Tellurian Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

MERGER

MERGER

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

MERGER

NOTE 2 — MERGER

The Merger

As discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, Tellurian Investments merged with a subsidiary of Magellan on February 10, 2017. The Merger has been accounted for as a “reverse acquisition,” with Tellurian Investments being treated as the accounting acquirer using the acquisition method.

The total consideration exchanged was as follows (in thousands, except share and per-share amounts):



Number of shares of Magellan common stock outstanding ⁽¹⁾	5,985,042
Price per share of Magellan common stock ⁽²⁾	$	14.21
Aggregate value of Tellurian common stock issued			$	85,048
Fair value of stock options ⁽³⁾			2,821
Net purchase consideration to be allocated			$	87,869

(1) The number of shares of Magellan common stock issued and outstanding as of February 9, 2017.
(2) The closing price of Magellan common stock on the Nasdaq on February 9, 2017.
(3) The estimated fair value of Magellan stock options for pre-Merger services rendered.

We utilized estimated fair values at the Merger Date for the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation to assets acquired and liabilities assumed in the Merger was as follows (in thousands):



Fair Value of Assets Acquired:
Cash	$	56
Securities available-for-sale	1,111
Other current assets	93
Unproved properties	13,000
Wells in progress	332
Land, buildings and equipment, net	67
Other long-term assets	19
Total assets acquired	14,678
Fair Value of Liabilities Assumed:
Accounts payable and other liabilities	4,393
Notes payable	8
Total liabilities assumed	4,401
Total net assets acquired	10,277
Goodwill as a result of the Merger	$	77,592

We valued our interests acquired in unproved oil and gas properties using a market approach based on commercial negotiations and bids received for the interests (see Note 5, Property, Plant and Equipment, for more information about the properties). The fair value of other property, plant and equipment and wells in progress was determined to be the carrying value of Magellan. Securities available-for-sale were valued based on quoted market prices. The carrying values of cash, other current assets, accounts payable and accrued liabilities and other non-current assets and liabilities approximated fair value at the Merger Date. The Company has determined that such fair value measures for the overall allocation are classified as Level 3 in the fair value hierarchy.

Goodwill recognized as a result of the Merger totaled approximately $77.6 million, none of which is deductible for income tax purposes. Subsequent to the Merger, the Company determined that there is no evidence that we will recover the value of this goodwill and an impairment expense of approximately $77.6 million was recognized during the year ended December 31, 2017. For purposes of determining the goodwill impairment, we utilized qualitative factors as well as the fair values determined when allocating consideration as of the Merger Date.

Pro Forma Results

The following table provides unaudited pro forma results for the year ended December 31, 2017, as if the Merger occurred as of January 1, 2017 (in thousands, except per-share amounts):



Pro forma net loss	$	(235,201	)
Pro forma net loss per basic share	$	(1.24	)
Pro forma basic and diluted weighted average common shares outstanding	189,246

The unaudited pro forma results include adjustments for the historical net loss of Magellan as well as an increase in compensation expense associated with the addition of three new directors. The pro forma information is provided for informational purposes only and is not necessarily indicative of what Tellurian’s results of operations would have been if the Merger had occurred on January 1, 2017. Following the Merger Date, approximately $0.8 million of net loss related to the acquired activities has been included in our Consolidated Financial Statements.