mcep-10q_20190930.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.: 1-35374

 

Mid-Con Energy Partners, LP

(Exact name of registrant as specified in its charter)

 

 

Delaware

45-2842469

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

 

2431 East 61st Street, Suite 850

Tulsa, Oklahoma 74136

(Address of principal executive offices and zip code)

(918) 743-7575

(Registrant’s telephone number, including area code)

 

 

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class

Ticker symbol(s)

Name of each exchange on which registered

Common Units Representing Limited Partner Interests

MCEP

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

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 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes      No  

As of October 25, 2019, the registrant had 30,824,291 common units outstanding.

 

 


TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

3

ITEM 1. FINANCIAL STATEMENTS

 

5

Unaudited Condensed Consolidated Balance Sheets

 

5

Unaudited Condensed Consolidated Statements of Operations

 

6

Unaudited Condensed Consolidated Statements of Cash Flows

 

7

Unaudited Condensed Consolidated Statements of Changes in Equity

 

8

Notes to Unaudited Condensed Consolidated Financial Statements

 

10

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

24

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

31

ITEM 4. CONTROLS AND PROCEDURES

 

32

 

 

 

PART II

OTHER INFORMATION

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

32

ITEM 1A. RISK FACTORS

 

32

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

33

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

33

ITEM 4. MINE SAFETY DISCLOSURES

 

33

ITEM 5. OTHER INFORMATION

 

33

ITEM 6. EXHIBITS

 

34

 

 

 

Signatures

 

35

 

2


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about:

 

volatility of commodity prices;

 

revisions to oil and natural gas reserves estimates as a result of changes in commodity prices;

 

effectiveness of risk management activities;

 

business strategies;

 

future financial and operating results;

 

our ability to pay distributions;

 

ability to replace the reserves we produce through acquisitions and the development of our properties;

 

future capital requirements and availability of financing;

 

technology and cybersecurity;

 

realized oil and natural gas prices;

 

production volumes;

 

lease operating expenses;

 

general and administrative expenses;

 

cash flow and liquidity;

 

availability of production equipment;

 

availability of oil field labor;

 

capital expenditures;

 

availability and terms of capital;

 

marketing of oil and natural gas;

 

general economic conditions;

 

competition in the oil and natural gas industry;

 

environmental liabilities;

 

counterparty credit risk;

 

governmental regulation and taxation;

 

compliance with NASDAQ listing requirements;

 

developments in oil and natural gas producing countries; and

 

plans, objectives, expectations and intentions.

All of these types of statements, other than statements of historical fact included in this Form 10-Q, are forward-looking statements. These forward-looking statements may be found in Item 1. “Financial Statements,” Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other items within this Form 10-Q. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” “goal,” “forecast,” “guidance,” “might,” “scheduled” and the negative of such terms or other comparable terminology.

3


 

The forward-looking statements contained in this Form 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our 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 that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. All readers are cautioned that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance and we cannot assure any reader that such statements will be realized or that the forward-looking events will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors described in the “Risk Factors” section included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 (“Annual Report”) and Part II - Item 1A in this Form 10-Q. All forward-looking statements speak only as of the date made, and other than as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

INFORMATION AVAILABLE ON OUR WEBSITE

We make available, free of charge on our website (www.midconenergypartners.com), copies of our Annual Reports, Form 10-Qs, Current Reports on Form 8-K, amendments to those reports filed or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Copies of our Code of Business Conduct and the written charter of our Audit Committee are also available on our website and we will provide copies of these documents upon request. Our website and any contents thereof are not incorporated by reference into this report.

