Jones Energy, Inc. (Form: 10-Q, Received: 05/05/2017 07:23:40)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-36006

Jones Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	1311	80-0907968
(State or other Jurisdiction of	(Primary Standard Industrial	(IRS Employer
Incorporation or Organization)	Classification Code Number)	Identification Number)

807 Las Cimas Parkway, Suite 350
Austin, Texas 78746
(512) 328-2953
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Robert J. Brooks

807 Las Cimas Parkway, Suite 350
Austin, Texas 78746
(512) 328-2953

(Address, including zip code, and telephone number, including area code, of Agent for service)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐		Smaller reporting company ☐
(Do not check if a smaller reporting company)

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On April 28, 2017, the Registrant had 65,535,763 shares of Class A common stock outstanding and 29,823,927 shares of Class B common stock outstanding.

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JONES ENERGY, INC.

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PART 1—FINANCIAL INFORMATION	1

Item 1. Financial Statements	1

Unaudited Consolidated Financial Statements

Balance Sheets	1

Statements of Operations	2

Statement of Changes in Stockholders’ Equity	3

Statements of Cash Flows	4

Notes to the Consolidated Financial Statements	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3. Quantitative and Qualitative Disclosures About Market Risk	40

Item 4. Controls and Procedures	42

PART II—OTHER INFORMATION	43

Item 1. Legal Proceedings	43

Item 1A. Risk Factors	43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3. Defaults upon Senior Securities	43

Item 4. Mine Safety Disclosures	43

Item 5. Other Information	43

Item 6. Exhibits	43

SIGNATURES	44

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this report specifically include the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including guidance regarding the timing and location of our anticipated drilling and completion activity, our expectations regarding our ability to drill the recently acquired acreage in the Merge, our ability to increase capital spending in connection with leasing, our ability to mitigate commodity price risk through our hedging program, our ability to maintain compliance with our debt covenants, JEH’s obligations to pay cash distributions, expectations regarding litigation, our belief that we will be able to identify and prioritize projects with the greatest expected returns, and our ability to successfully execute our 2017 development plan. These statements are based on certain assumptions made by the Company based on management’s experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include, but are not limited to, changes in prices for oil, natural gas liquids, and natural gas prices, weather, including its impact on oil and natural gas demand and weather-related delays on operations, the amount, nature and timing of planned capital expenditures, availability and method of funding acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as our ability to access them, customers’ elections to reject ethane and include it as part of the natural gas stream, ability to fund our 2017 capital expenditure budget, the proximity to and capacity of transportation facilities, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting the Company’s business and other important factors that could cause actual results to differ materially from those projected as described in the Company’s reports filed with the SEC.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

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PART 1—FINANCIAL INFORMATIO N

Item 1. Financial Statement s

Jones Energy, Inc.

Consolidated Balance Sheet s (Unaudited)


	March 31,		December 31,
(in thousands of dollars)	2017		2016
Assets
Current assets
Cash	$	8,708	$	34,642
Accounts receivable, net
Oil and gas sales		25,787		26,568
Joint interest owners		6,533		5,267
Other		4,218		6,061
Commodity derivative assets		30,101		24,100
Other current assets		7,278		2,684
Total current assets		82,625		99,322
Oil and gas properties, net, at cost under the successful efforts method		1,764,947		1,743,588
Other property, plant and equipment, net		2,920		2,996
Commodity derivative assets		17,767		34,744
Other assets		5,762		6,050
Total assets	$	1,874,021	$	1,886,700
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable	$	55,757	$	36,527
Oil and gas sales payable		28,112		28,339
Accrued liabilities		24,948		25,707
Commodity derivative liabilities		8,717		14,650
Other current liabilities		3,223		2,584
Total current liabilities		120,757		107,807
Long-term debt		701,586		724,009
Deferred revenue		6,591		7,049
Commodity derivative liabilities		178		1,209
Asset retirement obligations		20,035		19,458
Liability under tax receivable agreement		41,720		43,045
Other liabilities		949		792
Deferred tax liabilities		2,926		2,905
Total liabilities		894,742		906,274
Commitments and contingencies (Note 14)
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at March 31, 2017 and December 31, 2016		89,162		88,975
Stockholders' equity
Class A common stock, $0.001 par value; 63,395,635 shares issued and 63,373,033 shares outstanding at March 31, 2017 and 57,048,076 shares issued and 57,025,474 shares outstanding at December 31, 2016		63		57
Class B common stock, $0.001 par value; 29,832,098 shares issued and outstanding at March 31, 2017 and December 31, 2016		30		30
Treasury stock, at cost: 22,602 shares at March 31, 2017 and December 31, 2016		(358)		(358)
Additional paid-in-capital		470,107		447,137
Retained (deficit) / earnings		(30,272)		(8,652)
Stockholders' equity		439,570		438,214
Non-controlling interest		450,547		453,237
Total stockholders’ equity		890,117		891,451
Total liabilities and stockholders' equity	$	1,874,021	$	1,886,700

The accompanying notes are an integral part of these consolidated financial statements.

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Jones Energy, Inc.

