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

Annual report pursuant to Section 13 and 15(d)

Acquisitions and Divestitures

Acquisitions and Divestitures

12 Months Ended

Jun. 30, 2013

Note 2 - Acquisitions and Divestitures

Evans Shoal Agreement. During the year ended June 30, 2010, MPA entered into an agreement with Santos Offshore Pty Ltd to purchase their 40% interest in the Evans Shoal natural gas field (NT/P48). On July 22, 2011, this agreement was terminated, and MPA received a deposit refund of AUD $10.0 million plus interest, pursuant to the terms of the agreement.

Sale Agreement between Magellan Petroleum (N.T.) Pty Ltd and Santos QNT Pty Ltd and Santos Limited. On May 25, 2012, Magellan Petroleum (N.T.) Pty Ltd ("Magellan NT"), a wholly owned subsidiary of MPA, Santos QNT Pty Ltd ("Santos QNT"), and Santos Limited (collectively "Santos") completed a Sale Agreement (the "Santos SA"), referred to herein as the "Santos Transaction" and became the sole owner of the Palm Valley Interests (as defined below) and of the Dingo Interests (as defined below), while Santos became the sole owner of the Mereenie Interests (as defined below). In accordance with the terms of the Santos SA, the Santos Transaction is deemed to be effective as of July 1, 2011. The Santos SA resulted in net cash proceeds of $26.6 million, including adjustments of $1.1 million, and a gain on sale of assets in the amount of $36.2 million. The Santos SA provided for the transfer of the following assets:


•	Magellan NT's 35% interest in each of the Mereenie Operating Joint Venture and the Mereenie Pipeline Joint Venture (collectively, the "Mereenie Interests") to Santos QNT;


•	Santos' combined interests of 48% in the Palm Valley Joint Venture ("Palm Valley Interests") and combined interests of 66% in the Dingo Joint Venture ("Dingo Interests") to Magellan NT.

Pursuant to the Santos SA, Magellan NT is also entitled to a series of contingent payments to be paid based on production levels at Mereenie achieved subsequent to the Santos Transaction. The maximum cumulative proceeds of the series of contingent payments is A$17.5 million. The Company has not recognized a contingent asset related to the series of contingent payments, as such amounts are not reasonably assured. The Company accounted for the Santos SA using the relative fair value method of accounting, which allocates the fair value of the assets received in the asset transfer to the Palm Valley Interests and the Dingo Interests. No goodwill or other intangible assets were recorded as a result of the Santos SA. However, goodwill in the amount of $2.5 million was allocated to the group of assets sold and recorded as a component of the gain on sale of assets. The purchase price allocation was considered final as of June 30, 2012 and the Santos SA was deemed to be effective as of July 1, 2011.

The following table summarizes the allocation of the consideration received for the assets transferred as a result of the Santos SA as of June 30, 2012.



	Total
	(In thousands)
Consideration received:
Net purchase price per Santos SA	$	25,493
Purchase price adjustments	1,138
Total	$	26,631

Allocation of the consideration received to fair value of assets:
Proved oil and gas properties (Palm Valley)	$	3,403
Unproved oil and gas properties (Dingo)	2,957
Land, buildings, and equipment (Palm Valley)	370
Total allocation of the fair value received	6,730
Mereenie liabilities given up, net (including basis in properties exchanged and allocated goodwill)	2,805
Gain on sale of assets	(36,166		)
Total	$	(26,631	)

Lease Purchase and Sale and Participation Agreement with VAALCO Energy (USA), Inc. ("VAALCO"). On September 6, 2011, the Company entered into a Lease Purchase and Sale and Participation Agreement (the "VAALCO PSA") with VAALCO. Pursuant to the VAALCO PSA, the Company received $5.0 million in cash, and VAALCO received an undivided 65% of the Company’s working interest in formations below the top of the Bakken/Three Forks (the "Deep Intervals") in Poplar.

The accounting for this transaction is set forth in the table below:



	Total
	(In thousands)
Cash consideration received	$	5,000
Net book value allocated to Deep Intervals	(829		)
Transaction costs	(162		)
Gain on sale recognized	$	4,009

Acquisition of Non-Controlling Interest in Nautilus Poplar LLC and Acquisition of Additional Working Interests. On September 2, 2011, the Company entered into a Purchase and Sale Agreement (the "Nautilus PSA") between the Company and the non-controlling interest owners of NP, being the Nautilus Technical Group, LLC ("NT") and Eastern Rider, LLC ("ER") (the "Nautilus Sellers"). The Nautilus Sellers included J. Thomas Wilson (a Magellan director and now its President and CEO), a second individual who has served as a consultant to NP, and a third individual who was an employee of NP at the time of the transaction, as well as certain other persons.

The Nautilus PSA provided for the Company's purchase of all membership interests from the Nautilus Sellers in return for (i) $4.0 million in cash (the "Cash Consideration"), (ii) $2.0 million, less certain costs and certain debt owed to Magellan by the Nautilus Sellers, in unregistered shares of Magellan’s common stock, par value $0.01 (the "Net Share Consideration"), and (iii) the potential for future production payments ("Contingent Production Payments"), payable in cash to the Nautilus Sellers, collectively, of up to $5.0 million if certain increased average daily production milestones are achieved. The shares were sold pursuant to Section 4(2) of the Securities Act of 1933. The Cash Consideration was transferred on September 2, 2011. Consistent with the terms of the Nautilus PSA, 1,182,742 of shares in the Net Share Consideration were issued on September 23, 2011. J. Thomas Wilson’s interest in this transaction approximated 52% of the consideration paid to the Nautilus Sellers.

The discounted fair value of the future contingent consideration payable is calculated at the end of each fiscal quarter using a consistent valuation methodology and assumptions. As of June 30, 2013, and 2012, the contingent consideration payable was valued at $3.9 million and $4.1 million, respectively, and is reported in the consolidated balance sheet as contingent consideration payable.

The acquisition of NT’s direct working interests was treated as a business combination for accounting purposes. The fair value of assets acquired and liabilities assumed were recorded at estimated fair value. This estimate was made based on significant unobservable (Level 3) inputs and based on the best information available at the time (see Note 5). A de minimis amount of revenues and earnings related to the working interests acquired is included in the accompanying consolidated statements of operations for the year ended June 30, 2012.

The table below summarizes the consideration paid to the Nautilus Sellers under the Nautilus PSA and the estimated fair value of the assets acquired and liabilities assumed for the working interests acquired from NT.



	NT non- controlling interest in NP		NT working interest in Poplar		ER non- controlling interest in NP		Total
	(In thousands)
Consideration paid to the Nautilus Sellers ⁽¹⁾:
Cash consideration	$	1,920	$	823	$	1,257	$	4,000
Share consideration ⁽²⁾	907		389		526		1,822
Fair value of contingent consideration payable	1,993		854		1,304		4,151
Total	$	4,820	$	2,066	$	3,087	$	9,973

							Total
							(In thousands)
Allocation of the consideration paid to the fair value of assets:
Oil and gas assets (proved)							$	1,462
Oil and gas assets - Deep Intervals (unproved)							679
ARO liability							(75		)
Total							$	2,066

⁽¹⁾ Excludes transaction costs.

⁽²⁾ Common stock valued at $1.54 per share closing price on the date of the transaction.