4


 

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Mid-Con Energy Partners, LP and subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except number of units)

(Unaudited)

 

 

 

 

 

 

September 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

467

 

 

$

467

 

Accounts receivable

 

 

5,243

 

 

 

4,194

 

Derivative financial instruments

 

 

2,133

 

 

 

5,666

 

Prepaid expenses

 

 

237

 

 

 

118

 

Assets held for sale

 

 

430

 

 

 

430

 

Total current assets

 

 

8,510

 

 

 

10,875

 

Property and equipment

 

 

 

 

 

 

 

 

Oil and natural gas properties, successful efforts method

 

 

 

 

 

 

 

 

Proved properties

 

 

261,411

 

 

 

379,441

 

Unproved properties

 

 

3,563

 

 

 

2,928

 

Other property and equipment

 

 

1,360

 

 

 

427

 

Accumulated depletion, depreciation, amortization and impairment

 

 

(74,426

)

 

 

(175,948

)

Total property and equipment, net

 

 

191,908

 

 

 

206,848

 

Derivative financial instruments

 

 

3,630

 

 

 

2,418

 

Other assets

 

 

995

 

 

 

1,563

 

Total assets

 

$

205,043

 

 

$

221,704

 

 

 

 

 

 

 

 

 

 

LIABILITIES, CONVERTIBLE PREFERRED UNITS AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

 

 

 

 

 

Trade

 

$

187

 

 

$

141

 

Related parties

 

 

5,678

 

 

 

3,732

 

Accrued liabilities

 

 

449

 

 

 

2,024

 

Other current liabilities

 

 

422

 

 

 

 

Total current liabilities

 

 

6,736

 

 

 

5,897

 

Long-term debt

 

 

65,000

 

 

 

93,000

 

Other long-term liabilities

 

 

567

 

 

 

47

 

Asset retirement obligations

 

 

30,534

 

 

 

26,001

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Class A convertible preferred units - 11,627,906 issued and outstanding, respectively

 

 

22,642

 

 

 

21,715

 

Class B convertible preferred units - 9,803,921 issued and outstanding, respectively

 

 

14,780

 

 

 

14,635

 

Equity, per accompanying statements

 

 

 

 

 

 

 

 

General partner

 

 

(702

)

 

 

(786

)

Limited partners - 30,824,291 and 30,436,124 units issued and outstanding, respectively

 

 

65,486

 

 

 

61,195

 

Total equity

 

 

64,784

 

 

 

60,409

 

Total liabilities, convertible preferred units and equity

 

$

205,043

 

 

$

221,704

 

 

 

See accompanying notes to condensed consolidated financial statements

5


 

Mid-Con Energy Partners, LP and subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil sales

 

$

15,468

 

 

$

18,765

 

 

$

46,854

 

 

$

49,240

 

Natural gas sales

 

 

283

 

 

 

380

 

 

 

930

 

 

 

812

 

Other operating revenues

 

 

271

 

 

 

320

 

 

 

983

 

 

 

320

 

Gain (loss) on derivatives, net

 

 

5,730

 

 

 

(6,358

)

 

 

(3,072

)

 

 

(19,240

)

Total revenues

 

 

21,752

 

 

 

13,107

 

 

 

45,695

 

 

 

31,132

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

8,293

 

 

 

6,246

 

 

 

22,710

 

 

 

15,895

 

Production and ad valorem taxes

 

 

1,333

 

 

 

1,565

 

 

 

4,084

 

 

 

3,803

 

Other operating expenses

 

 

536

 

 

 

288

 

 

 

1,426

 

 

 

288

 

Impairment of proved oil and natural gas properties

 

 

180

 

 

 

 

 

 

384

 

 

 

9,710

 

Depreciation, depletion and amortization

 

 

2,559

 

 

 

4,812

 

 

 

8,026

 

 

 

11,646

 

Dry holes and abandonments of unproved properties

 

 

 

 

 

10

 

 

 

 

 

 

195

 

Accretion of discount on asset retirement obligations

 

 

423

 

 

 

404

 

 

 

1,168

 

 

 

748

 

General and administrative

 

 

1,404

 

 

 

1,494

 

 

 

6,414

 

 

 

4,746

 

Total operating costs and expenses

 

 

14,728

 

 

 

14,819

 

 

 

44,212

 

 

 

47,031

 

(Loss) gain on sales of oil and natural gas properties, net

 

 

 

 

 

(1

)

 

 

9,692

 

 

 

(389

)

Income (loss) from operations

 

 