Consolidated Statements of Operation s (Unaudited)


	Three months ended March 31,
(in thousands of dollars except per share data)	2017		2016
Operating revenues
Oil and gas sales	$	40,677	$	25,080
Other revenues		556		778
Total operating revenues		41,233		25,858
Operating costs and expenses
Lease operating		8,806		8,617
Production and ad valorem taxes		(906)		1,601
Exploration		2,944		162
Depletion, depreciation and amortization		35,654		41,762
Accretion of ARO liability		201		293
General and administrative		8,041		7,504
Total operating expenses		54,740		59,939
Operating income (loss)		(13,507)		(34,081)
Other income (expense)
Interest expense		(12,887)		(14,798)
Gain on debt extinguishment		—		90,652
Net gain (loss) on commodity derivatives		22,320		17,219
Other income (expense)		580		225
Other income (expense), net		10,013		93,298
Income (loss) before income tax		(3,494)		59,217
Income tax provision (benefit)		21		10,703
Net income (loss)		(3,515)		48,514
Net income (loss) attributable to non-controlling interests		(2,128)		29,603
Net income (loss) attributable to controlling interests	$	(1,387)	$	18,911
Dividends and accretion on preferred stock		(2,027)		—
Net income (loss) attributable to common shareholders	$	(3,414)	$	18,911

Earnings (loss) per share (1) :
Basic - Net income (loss) attributable to common shareholders	$	(0.05)	$	0.57
Diluted - Net income (loss) attributable to common shareholders	$	(0.05)	$	0.57

Weighted average Class A shares outstanding (1) :
Basic		62,197		33,222
Diluted		62,197		33,222

(1)

All share and earnings per share information presented has been recast to retrospectively adjust for the effects of the 0.087423 per share Special Stock Dividend, as defined in Note 11, “Stockholders’ and Mezzanine equity”, distributed on March 31, 2017.

The accompanying notes are an integral part of these consolidated financial statements.

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Jones Energy, Inc.

Statement of Changes in Stockholders’ Equit y (Unaudited)


	Common Stock						Treasury Stock			Additional		Retained				Total
	Class A			Class B			Class A			Paid-in-		(Deficit)/		Non-controlling		Stockholders'
(amounts in thousands)	Shares	Value		Shares	Value		Shares	Value		Capital		Earnings		Interest		Equity
Balance at December 31, 2016	57,025	$	57	29,832	$	30	23	$	(358)	$	447,137	$	(8,652)	$	453,237	$	891,451
Cumulative effect of adoption of ASU 2016-09	—		—	—		—	—		—		706		(706)		—		—
Stock-compensation expense	168		—	—		—	—		—		1,941		—		—		1,941
Cash tax distribution	—		—	—		—	—		—		—		—		(562)		(562)
Sale of common stock	1,180		1	—		—	—		—		2,828		—		—		2,829
Stock dividends on common stock	5,000		5	—		—	—		—		17,495		(17,500)		—		—
Dividends and accretion on preferred stock	—		—	—		—	—		—		—		(2,027)		—		(2,027)
Net income (loss)	—		—	—		—	—		—		—		(1,387)		(2,128)		(3,515)
Balance at March 31, 2017	63,373	$	63	29,832	$	30	23	$	(358)	$	470,107	$	(30,272)	$	450,547	$	890,117

The accompanying notes are an integral part of these consolidated financial statements.

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Jones Energy, Inc.

Consolidated Statements of Cash Flow s (Unaudited)


	Three months ended March 31,
(in thousands of dollars)	2017		2016
Cash flows from operating activities
Net income (loss)	$	(3,515)	$	48,514
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depletion, depreciation, and amortization		35,654		41,762
Exploration (dry hole and lease abandonment)		1,643		27
Accretion of ARO liability		201		293
Amortization of debt issuance costs		977		1,129
Stock compensation expense		1,972		1,185
Deferred and other non-cash compensation expense		136		268
Amortization of deferred revenue		(458)		(645)
(Gain) loss on commodity derivatives		(22,320)		(17,219)
(Gain) loss on sales of assets		64		4
(Gain) on debt extinguishment		—		(90,652)
Deferred income tax provision		21		10,564
Other - net		(627)		(963)
Changes in operating assets and liabilities
Accounts receivable		(220)		10,655
Other assets		(4,912)		(1,730)
Accrued interest expense		3,348		(384)
Accounts payable and accrued liabilities		1,619		(7,634)
Net cash provided by operations		13,583		(4,826)
Cash flows from investing activities
Additions to oil and gas properties		(47,110)		(7,176)
Net adjustments to purchase price of properties acquired		2,391		—
Proceeds from sales of assets		144		3
Acquisition of other property, plant and equipment (net of reimbursements)		(192)		40
Current period settlements of matured derivative contracts		27,854		42,298
Net cash (used in) investing		(16,913)		35,165
Cash flows from financing activities
Proceeds from issuance of long-term debt		30,000		75,000
Repayment of long-term debt		(53,000)		—
Purchase of senior notes		—		(73,427)
Payment of dividends on preferred stock		(1,840)		—
Net distributions paid to JEH unitholders		(562)		—
Net payments for share based compensation		(31)		—
Proceeds from sale of common stock		2,829		—
Net cash provided by financing		(22,604)		1,573
Net increase (decrease) in cash		(25,934)		31,912
Cash
Beginning of period		34,642		21,893
End of period	$	8,708	$	53,805
Supplemental disclosure of cash flow information
Cash paid for interest	$	8,559	$	14,053
Change in accrued additions to oil and gas properties		13,294		(686)
Asset retirement obligations incurred, including changes in estimate		413		50

The accompanying notes are an integral part of these consolidated financial statements.

