Quarterly report pursuant to Section 13 or 15(d)

Sale of Weald Basin Assets

v3.6.0.2
Sale of Weald Basin Assets
 6 Months Ended
Dec. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Sale of Weald Basin Assets
Note 4 - Sale of Weald Basin Assets
On June 10, 2016, MPUK entered into three concurrent agreements, the Weald Agreements, which resulted in the disposal of its interests in four licenses in the UK and the settlement of all legal claims related to its dispute with Celtique.
On June 10, 2016, MPUK entered into i) an Asset Transfer Agreement relating to the sale to UK Oil & Gas Investments PLC ("UKOG") of MPUK's 50% interests in PEDLs 231, 234, and 243 (the "Weald ATA"), ii) an Asset Transfer Agreement relating to the sale to UKOG of MPUK's 22.5% interest in the Offshore Petroleum Licence P1916 (the "IoW ATA"), and iii) a Settlement Agreement (as defined below) with Celtique. The consideration payable by UKOG to MPUK for the Weald ATA amounted to £1.8 million in a combination of cash and shares in UKOG. The number and value of shares of UKOG was determined as of the time of execution of the Weald ATA and was based on the volume weighted average price of an ordinary share of UKOG for the ten business days prior to June 10, 2016. The consideration for the IoW ATA was the assumption of MPUK's outstanding payables of £16 thousand related to its interests in the Offshore Petroleum Licence P1916. Pursuant to the terms of the Settlement Agreement, MPUK was due to pay Celtique £500 thousand of the gross consideration, in a combination of cash and shares in UKOG pro rata to the consideration payable to MPUK for the Weald ATA.
With respect to the Settlement Agreement, MPUK entered into a settlement agreement with Celtique and its parent Celtique Energie Petroleum Limited (the "Settlement Agreement") which provided for the dismissal of all claims and counterclaims related to PEDLs 231, 234, and 243 between the parties. The Settlement Agreement also included a standstill provision among all parties until the completion of the Weald ATA.
On August 11, 2016, the transactions contemplated by all three agreements closed, with MPUK receiving net cash proceeds of £446 thousand and the net issuance to MPUK of approximately 50.9 million shares of UKOG, which shares were worth approximately £713 thousand and £992 thousand as of August 11, 2016, and December 31, 2016, respectively. Upon closing the transactions contemplated by the Weald Agreements during the six months ended December 31, 2016, the Company recognized a gain on disposal of discontinued operations, net of tax, of $1.1 million (Note 5).
In connection with the Weald ATA, IoW ATA, and Settlement Agreement, the Company accrued its liabilities to Celtique to the full amount of the consideration payable to Celtique of £500 thousand as of June 30, 2016, and classified its assets and liabilities related to PEDLs 231, 234, and 243, and P1916 to held for sale in the accompanying consolidated balance sheet as of June 30, 2016. The Company also classified the operations related to these licenses for the period from July 1, 2016 to closing on August 11, 2016, and for the three and six month periods ended December 31, 2015, to discontinued operations in the accompanying condensed consolidated statements of operations. For further information, refer to Note 5 - Discontinued Operations.
Note 5 - Discontinued Operations
As discussed in detail in Note 3, on August 1, 2016, pursuant to the Exchange Agreement, the Company completed the Exchange of 100% of its interest in the CO2 Business for the redemption of 100% of its outstanding Series A Preferred Stock, as adjusted by the Cash Amount. The assets and liabilities of the CO2 Business constituted and were previously reported under the Company's former NP segment, and, following the Company's determination that the closing of the Exchange was probable, were recorded at their fair values, less the cost to sell, and were classified as held for sale as of June 30, 2016 in the accompanying consolidated balance sheet. Similarly, the results of operations of the CO2 Business have been reclassified to discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented.
In addition, as discussed in detail in Note 4, on August 11, 2016, pursuant to the Weald Agreements, the Company completed the disposal of its interests in four licenses in the UK and the settlement of all legal claims related to its dispute with Celtique. The assets and liabilities related to the Weald Agreements were previously reported under the Company's MPUK segment, and were recorded at their fair values, less the cost to sell, and were classified as held for sale as of June 30, 2016 in the accompanying consolidated balance sheet. Similarly, the results of operations related to these licenses have been reclassified to discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented.
Following is a reconciliation of the major classes of line items constituting the pretax income (loss) from discontinued operations to the after-tax income (loss) from discontinued operations in the condensed consolidated statements of operations:
 
