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Acquisitions

12 Months Ended

Dec. 31, 2019

Note 3 - Acquisitions

Majority Control of Carbon Appalachia

On December 31, 2018, we acquired all of Old Ironsides' Class A Units of Carbon Appalachia for approximately $58.2 million, representing approximately 72.76% share ownership. We paid $33.0 million in cash and delivered promissory notes of approximately $25.2 million to Old Ironsides (the "Old Ironsides Notes"). See Note 7 for additional information.

The OIE Membership Acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations ("ASC 805"). We finalized the determination of the fair values of the assets acquired and liabilities assumed in the fourth quarter of 2019. There were no material changes in the fair values of the assets acquired and the liabilities assumed from the preliminary amounts. The following table summarizes the final fair values:

	Amount (in thousands)
Cash consideration	$	33,000
Old Ironsides Notes		25,194
Fair value of previously held equity interest		14,029
Fair value of business acquired	$	72,223

Assets acquired and liabilities assumed are as follows:

	Amount (in thousands)
Cash	$	12,283
Accounts receivable:
Revenue		12,834
Trade receivable		1,941
Commodity derivative asset		198
Inventory		2,022
Prepaid expenses, deposits, and other current assets		456
Oil and gas properties:
Proved		107,694
Unproved		1,869
Other property and equipment, net		15,441
Other non-current assets		514
Accounts payable and accrued liabilities		(20,468	)
Due to related parties		(236	)
Firm transportation contract obligations		(18,724	)
Asset retirement obligations		(5,626	)
Notes payable		(37,975	)
Total net assets acquired	$	72,223

On the date of the acquisition, we derecognized our equity investment in Carbon Appalachia and recognized a gain of approximately $1.3 million based on the fair value of our previously held interest compared to its carrying value, which is recorded in investments in affiliates in our consolidated statement of operations for the year ended December 31, 2018.

Consolidation of Carbon Appalachia and OIE Membership Acquisition Pro Forma Results of Operations (Unaudited)

Below are unaudited pro forma consolidated results of operations for the year ended December 31, 2018, as though the OIE Membership Acquisition had been completed as of January 1, 2018:

	Year Ended December 31,
(in thousands, except per share amounts)	2018 (unaudited)
Revenue	$	136,592
Net income before non-controlling interests	$	11,320
Net income attributable to non-controlling interests	$	4,375
Net income attributable to controlling interests before preferred shares	$	5,596
Net income per share, basic	$	0.74
Net income per share, diluted	$	0.69

Liberty Acquisition

On July 11, 2018, we completed an acquisition of 54 operated oil and gas wells covering approximately 55,000 gross acres (22,000 net) and associated mineral interests in the Appalachian Basin for a purchase price of $3.0 million (the "Liberty Acquisition"). The Liberty Acquisition increased our working interest in the acquired wells from 60% to 100%. The Liberty Acquisition was funded through borrowings under our previous credit facility. The Liberty Acquisition was accounted for as a non-significant asset acquisition.

Majority Control of Carbon California

The acquisition of additional ownership interest in Carbon California on February 1, 2018, was accounted for as a step acquisition in which we obtained control in accordance with ASC 805 (referred to herein as the "Carbon California Acquisition"). We recognized 100% of the identifiable assets acquired, liabilities assumed and the non-controlling interest at their respective fair value as of the date of the acquisition. We exchanged 1,527,778 common shares at a fair value of approximately $8.3 million ($5.45 per share), for 11,000 Class A Units of Carbon California, representing a 38.59% profits ownership interest in Carbon California. We followed the fair value method to allocate the consideration transferred to the identifiable net assets acquired and non-controlling interest as follows:

	Amount (in thousands)
Fair value of Carbon common shares transferred as consideration	$	8,327
Fair value of non-controlling interest		16,466
Fair value of previously held interest		7,243
Fair value of contribution associated with acquisition of Yorktown's interest in Carbon California		8,637
Fair value of business acquired	$	40,673

Assets acquired and liabilities assumed are as follows:

	Amount (in thousands)
Cash	$	275
Accounts receivable:
Joint interest billings and other		690
Receivable - related party		1,610
Prepaid expenses, deposits, and other current assets		1,723
Oil and gas properties:
Proved		65,114
Unproved		1,495
Other property and equipment, net		877
Other non-current assets		475
Accounts payable and accrued liabilities		(6,054	)
Commodity derivative liability - current		(916	)
Commodity derivative liability - non-current		(1,729	)
Asset retirement obligations - current		(384	)
Asset retirement obligations - non-current		(2,537	)
Subordinated Notes, related party, net		(8,874	)
Senior Revolving Notes, related party		(11,000	)
Notes payable		(92	)
Total net assets acquired	$	40,673

On the date of the acquisition, we derecognized our equity investment in Carbon California and recognized a gain of approximately $5.4 million based on the fair value of our previously held interest compared to its carrying value.

During the fourth quarter of 2018, the Company finalized the determination of fair value and purchase price allocation related to the Carbon California Acquisition. Based on the final valuation received, the allocation of fair value exceeded the consideration by $8.6 million, which has been reflected in equity as a capital contribution from Yorktown who held a significant membership interest in Carbon California and is the Company's largest stockholder.

Seneca Acquisition

On May 1, 2018, Carbon California acquired approximately 309 oil wells and approximately 6,800 gross acres (6,600 net) of oil and gas leases, and fee interests in and to certain lands, situated in the Ventura Basin, together with associated pipelines, facilities, equipment and other property rights from Seneca Resources Corporation ("Seneca Acquisition") for a purchase price of $43.0 million. We contributed approximately $5.0 million to Carbon California to fund our portion of the purchase price through the issuance of 50,000 shares of preferred stock to Yorktown. Prudential also contributed $5.0 million to fund its share of the equity portion of the purchase price. Carbon California funded the remaining purchase price from cash, increased borrowings under the Carbon California Senior Revolving Notes and $3.0 million in proceeds from the issuance of Senior Subordinated Notes.

The Seneca Acquisition was accounted for as an asset acquisition as substantially all of the value related to proved oil and gas properties.

Consolidation of Carbon California and Seneca Acquisition Pro Forma Results of Operations (Unaudited)

Below are unaudited pro forma consolidated results of operations for the year ended December 31, 2018, as though the Carbon California Acquisition and the Seneca Acquisition had been completed as of January 1, 2018:

(in thousands, except per share amounts)	Year Ended December 31, 2018 (unaudited)
Revenue	$	33,256
Net income before non-controlling interests	$	5,232
Net loss attributable to non-controlling interests		(2,334	)
Net income attributable to controlling interests	$	7,566
Net income per share (basic)	$	1.00
Net income per share (diluted)	$	0.96