7,024

 

 

 

(1,713

)

 

 

11,175

 

 

 

(16,288

)

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

1

 

 

 

10

 

 

 

3

 

Interest expense

 

 

(1,175

)

 

 

(1,620

)

 

 

(4,019

)

 

 

(4,369

)

Other income

 

 

4

 

 

 

20

 

 

 

53

 

 

 

20

 

Gain on sale of other assets

 

 

123

 

 

 

 

 

 

123

 

 

 

 

(Loss) gain on settlements of asset retirement obligations

 

 

(16

)

 

 

(37

)

 

 

(72

)

 

 

12

 

Total other expense

 

 

(1,063

)

 

 

(1,636

)

 

 

(3,905

)

 

 

(4,334

)

Net income (loss)

 

 

5,961

 

 

 

(3,349

)

 

 

7,270

 

 

 

(20,622

)

Less: Distributions to preferred unitholders

 

 

1,166

 

 

 

1,148

 

 

 

3,472

 

 

 

3,303

 

Less: General partner's interest in net income (loss)

 

 

69

 

 

 

(39

)

 

 

84

 

 

 

(243

)

Limited partners' interest in net income (loss)

 

$

4,726

 

 

$

(4,458

)

 

$

3,714

 

 

$

(23,682

)

Limited partners' interest in net income (loss) per unit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

(0.14

)

 

$

0.12

 

 

$

(0.78

)

Diluted

 

$

0.09

 

 

$

(0.14

)

 

$

0.07

 

 

$

(0.78

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partner units (basic)

 

 

30,811

 

 

 

30,392

 

 

 

30,743

 

 

 

30,292

 

Limited partner units (diluted)

 

 

53,189

 

 

 

30,392

 

 

 

53,142

 

 

 

30,292

 

 

See accompanying notes to condensed consolidated financial statements

6


 

Mid-Con Energy Partners, LP and subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited) 

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

7,270

 

 

$

(20,622

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

8,026

 

 

 

11,646

 

Debt issuance costs amortization

 

 

533

 

 

 

503

 

Accretion of discount on asset retirement obligations

 

 

1,168

 

 

 

748

 

Impairment of proved oil and natural gas properties

 

 

384

 

 

 

9,710

 

Dry holes and abandonments of unproved properties

 

 

 

 

 

195

 

Loss (gain) on settlements of asset retirement obligations

 

 

72

 

 

 

(12

)

Cash paid for settlements of asset retirement obligations

 

 

(96

)

 

 

(102

)

Mark to market on derivatives

 

 

 

 

 

 

 

 

Loss on derivatives, net

 

 

3,072

 

 

 

19,240

 

Cash settlements paid for matured derivatives, net

 

 

(750

)

 

 

(5,988

)

Cash premiums paid for derivatives

 

 

 

 

 

(200

)

(Gain) loss on sales of oil and natural gas properties

 

 

(9,692

)

 

 

389

 

Gain on sale of other assets

 

 

(123

)

 

 

 

Non-cash equity-based compensation

 

 

577

 

 

 

670

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,246

)

 

 

(3,109

)

Prepaid expenses and other assets

 

 

(84

)

 

 

(76

)

Accounts payable - trade and accrued liabilities

 

 

(226

)

 

 

689

 

Accounts payable - related parties

 

 

1,537

 

 

 

2,452

 

Net cash provided by operating activities

 

 

10,422

 

 

 

16,133

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisitions of oil and natural gas properties

 

 

(3,296

)

 

 

(21,626

)

Additions to oil and natural gas properties

 

 

(9,363

)

 

 

(6,072

)

Proceeds from sales of oil and natural gas properties

 

 

32,514

 

 

 

1,163

 

Proceeds from sale of other assets

 

 

123

 

 

 

 

Net cash provided by (used in) investing activities

 

 

19,978

 

 

 

(26,535

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

8,000

 

 

 

20,000

 

Payments on line of credit

 

 

(36,000

)

 

 

(23,000

)

Debt issuance costs

 

 

 

 

 

(651

)