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Jones Energy, Inc.

Notes to the Consolidated Financial Statement s (Unaudited)

1. Organization and Description of Business

Organization

Jones Energy, Inc. (the “Company”) was formed in March 2013 as a Delaware corporation to become a publicly-traded entity and the holding company of Jones Energy Holdings, LLC (“JEH”). As the sole managing member of JEH, the Company is responsible for all operational, management and administrative decisions relating to JEH’s business and consolidates the financial results of JEH and its subsidiaries.

JEH was formed as a Delaware limited liability company on December 16, 2009 through investments made by the Jones family, certain members of management and through private equity funds managed by Metalmark Capital, among others. JEH acts as a holding company of operating subsidiaries that own and operate assets that are used in the exploration, development, production and acquisition of oil and natural gas properties.

The Company’s certificate of incorporation authorizes two classes of common stock, Class A common stock and Class B common stock. The Class B common stock is held by the remaining owners of JEH prior to the initial public offering (“IPO”) of the Company (collectively, the “Class B shareholders”) and can be exchanged (together with a corresponding number of common units representing membership interests in JEH (“JEH Units”)) for shares of Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions. The Class B common stock has no economic rights but entitles its holders to one vote on all matters to be voted on by the Company’s stockholders generally. As of March 31, 2017, the Company held 63,373,033 JEH Units and all of the preferred units representing membership interests in JEH, and the remaining 29,832,098 JEH Units are held by the Class B shareholders. The Class B shareholders have no voting rights with respect to their economic interest in JEH, resulting in the Company reporting this ownership interest as a non-controlling interest.

The Company’s certificate of incorporation also authorizes the Board of Directors of the Company to establish one or more series of preferred stock. Unless required by law or by any stock exchange on which our common stock is listed, the authorized shares of preferred stock will be available for issuance without further action. Rights and privileges associated with shares of preferred stock are subject to authorization by the Board of Directors of the Company and may differ from those of any and all other series at any time outstanding.

On August 25, 2016, the Company issued 1,840,000 shares of its 8.0% Series A Perpetual Convertible Preferred Stock, par value $0.001 per share (the “Series A preferred stock”), pursuant to a registered public offering at $50 per share. See Note 11, “Stockholders’ and Mezzanine equity”.

Description of Business

The Company is engaged in the exploration, development, production and acquisition of oil and natural gas properties in the mid-continent United States, spanning areas of Texas and Oklahoma. The Company’s assets are located within the Anadarko and Arkoma basins, and are owned by JEH and its operating subsidiaries. The Company is headquartered in Austin, Texas.

2. Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission. All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s financial position as of December 31, 2016 and the financial statements reported for March 31, 2017 and 2016 and each of the three month periods then ended include the Company and all of its subsidiaries.

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Certain prior period amounts have been reclassified to conform to the current presentation.

The accompanying unaudited condensed consolidated financial statements for the periods ending March 31, 2017 and 2016 have been prepared in accordance with GAAP for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information relating to the Company’s organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been appropriately condensed or omitted in this Quarterly Report. The Company believes the disclosures made are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented herein. It is recommended that these unaudited condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements included in Jones Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016.

Use of Estimates

There have been no significant changes in our use of estimates since those reported in Jones Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016.

Production taxes

During the first quarter of 2017, the Company's application for High-Cost Gas Incentive refunds in Texas was approved for qualified wells on which taxes were initially paid between October 2012 and September 2016. The Company received a net production tax refund of $3.3 million, which was recorded as a reduction in Production and ad valorem taxes on the Company’s Consolidated Statement of Operations.

Recent Accounting Pronouncements

Adopted in the current year-to-date period:

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation” (Topic 718). This amendment is intended to simplify the accounting for share-based payment awards to employees, specifically in regard to (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments are effective for interim and annual reporting periods beginning after December 15, 2016. Therefore, the Company has adopted ASU 2016-09 effective as of January 1, 2017. Upon adoption of ASU 2016-09, the Company elected to change its accounting policy to account for forfeitures as they occur. The change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings for forfeitures of $0.7 million as of January 1, 2017. As a result of the valuation allowance against the Company’s deferred tax assets, there was no net adjustment to retained earnings for the change in accounting for unrecognized windfall tax benefits.

To be adopted in a future period:

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which creates a new topic in the Accounting Standards Codification (“ASC”), topic 606, “Revenue from Contracts with Customers.” This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. The amendments are now effective for interim and annual reporting periods beginning after December 15, 2017 and may be applied on either a full or modified retrospective basis. Early adoption is permitted. The Company is in the early stages of evaluating the effect that the adoption of Update 2014-09 and Update 2015-14 will have on our financial statements. At this time, we are performing a review on a sample of revenue contracts to determine the impact of adoption. The Company will continue to further evaluate the effect

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that the adoption of Update 2014-09 and Update 2015-14 will have on our financial statements. We anticipate adoption of Update 2014-09 and Update 2015-14 effective as of January 1, 2018.

