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ACQUISITIONS | 12 Months Ended
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Dec. 31, 2020
ACQUISITION |
ACQUISITION | 3.ACQUISITION S ​ AllDale I & II ​ On the AllDale Acquisition Date, we acquired all of the limited partner interests not owned by Cavalier Minerals in AllDale I & II and the general partner interests in AllDale I & II for $176.2 million, which was funded with cash on hand and borrowings under the Revolving Credit Facility. As a result of the AllDale Acquisition and our previous investments held through Cavalier Minerals, we acquired control of approximately 43,000 net royalty acres strategically positioned primarily in the core of the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) Basins. The AllDale Acquisition provides us with diversified exposure to industry leading operators and is consistent with our general business strategy to grow our Minerals segment. ​ Because the underlying mineral interests held by AllDale I & II include royalty interests in both producing properties and unproved properties, we have determined that the AllDale Acquisition should be accounted for as a business combination and the underlying assets and liabilities of AllDale I & II should be recorded at their AllDale Acquisition Date fair value on our consolidated balance sheet. ​ The final total fair value of the cash paid in the AllDale Acquisition and our previous investments were as follows: ​
​ | ​ | ​ | ​
​ | ​ | As of January 3, 2019
​ | ​ | (in thousands)
​ | ​ | ​ | ​
Cash | ​ | $ | 176,205
Previously held investments | ​ | ​ | 307,322
Total | ​ | $ | 483,527
​ Prior to the AllDale Acquisition Date, we accounted for our investments in AllDale I & II, held through Cavalier Minerals, as equity method investments. The combined fair value of our equity method investments on the AllDale Acquisition Date was $307.3 million. We re-measured our equity method investments, which had an aggregate carrying value of $130.3 million immediately prior to the AllDale Acquisition. The re-measurement resulted in a gain of $177.0 million which is recorded in the Acquisition gain line item in our consolidated statements of income. ​ The following table summarizes the final fair value allocation of assets acquired and liabilities assumed as of the AllDale Acquisition Date: ​
​ | ​ | ​ | ​ | ​
​ | ​ | (in thousands) | ​
​ | ​ | ​ | ​ | ​
Cash and cash equivalents | ​ | $ | 900 | ​
Mineral interests in proved properties | ​ | ​ | 184,032 | ​
Mineral interests in unproved properties | ​ | ​ | 291,190 | ​
Receivables | ​ | ​ | 9,326 | ​
Accounts payable | ​ | ​ | (1,921) | ​
Net assets acquired | ​ | $ | 483,527 | ​
​ Our previous equity method investments in AllDale I & II were held through Cavalier Minerals. Bluegrass Minerals Management, LLC ("Bluegrass Minerals") continues to hold a 4% membership interest (the "Bluegrass Interest") as well as a profits interest in Cavalier Minerals as it did before the AllDale Acquisition. This Bluegrass Interest represents an indirect noncontrolling interest in AllDale I & II. The AllDale Acquisition Date fair value of the Bluegrass Interest was $12.3 million. ​ The fair value of our previous equity method investments, the mineral interests and the Bluegrass Interest were determined using an income approach primarily comprised of discounted cash flow models. The assumptions used in the discounted cash flow models include estimated production, projected cash flows, forward oil & gas prices and a risk adjusted discount rate. Certain assumptions used are not observable in active markets, therefore the fair value measurements represent Level 3 fair value measurements. AllDale I & II's carrying value of the receivables and accounts payable represent their fair value given their short-term nature. ​ The amounts of revenue and earnings, exclusive of the acquisition gain, of AllDale I & II included in our consolidated statements of income from the AllDale Acquisition Date through December 31, 2019 are as follows: ​
​ | ​ | ​ | ​
​ | Year Ended | ​
​ | December 31, | ​
​ | 2019 |
​ | (in thousands)
​ | ​ | ​ | ​
Revenue | $ | 48,411 | ​
Net income |  | 18,543 | ​
​ The following represents our actual and pro forma consolidated revenues and net income for the year ended December 31, 2018. Pro forma revenues and net income assumes AllDale I & II had been included in our consolidated results since January 1, 2018. These amounts have been calculated after applying our accounting policies. Pro forma information is not necessary for the year ended December 31, 2019 as the AllDale Acquisition occurred at the beginning of 2019. Additionally, our pro forma results have been adjusted to remove the effect of our past equity method investments in AllDale I & II. ​