Proceeds from sale of Class B convertible preferred units, net of offering costs

 

 

 

 

 

14,847

 

Distributions to Class A convertible preferred units

 

 

(1,500

)

 

 

(2,000

)

Distributions to Class B convertible preferred units

 

 

(900

)

 

 

(500

)

Net cash (used in) provided by financing activities

 

 

(30,400

)

 

 

8,696

 

Net decrease in cash and cash equivalents

 

 

 

 

 

(1,706

)

Beginning cash and cash equivalents

 

 

467

 

 

 

1,832

 

Ending cash and cash equivalents

 

$

467

 

 

$

126

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements

7


 

Mid-Con Energy Partners, LP and subsidiaries

Condensed Consolidated Statements of Changes in Equity

(in thousands)

(Unaudited)

 

 

 

General

 

 

Limited Partners

 

 

Total

 

Three Months Ended September 30, 2019

 

Partner

 

 

Units

 

 

Amount

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

$

(771

)

 

 

30,786

 

 

$

60,639

 

 

$

59,868

 

Equity-based compensation

 

 

 

 

 

38

 

 

 

121

 

 

 

121

 

Distributions to Class A convertible preferred units

 

 

 

 

 

 

 

 

(500

)

 

 

(500

)

Distributions to Class B convertible preferred units

 

 

 

 

 

 

 

 

(300

)

 

 

(300

)

Accretion of beneficial conversion feature of Class A convertible preferred units

 

 

 

 

 

 

 

 

(317

)

 

 

(317

)

Accretion of beneficial conversion feature of Class B convertible preferred units

 

 

 

 

 

 

 

 

(49

)

 

 

(49

)

Net income

 

 

69

 

 

 

 

 

 

5,892

 

 

 

5,961

 

Balance, September 30, 2019

 

$

(702

)

 

 

30,824

 

 

$

65,486

 

 

$

64,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General

 

 

Limited Partners

 

 

Total

 

Nine Months Ended September 30, 2019

 

Partner

 

 

Units

 

 

Amount

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

(786

)

 

 

30,436

 

 

$

61,195

 

 

$

60,409

 

Equity-based compensation

 

 

 

 

 

388

 

 

 

577

 

 

 

577

 

Distributions to Class A convertible preferred units

 

 

 

 

 

 

 

 

(1,500

)

 

 

(1,500

)

Distributions to Class B convertible preferred units

 

 

 

 

 

 

 

 

(900

)

 

 

(900

)

Accretion of beneficial conversion feature of Class A convertible preferred units

 

 

 

 

 

 

 

 

(927

)

 

 

(927

)

Accretion of beneficial conversion feature of Class B convertible preferred units

 

 

 

 

 

 

 

 

(145

)

 

 

(145

)

Net income

 

 

84

 

 

 

 

 

 

7,186

 

 

 

7,270

 

Balance, September 30, 2019

 

$

(702

)

 

 

30,824

 

 

$

65,486

 

 

$

64,784

 

 

8


 

Mid-Con Energy Partners, LP and subsidiaries

Condensed Consolidated Statements of Changes in Equity

(in thousands)

(Unaudited)

 

 

 

General

 

 

Limited Partners

 

 

Total

 

Three Months Ended September 30, 2018

 

Partner

 

 

Units

 

 

Amount

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

 

$

(776

)

 

 

30,306

 

 

$

64,089

 

 

$

63,313

 

Equity-based compensation

 

 

 

 

 

130

 

 

 

303

 

 

 

303

 

Distributions to Class A convertible preferred units

 

 

 

 

 

 

 

 

(500

)

 

 

(500

)

Distributions to Class B convertible preferred units

 

 

 

 

 

 

 

 

(300

)

 

 

(300

)

Accretion of beneficial conversion feature of Class A convertible preferred units

 

 

 

 

 

 

 

 

(299

)

 

 

(299

)

Accretion of beneficial conversion feature of Class B convertible preferred units

 

 

 

 

 

 

 

 

(49

)

 

 

(49

)

Net loss

 

 

(39

)

 

 