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) 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. Lessees and lessors must 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. The amendments are effective for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the impacts of the amendments to our financial statements and accounting practices for leases. We anticipate adoption of ASU 2016-02 effective as of January 1, 2019.

3. Acquisitions

During the year ended December 31, 2016, the Company entered into several purchase and sale agreements (as described below). No acquisitions occurred during the three months ended March 31, 2017.

Merge Acquisition

On September 22, 2016, JEH acquired oil and gas properties located in the Merge area of the STACK/SCOOP (the “Merge”) play in Central Oklahoma (the “Merge Acquisition”) from SCOOP Energy Company, LLC for cash consideration of $134.4 million, net of the final working capital settlement of $2.4 million received in the first quarter of 2017. The oil and gas properties acquired in the Merge Acquisition principally consist of approximately 18,000 undeveloped net acres in Canadian, Grady and McClain Counties, Oklahoma. This transaction has been accounted for as an asset acquisition. The Company used proceeds from our equity offerings to fund a portion of the purchase. See Note 11, “Stockholders’ and Mezzanine equity”.

Anadarko Acquisition

On August 25, 2016, JEH acquired producing and undeveloped oil and gas assets in the Western Anadarko basin (the “Anadarko Acquisition”) for final consideration of $25.9 million. This transaction was accounted for as a business combination. The Company allocated $32.3 million to “Oil and gas properties,” with $3.0 million allocated to “Unproved” properties, $17.0 million allocated to “Proved” properties, and $12.3 million allocated to “Wells and equipment and related facilities”, based on the respective fair values of the assets acquired. Additionally, the Company allocated $6.4 million to our ARO liability associated with those proved properties. As of March 31, 2017, the measurement-period remains open. The Anadarko Acquisition did not result in a significant impact to revenues or net income and as such, pro forma financial information is not included. The Company funded the Anadarko Acquisition with cash on hand.

The assets acquired in the Anadarko Acquisition included interests in 174 wells, 59% of which were operated by the company, and approximately 25,000 net acres in Lipscomb and Ochiltree Counties in the Texas Panhandle. As of the closing date, the acquired acreage was producing approximately 900 barrels of oil equivalent per day.

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4. Properties, Plant and Equipment

Oil and Gas Properties

The Company accounts for its oil and natural gas exploration and production activities under the successful efforts method of accounting. Oil and gas properties consisted of the following at March 31, 2017 and December 31, 2016:


	March 31,		December 31,
(in thousands of dollars)	2017		2016
Mineral interests in properties
Unproved	$	208,913	$	213,153
Proved		1,071,654		1,054,683
Wells and equipment and related facilities		1,440,949		1,395,291
		2,721,516		2,663,127
Less: Accumulated depletion and impairment		(956,569)		(919,539)
Net oil and gas properties	$	1,764,947	$	1,743,588

There were no exploratory wells drilled during the three months ended March 31, 2017 or 2016. As such, no associated costs were capitalized and no exploratory wells resulted in exploration expense during either period.

The Company did not capitalize any interest during the three months ended March 31, 2017 or 2016 as no projects lasted more than six months. Costs incurred to maintain wells and related equipment are charged to expense as incurred.

Depletion of oil and gas properties amounted to $35.4 million and $41.5 million for the three months ended March 31, 2017 and 2016, respectively.

The Company continues to monitor its proved and unproved properties for impairment. No impairments of proved or unproved properties were recorded during the three months ended March 31, 2017 or 2016.

Other Property, Plant and Equipment

Other property, plant and equipment consisted of the following at March 31, 2017 and December 31, 2016:


	March 31,		December 31,
(in thousands of dollars)	2017		2016
Leasehold improvements	$	1,213	$	1,213
Furniture, fixtures, computers and software		4,361		4,170
Vehicles		1,677		1,677
Aircraft		910		910
Other		284		284
		8,445		8,254
Less: Accumulated depreciation and amortization		(5,525)		(5,258)
Net other property, plant and equipment	$	2,920	$	2,996

Depreciation and amortization of other property, plant and equipment amounted to $0.3 million for each of the three months ended March 31, 2017 and 2016, respectively.

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5. Long-Term Debt

Long-term debt consisted of the following at March 31, 2017 and December 31, 2016:


(in thousands of dollars)	March 31, 2017		December 31, 2016
Revolver	$	155,000	$	178,000
2022 Notes		409,148		409,148
2023 Notes		150,000		150,000
Total principal amount		714,148		737,148
Less: unamortized discount		(5,987)		(6,240)
Less: debt issuance costs, net		(6,575)		(6,899)
Total carrying amount	$	701,586	$	724,009

Senior Unsecured Notes

On April 1, 2014, JEH and Jones Energy Finance Corp., JEH’s wholly owned subsidiary formed for the sole purpose of co-issuing certain of JEH’s debt (collectively, the “Issuers”), sold $500.0 million in aggregate principal amount of the Issuers’ 6.75% senior notes due 2022 (the “2022 Notes”). The Company used the net proceeds from the issuance of the 2022 Notes to repay all outstanding borrowings under the Term Loan (as defined below) ($160.0 million), a portion of the outstanding borrowings under the Revolver (as defined below) ($308.0 million) and for working capital and general corporate purposes. The Company subsequently terminated the Term Loan in accordance with its terms. The 2022 Notes bear interest at a rate of 6.75% per year, payable semi-annually on April 1 and October 1 of each year beginning October 1, 2014. The 2022 Notes were registered in March 2015.