​ | ​ | ​ | ​ | ​
​ | ​ | Year Ended | ​
​ | ​ | December 31, | ​
​ |  | 2018 |
​ | ​ | (in thousands)
Total revenues | ​ | ​ | ​ | ​
As reported | ​ | $ | 2,002,857 | ​
Pro forma | ​ |  | 2,042,545 | ​
​ | ​ | ​ | ​ | ​
Net income | ​ | ​ | ​ | ​
As reported | ​ | $ | 367,470 | ​
Pro forma | ​ |  | 358,741 | ​
​ Wing ​ On August 2, 2019 (the "Wing Acquisition Date"), our subsidiary, AR Midland acquired from Wing approximately 9,000 net royalty acres in the Midland Basin, with exposure to more than 400,000 gross acres, for a cash purchase price of $144.9 million. The purchase price was funded with cash on hand and borrowings under our Revolving Credit Facility discussed in Note 8 – Long-Term Debt. The Wing Acquisition enhances our ownership position in the Permian Basin, expands our exposure to industry leading operators and furthers our business strategy to grow our Minerals segment. Concurrent with the Wing Acquisition, JC Resources LP, an entity owned by Mr. Craft, acquired from Wing, in a separate transaction, mineral interests that we elected not to acquire. ​ Because the mineral interests acquired in the Wing Acquisition include royalty interests in both producing properties and unproved properties, we have determined that the acquisition should be accounted for as a business combination and the underlying assets should be recorded at fair value as of the Wing Acquisition Date on our consolidated balance sheet. During the year ended December 31, 2020, we recorded adjustments to our mineral interests in proved and unproved properties after receiving additional information regarding proved and unproved reserve quantities, production and projections as of the Wing Acquisition Date. In addition, we increased our receivables by $0.3 million as a result of information received from operators concerning royalty payments owed to us from production that occurred prior to the Wing Acquisition Date. ​ The following table summarizes our final fair value allocation of assets acquired as of the Wing Acquisition Date incorporating measurement period adjustments made to the allocation: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As Previously | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Reported | ​ | Adjustments | ​ | Final | ​
​ | ​ | ​ | ​ | (in thousands) | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Mineral interests in proved properties | ​ | $ | 58,084 | ​ | ​ | 16,987 | ​ | $ | 75,071 | ​
Mineral interests in unproved properties | ​ | ​ | 84,976 | ​ | ​ | (17,275) | ​ | ​ | 67,701 | ​
Receivables | ​ | ​ | 1,867 | ​ | ​ | 288 | ​ | ​ | 2,155 | ​
Net assets acquired | ​ | $ | 144,927 | ​ | ​ | ​ | ​ | $ | 144,927 | ​
​ The fair value of the mineral interests was determined using a weighting of both income and market approaches. Our income approach primarily comprised a discounted cash flow model. The assumptions used in the discounted cash flow model included estimated production, projected cash flows, forward oil & gas prices and a weighted average cost of capital. Our market approach consisted of the observation of recent acquisitions in the Permian Basin to determine a market price for similar mineral interests. Certain assumptions used in our valuation are not observable in active markets; therefore, the fair value measurements represent Level 3 fair value measurements. The carrying value of the receivables represents the fair value given the short-term nature of the receivables. ​ The amounts of revenue and earnings from the mineral interests acquired in the Wing Acquisition included in our consolidated statements of income from the Wing Acquisition Date through December 31, 2019 are as follows: ​
​ | ​ | ​ | ​
​ | Year Ended | ​
​ | December 31, | ​
​ | 2019 |
​ | (in thousands)
​ | ​ | ​ | ​
Revenue | $ | 4,625 | ​
Net income |  | 1,291 | ​
​ The following represents our actual and pro forma consolidated revenues and net income for the years ended December 31, 2019 and 2018. Pro forma revenues and net income assumes the mineral interests acquired in the Wing Acquisition had been included in our consolidated results since January 1, 2018. These pro forma amounts have been calculated after applying our accounting policies. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Year Ended | ​
​ | ​ | December 31, | ​
​ |  | 2019 |  | 2018 | ​
​ | ​ | (in thousands) | ​
Total revenues | ​ | ​ | ​ | ​ | ​ | ​ | ​
As reported | ​ | $ | 1,961,720 | ​ | $ | 2,002,857 | ​
Pro forma | ​ | ​ | 1,966,291 | ​ | ​ | 2,008,559 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income | ​ | ​ | ​ | ​ | ​ | ​ | ​
As reported | ​ | $ | 406,926 | ​ | $ | 367,470 | ​
Pro forma | ​ | ​ | 411,217 | ​ | ​ | 372,810 | ​
​

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