 

 

 

(3,310

)

 

 

(3,349

)

Balance, September 30, 2018

 

$

(815

)

 

 

30,436

 

 

$

59,934

 

 

$

59,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General

 

 

Limited Partners

 

 

Total

 

Nine Months Ended September 30, 2018

 

Partner

 

 

Units

 

 

Amount

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

$

(572

)

 

 

30,091

 

 

$

82,260

 

 

$

81,688

 

Equity-based compensation

 

 

 

 

 

345

 

 

 

670

 

 

 

670

 

Distributions to Class A convertible preferred units

 

 

 

 

 

 

 

 

(1,500

)

 

 

(1,500

)

Distributions to Class B convertible preferred units

 

 

 

 

 

 

 

 

(800

)

 

 

(800

)

Allocation of value to beneficial conversion feature of Class B convertible preferred units

 

 

 

 

 

 

 

 

686

 

 

 

686

 

Accretion of beneficial conversion feature of Class A convertible preferred units

 

 

 

 

 

 

 

 

(876

)

 

 

(876

)

Accretion of beneficial conversion feature of Class B convertible preferred units

 

 

 

 

 

 

 

 

(127

)

 

 

(127

)

Net loss

 

 

(243

)

 

 

 

 

 

(20,379

)

 

 

(20,622

)

Balance, September 30, 2018

 

$

(815

)

 

 

30,436

 

 

$

59,934

 

 

$

59,119

 

 

See accompanying notes to condensed consolidated financial statements

9


 

Mid-Con Energy Partners, LP and subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Nature of Operations

Nature of Operations

Mid-Con Energy Partners, LP (“we,” “our,” “us,” the “Partnership” or the “Company”) is a publicly held Delaware limited partnership formed in July 2011 that engages in the ownership, acquisition and development of producing oil and natural gas properties in North America, with a focus on enhanced oil recovery (“EOR”). Our limited partner units (“common units”) are listed under the symbol “MCEP” on the NASDAQ. Our general partner is Mid-Con Energy GP, LLC, a Delaware limited liability company.

Basis of Presentation

Our unaudited condensed consolidated financial statements are prepared pursuant to the rules and regulations of the SEC. These financial statements have not been audited by our independent registered public accounting firm, except that the condensed consolidated balance sheet at December 31, 2018, is derived from the audited financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in this Form 10-Q. We believe that the presentations and disclosures made are adequate to make the information not misleading.

The unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim financial statements should be read in conjunction with our Annual Report. All intercompany transactions and account balances have been eliminated.

Reclassifications

The unaudited condensed consolidated statements of operations for the prior year includes reclassifications from lease operating expenses (“LOE”) to production and ad valorem taxes to conform to the current presentation. Such reclassifications have no impact on previously reported net loss.

Non-cash Investing and Supplemental Cash Flow Information

The following presents the non-cash investing and supplemental cash flow information for the periods presented:

 

 

 

Nine Months Ended

September 30,

 

(in thousands)

 

2019

 

 

2018

 

Non-cash investing information

 

 

 

 

 

 

 

 

Change in oil and natural gas properties - assets received in exchange

 

$

38,533

 

 

$

 

Change in oil and natural gas properties - accrued capital expenditures

 

$

455

 

 

$

315

 

Change in oil and natural gas properties - accrued acquisitions

 

$

(1,462

)

 

$

1,897

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,639

 

 

$

3,567

 

 

 

Note 2. Acquisitions, Divestitures and Assets Held for Sale

We adopted ASU No. 2017-01, “Business Combinations (Topic 805)” effective January 1, 2018. We now evaluate all acquisitions to determine whether they should be accounted for as business combinations or asset acquisitions. The guidance provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the acquired assets is concentrated in a single asset or a group of similar assets, the set is not a business. If the screen is not met, to be considered a business, the set must include an input and substantive process that together significantly contribute to the ability to create output.

10


 

Assets and liabilities assumed in acquisitions accounted for as business combinations are recorded in our unaudited condensed consolidated balance sheets at their estimated fair values as of the acquisition date using assumptions that represent Level 3 fair value measurement inputs. See Note 5 in this section for additional discussion of our fair value measurements.