On February 23, 2015, the Issuers sold $250.0 million in aggregate principal amount of 9.25% senior notes due 2023 (the “2023 Notes”) in a private placement to affiliates of GSO Capital Partners LP and Magnetar Capital LLC. The 2023 Notes were issued at a discounted price equal to 94.59% of the principal amount. The Company used the $236.5 million net proceeds from the issuance of the 2023 Notes to repay outstanding borrowings under the Revolver and for working capital and general corporate purposes. The 2023 Notes bear interest at a rate of 9.25% per year, payable semi-annually on March 15 and September 15 of each year beginning September 15, 2015. The 2023 Notes were registered in February 2016.

During 2016, the Company purchased an aggregate principal amount of $190.9 million of its senior unsecured notes through several open market and privately negotiated purchases. The Company purchased $90.9 million principal amount of its 2022 Notes for $38.1 million, and $100.0 million principal amount of its 2023 Notes for $46.5 million, in each case excluding accrued interest and including any associated fees. The Company used cash on hand and borrowings from its Revolver to fund the note purchases. In conjunction with the extinguishment of this debt, JEH recognized cancellation of debt income of $99.5 million for the twelve months ended December 31, 2016, on a pre-tax basis. This income is recorded in Gain on debt extinguishment on the Company’s Consolidated Statement of Operations. Of the Company’s total repurchases, $20.3 million principal amount of its 2022 Notes were not cancelled and are available for future reissuance, subject to applicable securities laws.

The 2022 Notes and 2023 Notes are guaranteed on a senior unsecured basis by the Company and by all of its significant subsidiaries. The 2022 Notes and 2023 Notes will be senior in right of payment to any future subordinated indebtedness of the Issuers.

The Company may redeem the 2022 Notes at any time on or after April 1, 2017 and the 2023 Notes at any time on or after March 15, 2018 at a declining redemption price set forth in the respective indentures, plus accrued and unpaid interest.

The indentures governing the 2022 Notes and 2023 Notes are substantially identical and contain covenants that, among other things, limit the ability of the Company to incur additional indebtedness or issue certain preferred stock, pay dividends on capital stock, transfer or sell assets, make investments, create certain liens, enter into agreements that restrict dividends or other payments from the Company’s restricted subsidiaries to the Company, consolidate, merge or transfer all of the Company’s assets, engage in transactions with affiliates or create unrestricted subsidiaries. If at any time when the 2022 Notes or 2023 Notes are rated investment grade and no

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default or event of default (as defined in the indenture) has occurred and is continuing, many of the foregoing covenants pertaining to the 2022 Notes or 2023 Notes, as applicable, will be suspended. If the ratings on the 2022 Notes or 2023 Notes, as applicable, were to decline subsequently to below investment grade, the suspended covenants would be reinstated.

As of March 31, 2017, the Company was in compliance with the indentures governing the 2022 Notes and 2023 Notes.

Other Long-Term Debt

The Company entered into two credit agreements dated December 31, 2009, with Wells Fargo Bank N.A, the Senior Secured Revolving Credit Facility (the “Revolver”) and the Second Lien Term Loan (the “Term Loan”). On April 1, 2014, the Term Loan was repaid in full and terminated in connection with the issuance of the 2022 Notes. On November 6, 2014, the Company amended the Revolver to, among other things, extend the maturity date of the Revolver to November 6, 2019. The Company’s oil and gas properties are pledged as collateral to secure its obligations under the Revolver.

On August 1, 2016, the Company entered into an amendment to the Revolver to, among other things (i) require that the Company's deposit accounts and securities accounts (subject to certain exclusions) become subject to control agreements, (ii) restrict the Company from borrowing or receiving Letters of Credit under the Revolver if the Company has, or, after giving effect to such borrowing or issuance of Letter of Credit, will have, a Consolidated Cash Balance (as defined in the Revolver) in excess of $30.0 million (in each case giving effect to the anticipated use of proceeds thereof) and (iii) set the borrowing base under the Revolver at $425.0 million. The borrowing base was reaffirmed at this level during the semi-annual borrowing base re-determination effective October 24, 2016.

The terms of the Revolver require the Company to make periodic payments of interest on the loans outstanding thereunder, with all outstanding principal and interest under the Revolver due on the maturity date. The Revolver is subject to a borrowing base, which limits the amount of borrowings which may be drawn thereunder. The borrowing base will be re-determined by the lenders at least semi-annually on or about April 1 and October 1 of each year, with such re-determination based primarily on reserve reports using lender commodity price expectations at such time. Any reduction in the borrowing base will reduce our liquidity, and, if the reduction results in the outstanding amount under our revolving credit facility exceeding the borrowing base, we will be required to repay the deficiency within a short period of time.

