Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2013 |
Significant Accounting Policies | ' |
Basis of Presentation | ' |
Basis of Presentation |
|
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The accompanying consolidated financial statements include Jones Energy, Inc. and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. |
|
These interim financial statements have not been audited. However, in the opinion of management, all adjustments consisting of only normal and recurring adjustments necessary for a fair statement of the financial statements have been included. As these are interim financial statements, they do not include all disclosures required for financial statements prepared in conformity with GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year. |
|
These consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all disclosures required by GAAP and should be read in conjunction with our most recent audited consolidated financial statements included in Jones Energy, Inc.’s final prospectus dated July 23, 2013 and filed with the SEC on July 25, 2013 pursuant to Rule 424(b) under the Securities Act of 1933, as amended. |
|
Use of Estimates | ' |
Use of Estimates |
|
In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Changes in estimates are recorded prospectively. |
|
Significant assumptions are required in the valuation of proved oil and natural gas reserves, which affect the Company’s estimates of depletion expense, impairment, and the allocation of value in our business combinations. Significant assumptions are also required in the Company’s estimates of the net gain or loss on commodity derivative assets and liabilities and asset retirement obligations (ARO). |
|
Oil and Gas Properties | ' |
Oil and Gas Properties |
|
The Company accounts for its oil and natural gas exploration and production activities under the successful efforts method of accounting. Oil and gas properties consisted of the following at September 30, 2013 and December 31, 2012: |
|
| | September 30, | | December 31, | |
(in thousands of dollars) | | 2013 | | 2012 | |
| | | | | |
Mineral interests in properties | | | | | |
Unproved | | $ | 107,971 | | $ | 137,254 | |
Proved | | 784,268 | | 737,558 | |
Wells and equipment and related facilities | | 526,930 | | 389,727 | |
| | 1,419,169 | | 1,264,539 | |
Less: Accumulated depletion and impairment | | (339,115 | ) | (257,195 | ) |
Net oil and gas properties | | $ | 1,080,054 | | $ | 1,007,344 | |
|
As of September 30, 2013 and December 31, 2012, there were no costs capitalized in connection with exploratory wells in progress. |
|
The Company capitalizes interest on expenditures for significant exploration and development projects that last more than six months while activities are in progress to bring the assets to their intended use. The Company did not capitalize any interest during the period ended September 30, 2013 as no projects lasted more than six months. Depletion of oil and gas properties amounted to $30.3 million and $81.9 million for the three and nine months ended September 30, 2013, respectively, and $21.0 million and $57.7 million for the three and nine months ended September 30, 2012, respectively. |
|
Other Property, Plant and Equipment | ' |
Other Property, Plant and Equipment |
|
Other property, plant and equipment consisted of the following at September 30, 2013 and December 31, 2012: |
|
| | September 30, | | December 31, | |
(in thousands of dollars) | | 2013 | | 2012 | |
| | | | | |
Leasehold improvements | | $ | 1,004 | | $ | 983 | |
Furniture, fixtures, computers and software | | 2,346 | | 2,204 | |
Vehicles | | 732 | | 719 | |
Aircraft | | — | | 1,295 | |
Land | | 62 | | 62 | |
Production Equipment | | 72 | | 72 | |
| | 4,216 | | 5,335 | |
Less: Accumulated depreciation and amortization | | (1,737 | ) | (1,937 | ) |
Net other property, plant and equipment | | $ | 2,479 | | $ | 3,398 | |
|
Other property, plant and equipment is depreciated on a straight-line basis over the estimated useful lives of the property, plant and equipment, which range from three years to ten years. Depreciation and amortization of other property, plant and equipment amounted to $0.2 million and $0.6 million during the three and nine months ended September 30, 2013, respectively, and $0.2 million and $0.6 million during the three and nine months ended September 30, 2012, respectively. |
|
Commodity Derivatives | ' |
Commodity Derivatives |
|