Results of operations attributable to the acquisition subsequent to the closing are included in our unaudited condensed consolidated statements of operations. The operations and cash flows of divested properties are eliminated from our ongoing operations.

Pine Tree Business Combination

In January 2018, we acquired multiple oil and natural gas properties located in Campbell and Converse Counties, Wyoming (the “Pine Tree” acquisition). Pine Tree was accounted for as a business combination. We acquired Pine Tree for cash consideration of $8.4 million, after final post-closing purchase price adjustments.

The recognized fair values of the Pine Tree assets acquired and liabilities assumed are as follows:

 

(in thousands)

 

 

 

 

Fair value of net assets acquired

 

 

 

 

Proved oil and natural gas properties

 

$

8,833

 

Total assets acquired

 

 

8,833

 

Fair value of net liabilities assumed

 

 

 

 

Asset retirement obligation

 

 

463

 

Net assets acquired

 

$

8,370

 

The following table presents revenues and expenses of the acquired oil and natural gas properties included in the accompanying unaudited condensed consolidated statements of operations for the periods presented:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Oil and natural gas sales

 

$

365

 

 

$

325

 

 

$

1,068

 

 

$

809

 

Expenses(1)

 

$

362

 

 

$

235

 

 

$

926

 

 

$

516

 

(1) Expenses include LOE, production and ad valorem taxes, accretion and depletion.

 

 

Strategic Transaction

In March 2019, we simultaneously closed the previously announced definitive agreements to sell substantially all of our oil and natural gas properties located in Texas for $60.0 million and to purchase certain oil and natural gas properties located in Osage, Grady and Caddo Counties in Oklahoma for an aggregate purchase price of $27.5 million, both agreements subject to customary purchase price adjustments. We received net proceeds of $32.5 million at the close of this Strategic Transaction (“Strategic Transaction”) of which $32.0 million was used to reduce borrowings outstanding on our revolving credit facility. The acquired properties were accounted for as an asset acquisition. A gain on the sale of oil and natural gas properties of $9.5 million was reported in the unaudited condensed consolidated statements of operations.

The following table presents revenues and expenses of the oil and natural gas properties sold included in the accompanying unaudited condensed consolidated statements of operations for the periods presented:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Oil and natural gas sales

 

$

 

 

$

6,578

 

 

$

4,689

 

 

$

20,444

 

Expenses(1)

 

$

63

 

 

$

4,188

 

 

$

3,433

 

 

$

13,907

 

(1) Expenses include LOE, production and ad valorem taxes, impairment of proved oil and natural gas properties, dry hole and abandonment, accretion and depletion.

 

11


 

Nolan County Divestiture

In January 2018, we completed the sale of certain oil and natural gas proved properties in Nolan County, Texas, for $1.5 million, after final post-closing purchase price adjustments. These properties were deemed to meet held-for-sale accounting criteria as of December 31, 2017, and impairment of $0.3 million was recorded to reduce the carrying value of these assets to their estimated fair value of $1.5 million at December 31, 2017; therefore, no gain or loss was realized on the sale in 2018.

Assets Held for Sale

Land in Southern Oklahoma met held-for-sale criteria as of September 30, 2019, and December 31, 2018. The carrying value of $0.4 million was presented as “Assets held for sale” in our unaudited condensed consolidated balance sheets.

Note 3. Equity Awards

We have a long-term incentive program (the “Long-Term Incentive Program”) for employees, officers, consultants and directors of our general partner and its affiliates, including Mid-Con Energy Operating, LLC (“Mid-Con Energy Operating”) and ME3 Oilfield Service, LLC (“ME3 Oilfield Service”), who perform services for us. The Long-Term Incentive Program allows for the award of unit options, unit appreciation rights, unrestricted units, restricted units, phantom units, distribution equivalent rights granted with phantom units and other types of awards. The Long-Term Incentive Program is administered by Charles R. Olmstead, Executive Chairman