Interest on the Revolver is calculated, at the Company’s option, at either (a) the London Interbank Offered (“LIBO”) rate for the applicable interest period plus a margin of 1.50% to 2.50% based on the level of borrowing base utilization at such time or (b) the greatest of the federal funds rate plus 0.50%, the one month adjusted LIBO rate plus 1.00%, or the prime rate announced by Wells Fargo Bank, N.A. in effect on such day, in each case plus a margin of 0.50% to 1.50% based on the level of borrowing base utilization at such time. For the three months ended March 31, 2017, the average interest rate under the Revolver was 2.59% on an average outstanding balance of $195.2 million. For the three months ended March 31, 2016, the average interest rate under the Revolver was 2.67% on an average outstanding balance of $143.1 million.

Total interest and commitment fees under the Revolver were $1.5 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively.

Jones Energy, Inc. and its consolidated subsidiaries are subject to certain covenants under the Revolver, including the requirement to maintain the following financial ratios:

a total leverage ratio, consisting of consolidated debt to EBITDAX, of not greater than 4.0 to 1.00x as of the last day of any fiscal quarter; and

a current ratio, consisting of consolidated current assets, including the unused amounts of the total commitments, to consolidated current liabilities, of not less than 1.00 to 1.00x as of the last day of any fiscal quarter.

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As of March 31, 2017, our total leverage ratio is approximately 3.73x and our current ratio is approximately 2.88x, as calculated based on the requirements in our covenants. We are in compliance with all terms of our Revolver at March 31, 2017, and we expect to maintain compliance throughout the next twelve month period. However, factors including those outside of our control, such as commodity price declines, may prevent us from maintaining compliance with these covenants, at future measurement dates in 2017 and beyond. In the event it were to become necessary, we believe we have the ability to take actions that would prevent us from failing to comply with our covenants, such as hedge restructuring or seeking a waiver of such covenants. If an event of default exists under the Revolver, the lenders will be able to accelerate the obligations outstanding under the Revolver and exercise other rights and remedies. Our Revolver contains customary events of default, including the occurrence of a change of control, as defined in the Revolver.

6. Derivative Instruments and Hedging Activities

The Company uses derivative instruments to mitigate volatility in commodity prices. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. Depending on changes in oil and gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our hedging positions.

The following tables summarize our hedging positions as of March 31, 2017:

Hedging Positions


	March 31, 2017
						Weighted		Final
		Low		High		Average		Expiration
Oil swaps	Exercise price	$	44.60	$	86.85	$	57.85	December 2020
	Offset exercise price	$	42.00	$	47.65	$	46.28
	Net barrels per month		20,000		181,000		81,978
Natural gas swaps	Exercise price	$	2.78	$	4.67	$	3.34	December 2020
	Offset exercise price	$	2.80	$	2.92	$	2.81
	Net mmbtu per month		300,000		1,890,000		1,108,000
Natural gas liquids swaps	Exercise price	$	18.06	$	72.52	$	27.95	October 2018
	Barrels per month		115,000		145,000		130,952
Oil collars	Puts (floors)	$	45.00	$	50.00	$	48.52	September 2019
	Calls (ceilings)	$	56.60	$	61.00	$	59.64
	Net barrels per month		65,000		73,000		67,500
Natural gas collars	Puts (floors)	$	2.55	$	2.55	$	2.55	December 2019
	Calls (ceilings)	$	3.08	$	3.41	$	3.19
	Net barrels per month		950,000		1,050,000		990,833

The Company recognized a net gain on derivative instruments of $22.3 million and a net gain on derivative instruments of $17.2 million for the three months ended March 31, 2017 and 2016, respectively.

The Company routinely enters into oil and natural gas swap contracts as seller, thus resulting in a fixed price. During 2017, the Company realized certain mark-to-market gains associated with oil and natural gas hedges the Company had in place for years 2018 and 2019. The gains were effectively realized by purchasing, as opposed to selling, oil and natural gas swap contracts for the equal volume that was associated with the initial hedge transaction. Therefore, as prices fluctuate, the loss (or gain) on any single contract in 2018 and 2019 will be offset by an equal gain (or loss). This essentially leaves the underlying production open to fluctuations in market prices. Based on current contract terms, the gains will be recognized as the hedge contracts mature in 2018 and 2019. Information related to these purchased oil and natural gas swap contracts is presented in the table above as the “offset exercise price”, and the volumes in the table above are presented “net” of such purchased oil and natural gas swap contracts.

Offsetting Assets and Liabilities

As of March 31, 2017, the counterparties to our commodity derivative contracts consisted of six financial institutions. All of our counterparties or their affiliates are also lenders under the Revolver. We are not generally required to post additional collateral under our derivative agreements.

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Our derivative agreements contain set-off provisions that state that in the event of default or early termination, any obligation owed by the defaulting party may be offset against any obligation owed to the defaulting party.

