Jones Energy, Inc.

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This amendment requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases and mineral leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11, “Leases” (Topic 842) Targeted Improvements, which allows issuers an additional (and optional) transition method of adoption. Under the original standard issued in 2016, lessees and lessors were required to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. However, under the new transition method allowed for in the standard released in 2018, an entity may elect to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments are effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. While the Company has not yet finalized the impact this standards update will have on the consolidated financial statements, the adoption will likely increase the Company recorded assets and liabilities related to leases. We will adopt ASU 2016-02 effective as of January 1, 2019 and anticipate using the cumulative effect approach and will recognize a right of use asset and lease liability on the adoption date. We plan to apply practical expedients provided in the standards update that allow, among other things, not to reassess contracts that commenced prior to the adoption. We also anticipate to elect a policy not to recognize right of use assets and lease liabilities related to short-term leases.

In connection with the Reverse Stock Split, the Company filed an amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Amendment”). The Amendment, effective as of 5:00 p.m., New York City time, on September 7, 2018, converted each 20 issued and outstanding share of Class A common stock into one share of Class A common stock and each 20 issued and outstanding shares of Class B common stock into one share of Class B common stock. A Certificate of Correction to the Amendment (the “Certificate of Correction”) correcting the cash payout process for fractional shares resulting from the Reverse Stock Split was filed with the Secretary of State of the State of Delaware on September 10, 2018. Pursuant to the Certificate of Correction, any fraction of a share of Common Stock that would otherwise have resulted from the Reverse Stock Split were settled by cash payment, equal to the fraction of one share of Common Stock multiplied by the average of the high and low trading prices of the Class A common stock on the NYSE during regular trading hours for the five trading days immediately preceding September 7, 2018.

See "Impairment of Oil and Gas Properties" and “Critical Accounting Policies and Estimates” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of the Company’s accounting policies and significant assumptions related to accounting for oil and gas producing activities, and the Company's policies and processes with respect to impairment reviews for proved and unproved property. We continually review our oil and gas properties for indicators of potential impairment on an undiscounted basis. No such indicators were present at September 30, 2018. However, the Company’s current liquidity position may cause the Company to recognize a significant impairment on the assets in the Western Anadarko Basin, which had a carrying value of approximately $1.2 billion as of September 30, 2018.

On September 27, 2018, Paul B. Loyd, Jr. and John V. Lovoi resigned from the Board and all committees thereof, effective as of September 28, 2018. In connection with these resignations, pursuant to the bylaws of the Company, the Board voted to decrease the size of the Board from eight to seven members. Further, as of September 28, 2018, the Board appointed Mr. Carl F. Giesler, Jr., the Company’s Chief Executive Officer, to the Board and appointed Mr. Hal Washburn as chair of the Nominating and Governance Committee. As a result of the departures of Mr. Loyd and Mr. Lovoi, we currently do not have a majority-independent Board and only have two independent directors to serve on the Audit Committee of the Board as opposed to the three independent directors required by the rules of the NYSE. We are currently in the process of identifying a third independent director who would qualify for service on the Audit Committee of the Board and who would cause our Board to be majority-independent.

Future commodity price declines or downward reserve revisions may result in write downs of the carrying values of our properties.

Accounting rules require that we periodically review the carrying value of our properties for possible impairment. Based on prevailing commodity prices and specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our properties. A write down constitutes a non-cash charge to earnings. Such impairment may be accompanied by a reduction in proved reserves, thereby increasing future depletion charges per unit of production. We may incur impairment charges and related reductions in proved reserves in the future, which could have a material adverse effect on our results of operations for the periods in which such charges are taken. If commodity prices decline relative to their historical levels, we may incur future impairments to long lived assets.