The Company records its commodity derivative instruments on the Consolidated Balance Sheet as either an asset or liability measured at its fair value. Changes in the derivative’s fair value are recognized currently in earnings, unless specific hedge accounting criteria are met. During the three month period ended September 30, 2013, the Company elected not to designate any of its commodity price risk management activities as cash-flow or fair value hedges. The changes in the fair values of outstanding financial instruments are recognized as gains or losses in the period of change. |
|
Although Jones does not designate its commodity derivative instruments as cash-flow hedges, management uses those instruments to reduce the Company’s exposure to fluctuations in commodity prices related to its natural gas and oil production. Net gains and losses, at fair value, are included on the Consolidated Balance Sheet as current or noncurrent assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of commodity derivative contracts are recorded in earnings as they occur and are included in other income (expense) on the Consolidated Statement of Operations. See Note 4, “Fair Value Measurement”, for disclosure about the fair values of commodity derivative instruments. |
|
Asset Retirement Obligations | ' |
Asset Retirement Obligations |
|
A summary of the Company’s ARO for the nine months ended September 30, 2013 is as follows: |
|
(in thousands of dollars) | | | | | | |
Balance at December 31, 2012 | | $ | 9,506 | | | | |
Liabilities incurred | | 499 | | | | |
Accretion of discount | | 434 | | | | |
Liabilities settled due to sale of related properties | | (4 | ) | | | |
Liabilities settled due to plugging and abandonment | | (437 | ) | | | |
Change in estimate | | 201 | | | | |
Balance at September 30, 2013 | | 10,199 | | | | |
Less: Current portion of ARO | | (174 | ) | | | |
Total long-term ARO at September 30, 2013 | | $ | 10,025 | | | | |
Income Taxes | ' |
Income Taxes |
|
Prior to the Offering, the Company was a limited liability company and not subject to federal income tax. Accordingly, no provision for federal income taxes was recorded prior to the Offering because the taxable income or loss was includable in the income tax returns of the individual partners and members. The Company was and still is subject to state income taxes as the State of Texas includes in its tax system a gross margin tax applicable to the Company, and an accrual for gross margin taxes is included in the financial statements when appropriate. In connection with the corporate reorganization, the Company became a corporation and is now subject to federal income taxes. |
|
Based on management’s analysis, the Company did not have any uncertain tax positions as of September 30, 2013 and December 31, 2012. |
|
Tax Receivable Agreement | ' |
Tax Receivable Agreement |
|
In conjunction with the Offering, the Company entered into a Tax Receivable Agreement (“TRA”) with JEH LLC and its existing owners. Upon any exchange of JEH LLC Units and Class B common stock of the Company held by JEH LLC’s pre-Offering owners for Class A common stock of the Company, the TRA provides for the payment by Jones, directly to such exchanging owners, of 85% of the amount of cash savings in income or franchise taxes that Jones realizes as a result of (i) the tax basis increases resulting from the exchange of JEH LLC Units for shares of Class A common stock (or resulting from a sale of JEH LLC Units for cash) and (ii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRA. The Company will retain the benefit of the remaining 15% of the cash savings. Liabilities under this agreement will be recognized upon the exchange of shares. As of September 30, 2013, there have been no exchanges. |
|
Recent Accounting Developments | ' |
Recent Accounting Developments |
|
The following recently issued accounting pronouncements have or will be adopted by the Company: |
|
Offsetting Assets and Liabilities | ' |
Offsetting Assets and Liabilities |
|
In December 2011, the Financial Accounting Standards Board (“FASB”), issued authoritative guidance requiring entities to disclose both gross and net information about instruments and transactions eligible for offset arrangement. The additional disclosures enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. These disclosure requirements are effective for interim and annual periods beginning after January 1, 2013. The Company has provided all required disclosures for the periods presented in the third quarter of 2013 as they pertain to its commodity derivative instruments (see Note 4, “Fair Value Measurement”). These disclosure requirements did not affect the Company’s operating results, financial position, or cash flows. |
|