The following table presents information about our commodity derivative contracts that are netted on our Consolidated Balance Sheet as of March 31, 2017 and December 31, 2016:


					Net Amounts
			Gross		of Assets /		Gross Amounts
	Gross Amounts		Amounts		Liabilities		Not
	of Recognized		Offset in the		Presented in		Offset in the
	Assets /		Balance		the Balance		Balance
(in thousands of dollars)	Liabilities		Sheet		Sheet		Sheet		Net Amount
March 31, 2017
Commodity derivative contracts
Assets	$	65,102	$	(17,234)	$	47,868	$	—	$	47,868
Liabilities		(26,129)		17,234		(8,895)		—		(8,895)
December 31, 2016
Commodity derivative contracts
Assets	$	79,649	$	(20,805)	$	58,844	$	—	$	58,844
Liabilities		(36,664)		20,805		(15,859)		—		(15,859)

7. Fair Value Measurement

Fair Value of Financial Instruments

The Company determines fair value amounts using available market information and appropriate valuation methodologies. Fair value is the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.

The Company enters into a variety of derivative financial instruments, which may include over-the-counter instruments, such as natural gas, crude oil, and natural gas liquid contracts. The Company utilizes valuation techniques that maximize the use of observable inputs, where available. If listed market prices or quotes are not published, fair value is determined based upon a market quote, adjusted by other market-based or independently sourced market data, such as trading volume, historical commodity volatility, and counterparty-specific considerations. These adjustments may include amounts to reflect counterparty credit quality, the time value of money, and the liquidity of the market.

Counterparty credit valuation adjustments are necessary when the market price of an instrument is not indicative of the fair value as a result of the credit quality of the counterparty. Generally, market quotes assume that all counterparties have low default rates and equal credit quality. Therefore, an adjustment may be necessary to reflect the quality of a specific counterparty to determine the fair value of the instrument. The Company currently has all derivative positions placed and held by members of its lending group, which have high credit quality.

Liquidity valuation adjustments are necessary when the Company is not able to observe a recent market price for financial instruments that trade in less active markets. Exchange traded contracts are valued at market value without making any additional valuation adjustments; therefore, no liquidity reserve is applied.

Valuation Hierarchy

Fair value measurements are grouped into a three-level valuation hierarchy. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial

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instrument’s categorization within the hierarchy is based upon the input that requires the highest degree of judgment in the determination of the instrument’s fair value. The three levels are defined as follows:

Level 1 Pricing inputs are based on published prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 Pricing inputs include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, as of the reporting date. Contracts that are not traded on a recognized exchange or are tied to pricing transactions for which forward curve pricing is readily available are classified as Level 2 instruments. These include natural gas, crude oil and some natural gas liquids price swaps and natural gas basis swaps.

Level 3 Pricing inputs include significant inputs that are generally unobservable from objective sources. The Company classifies natural gas liquid swaps and basis swaps for which future pricing is not readily available as Level 3. The Company obtains estimates from independent third parties for its open positions and subjects those to the credit adjustment criteria described above.

The financial instruments carried at fair value as of March 31, 2017 and December 31, 2016, by consolidated balance sheet caption and by valuation hierarchy, as described above are as follows:


(in thousands of dollars)	March 31, 2017
	Fair Value Measurements Using
Commodity Price Hedges	(Level 1)		(Level 2)		(Level 3)		Total
Current assets	$	—	$	30,101	$	—	$	30,101
Long-term assets		—		16,547		1,220		17,767
Current liabilities		—		8,026		691		8,717
Long-term liabilities		—		108		70		178


(in thousands of dollars)	December 31, 2016
	Fair Value Measurements Using
Commodity Price Hedges	(Level 1)		(Level 2)		(Level 3)		Total
Current assets	$	—	$	24,100	$	—	$	24,100
Long-term assets (1)		—		36,384		(1,640)		34,744
Current liabilities		—		13,636		1,014		14,650
Long-term liabilities		—		892		317		1,209

(1)

Level 3 long-term assets are negative as a result of the netting of our commodity derivative reflected on our Consolidated Balance Sheet as of December 31, 2016. Our agreements include set-off provisions, as noted in Note 6, “Derivative Instruments and Hedging Activities - Offsetting Assets and Liabilities”.

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The following table represents quantitative information about Level 3 inputs used in the fair value measurement of the Company’s commodity derivative contracts as of March 31, 2017:


	Quantitative Information About Level 3 Fair Value Measurements
	Fair Value			Unobservable
Commodity Price Hedges	(000’s)		Valuation Technique	Input	Range
Natural gas liquid swaps	$	(761)	Use a discounted cash flow approach using inputs including forward price statements from counterparties	Natural gas liquid futures	$22.89 - $23.94 per barrel
Crude oil collars	$	1,633	Use a discounted option model approach using inputs including interpolated volatilities for certain settlement months where market volatility quotes were unavailable for the option strike price	Market volatility quotes at the option strike for certain settlement months in 2019	$45.00 - $61.00 per barrel
Natural gas collars	$	(413)	Use a discounted option model approach using inputs including interpolated volatilities for certain settlement months where market volatility quotes were unavailable for the option strike price	Market volatility quotes at the option strike for certain settlement months in 2019	$2.55 - $3.41 per barrel

Significant increases/decreases in natural gas liquid prices in isolation would result in a significantly lower/higher fair value measurement. The following table presents the changes in the Level 3 financial instruments for the three months ended March 31, 2017. Changes in fair value of Level 3 instruments represent changes in gains and losses for the periods that are reported in other income (expense). New contracts entered into during the year are generally entered into at no cost with changes in fair value from the date of agreement representing the entire fair value of the instrument. Transfers between levels are evaluated at the end of the reporting period.