SIX MONTHS ENDED
 
December 31,
 
2016
 
2015
 
CO2 Business
 
Weald Basin
 
Total
 
CO2 Business
 
Weald Basin
 
Total
 
(In thousands)
Revenue
$
143

 
$
—

 
$
143

 
$
1,215

 
$
—

 
$
1,215

Operating, exploration and general and administrative expenses
41

 
—

 
41

 
1,999

 
113

 
2,112

Depletion, depreciation, amortization and accretion
—

 
—

 
—

 
404

 
—

 
404

Interest expense and other disposal costs
301

 
—

 
301

 
97

 
—

 
97

Total expenses
342

 
—

 
342

 
2,500

 
113

 
2,613

Non-controlling interest
(36
)
 
—

 
(36
)
 
25

 
—

 
25

Loss from discontinued operations before tax
(235
)
 
—

 
(235
)
 
(1,260
)
 
(113
)
 
(1,373
)
Gain on disposal of discontinued operations before tax
—

 
1,069

 
1,069

 
—

 
—

 
—

Income tax expense (benefit)
—

 
—

 
—

 
—

 
—

 
—

Net income (loss) from discontinued operations, net of tax
$
(235
)
 
$
1,069

 
$
834

 
$
(1,260
)
 
$
(113
)
 
$
(1,373
)


As of June 30, 2016, the Company recorded estimated transaction costs related to the Exchange of $690 thousand in loss from discontinued operations. Cumulative transaction costs related to the Exchange incurred through December 31, 2016 were $968 thousand. The additional transaction costs of $278 thousand are included in loss from discontinued operations for the six months ended December 31, 2016. Included in assets held for sale at June 30, 2016 were cash balances related to the CO2 Business of $141 thousand. At the closing of the Exchange, as a result of the settlement of the Cash Amount, the Company retained the cash of the CO2 Business and transferred to the CO2 Business a cash collateral account of $150 thousand securing certain surety bonds of Poplar.
Following is a reconciliation of the major classes of assets and liabilities of the disposal groups sold during the six months ended December 31, 2016, their carrying values at June 30, 2016, which represented the lesser of historical cost or fair value less costs to sell, and the calculation of the contribution to equity and gain on their disposal recorded at the time of closing of each respective transaction.
 
At Time of Closing
 
June 30,
2016
 
CO2 Business
 
Weald Basin
 
Total
 
CO2 Business
 
Weald Basin
 
Total
 
(In thousands)
Assets sold:
 
 
 
 
 
 
 
 
 
 
 
Cash
$
—

 
$
—

 
$
—

 
$
141

 
$
—

 
$
141

Accounts receivable
198

 
—

 
198

 
249

 
—

 
249

Inventories
242

 
295

 
537

 
232

 
301

 
533

Other classes of current assets that are not major
38

 
—

 
38

 
34

 
—

 
34

Property and equipment, net
24,294

 
795

 
25,089

 
23,941

 
812

 
24,753

Other classes of assets that are not major
204

 
—

 
204

 
332

 
—

 
332

Total assets of the disposal groups
$
24,976

 
$
1,090

 
$
26,066

 
$
24,929

 
$
1,113

 
$
26,042

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities sold:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,469

 
$
648

 
$
2,117

 
$
1,594

 
$
670

 
$
2,264

Note payable
5,500

 
—

 
5,500

 
5,500

 
—

 
5,500

Asset retirement obligations
2,818

 
—

 
2,818

 
2,818

 
—

 
2,818

Other classes of liabilities that are not major
55

 
—

 
55

 
56

 
—

 
56

Total liabilities of the disposal groups
$
9,842

 
$
648

 
$
10,490

 
$
9,968

 
$
670

 
$
10,638

 
 
 
 
 
 
 
 
 
 
 
 
Consideration:
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock exchanged
$
23,501

 
$
—

 
 
 
 
 
 
 
 
Secured promissory note forgiven
625

 
—

 
 
 
 
 
 
 
 
Cash received
900

 
586

 
 
 
 
 
 
 
 
Stock of UKOG received
—

 
925

 
 
 
 
 
 
 
 
Total consideration
$
25,026

 
$
1,511

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contribution to equity from preferred stockholder
$
9,892

 

 
 
 
 
 
 
 
 
Gain on disposal of discontinued operations, net of tax

 
$
1,069

 
 

Contingent Production Payments
The Company has retained potential future contingent production payments related to its September 2011 acquisition of NP. The contingent production payments are payable, up to a total of $5.0 million, if certain increased average daily production rates are achieved at the Poplar field. Based upon the latest reserves estimates available to the Company, the contingent production payments are unlikely to be paid, and therefore, are not recorded in the accompanying condensed consolidated financial statements. In addition, on September 30, 2016, the Company entered into an agreement with the beneficiaries of these contingent production payments to dispose of its obligations related to them. See Note 17 - Commitments and Contingencies for further information.