distributions are first allocated to those unitholders based on their allocable share, as defined in the Company Agreement. Each unitholder will then receive a distribution in accordance with the tiered waterfall, as defined in the Company Agreement. The Company made $36.0 million, $12.0 million, $0.0 million and $6.0 million of distributions on common units during the years ended December 31, 2022, November 30, 2021, November 30, 2020 and the month ended December 31, 2021, respectively.
Earnings Per Unit
We have two classes of equity in the form of common units and MIUs that are vested and where the holder has borne the risks and rewards of ownership at which point the MIU is reclassified from liabilities to outside of permanent equity. Both common units and temporary equity classified MIUs are considered common units, and distributions are made in accordance with the Company Agreement. As such, we present earnings per unit (“EPU”) for both classes of equity. In calculating EPU we apply the two-class method. Under the two-class method net income (loss) attributable to common units is allocated to common units and other participating securities in proportion to the claim on earnings of each participating security after giving effect to distributions declared during the period, if any. The following table sets forth the computation of basic and diluted net income (loss) per unit:
FOR THE YEAR ENDED DECEMBER 31,FOR THE MONTH ENDED DECEMBER 31,FOR THE YEARS ENDED NOVEMBER 30,
2022202120212020
Common Units
Net income (loss)118,903(7,359)18,114(8,857)
less: income allocable to participating securities
In-substance options on common units (Common Unit Option Grant)(3,006)—(458)—
In-substance options on Founder MIUs (Founder MIU Option Grant)————
Non-Founder MIUs classified as temporary equity————
Non-Founder MIUs classified as liabilities————
Net income (loss) attributable to common unitholders115,897(7,359)17,656(8,857)
Weighted Average Common Units Outstanding (in 000s)450,000450,000450,000450,000
less: Common Units accounted for as in-substance options(11,375)(11,375)(11,375)(11,375)
Weighted Average Common Units Outstanding (in 000s)438,625438,625438,625438,625
Basic and Diluted EPU$0.26 $(0.02)$0.04 $(0.02)
Temporary Equity Classified MIUs
Income allocable to Non-Founder MIUs classified as temporary equity $— $— $— $— 
MIUs classified in temporary equity (in 000s)250 234 234 196 
Basic and Diluted EPU$— $— $— $—