Subsidiary Bankruptcy and Deconsolidation

6 Months Ended

Jun. 30, 2017

Reorganizations [Abstract]

Subsidiary Bankruptcy and Deconsolidation

Subsidiary Bankruptcy and Deconsolidation

Bankruptcy Filing and Deconsolidation

As a result of AREC’s bankruptcy filing in April 2017, AE has ceded its authority to the Bankruptcy Court, and AE management cannot carry on AREC activities in the ordinary course of business without Bankruptcy Court approval. AE manages the day-to-day operations of AREC, but does not have discretion to make significant capital or operating budgetary changes or decisions and purchase or sell significant assets, as AREC’s material decisions are subject to review by the Bankruptcy Court. For these reasons, we have concluded that AE has lost control of AREC, and no longer has significant influence over AREC during the pendency of the bankruptcy. Therefore, we deconsolidated AREC effective with the filing of the Chapter 11 bankruptcy in April 2017.

In order to deconsolidate AREC, the carrying values of the assets and liabilities of AREC were removed from our consolidated balance sheet as of April 30, 2017, and we recorded our investment in AREC at its estimated fair value of approximately $5.0 million. We determined the fair value of our investment based upon bids we received in the auction process and determined that the estimated fair value of our investment in AREC was expected to be lower than its net book value immediately prior to the deconsolidation. As a result, at June 30, 2017, we recorded a non-cash charge of approximately $1.6 million associated with the deconsolidation of AREC, which reflects the excess of the net assets of AREC over its estimated fair value based on the expected sales transaction price of approximately $5.0 million. Subsequent to the deconsolidation of AREC, we are accounting for our investment in AREC using the cost method of accounting because AE does not exercise significant influence over the operations of AREC due to the Chapter 11 filing.

On August 1, 2017, a hearing was held before the Bankruptcy Court seeking approval of asset purchase agreements with two unaffiliated parties to purchase AREC’s oil and gas assets for aggregate cash proceeds of approximately $5.0 million. The Bankruptcy Court approved the asset purchase agreements, we are currently negotiating the assets purchase agreements.

DIP Financing – Related Party Relationship

In connection with the bankruptcy filing, AREC entered into a Debtor in Possession Credit and Security Agreement with AE (“DIP Credit Agreement”) dated as of April 25, 2017, in an aggregate amount of up to $1.25 million, of which the funds are to be used by AREC solely to fund operations through August 11, 2017. Loans under the DIP Credit Agreement accrue interest at a rate of LIBOR plus 2.0% per annum and are due and payable upon the earlier of (a) twelve months after the petition date, (b) the closing of the sale of substantially all of AREC’s assets, (c) the effective date of a Chapter 11 plan of reorganization of AREC, and (d) the date that the DIP loan is accelerated upon the occurrence of an event of default, as defined in the DIP Credit Agreement. At June 30, 2017, approximately $0.4 million was outstanding under the DIP Credit Agreement and was included in accounts receivable, related party on our unaudited condensed consolidated balance sheet.