The following table summarizes the Company’s commodity derivative contract activity during the three months ended March 31, 2017:


(in thousands of dollars)
Balance at December 31, 2016, net	$	(2,971)
Purchases		(146)
Settlements		(469)
Transfers to Level 2		—
Transfers to Level 3		—
Changes in fair value		4,045
Balance at March 31, 2017, net	$	459

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The following table provides the fair value of financial instruments that are not recorded at fair value in the consolidated financial statements:


	March 31, 2017				December 31, 2016
	Principal				Principal
(in thousands of dollars)	Amount		Fair Value		Amount		Fair Value
Debt:
Revolver	$	155,000	$	155,000	$	178,000	$	178,000
2022 Notes		409,148		344,564		409,148		393,150
2023 Notes		150,000		143,157		150,000		153,375

The Revolver (as defined in Note 5) is categorized as Level 3 in the valuation hierarchy as the debt is not publicly traded and no observable market exists to determine the fair value; however, the carrying value of the Revolver approximates fair value, as it is subject to short-term floating interest rates that approximate the rates available to the Company for those periods.

The fair value of the 2022 Notes (as defined in Note 5) is based on pricing that is readily available in the public market. Accordingly, the 2022 Notes are classified as Level 1 in the valuation hierarchy as the pricing is based on quoted market prices for the debt securities and is actively traded.

The fair value of the 2023 Notes (as defined in Note 5) is based on indicative pricing that is available in the public market. Accordingly, the 2023 Notes are classified as Level 2 in the valuation hierarchy as the pricing is based on quoted market prices for the debt securities but is not actively traded.

8. Asset Retirement Obligations

A summary of the Company’s Asset Retirement Obligations (“ARO”) for the three months ended March 31, 2017 is as follows:


(in thousands of dollars)
Balance at December 31, 2016	$	20,058
Liabilities incurred		413
Accretion of ARO liability		201
Liabilities settled due to plugging and abandonment		(37)
Total ARO balance at March 31, 2017		20,635
Less: Current portion of ARO		(600)
Total long-term ARO at March 31, 2017	$	20,035

9. Stock-based Compensation

Management Unit Awards

Effective January 1, 2010, JEH implemented a management incentive plan that provided indirect awards of membership interests in JEH to members of senior management (“Management Units”). These awards had various vesting schedules, and a portion of the Management Units vested in a lump sum at the IPO date. In connection with the IPO, both the vested and unvested Management Units were converted into the right to receive JEH Units and shares of Class B common stock. The JEH Units (together with a corresponding number of shares of Class B common stock) will become exchangeable under this plan into a like number of shares of Class A common stock upon vesting or forfeiture. No new Management Units have been awarded since the IPO and no new JEH Units or shares of Class B common stock are created upon a vesting event. Grants listed below reflect the transfer of JEH Units that occurred upon forfeiture.

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The following table summarizes information related to the vesting of Management Units as of March 31, 2017:


		Weighted Average
		Grant Date Fair Value
	JEH Units	per Share
Unvested at December 31, 2016	90,762	$	15.00
Granted	—		15.00
Forfeited	—		15.00
Vested	—		15.00
Unvested at March 31, 2017	90,762	$	15.00

Stock compensation expense associated with the Management Units was $0.2 million and $0.5 million for the three months ended March 31, 2017 and 2016, respectively, and is included in general and administrative expenses on the Company’s Consolidated Statement of Operations.

2013 Omnibus Incentive Plan

Under the Amended and Restated Jones Energy, Inc. 2013 Omnibus Incentive Plan (the “LTIP”), established in conjunction with the Company’s IPO and restated on May 4, 2016 following approval by the Company’s stockholders, the Company has reserved a total of 7,992,559 shares of Class A common stock for non-employee director, consultant, and employee stock-based compensation awards.

The Company granted (i) performance share unit and restricted stock unit awards to certain officers and employees and (ii) restricted shares of Class A common stock to the Company’s non-employee directors under the LTIP during 2014, 2015, 2016 and 2017. During 2016, the Company also granted performance unit awards to certain members of the senior management team under the LTIP.

All share and earnings per share information presented for awards made under the LTIP has been recast to retrospectively adjust for the effects of the 0.087423 per share Special Stock Dividend, as defined in Note 11, “Stockholders’ and Mezzanine equity”, distributed on March 31, 2017.

Restricted Stock Unit Awards

The Company has outstanding restricted stock unit awards granted to certain officers and employees of the Company under the LTIP. The fair value of the restricted stock unit awards is based on the value of the Company’s Class A common stock on the date of grant and is expensed on a straight-line basis over the applicable vesting period, which is typically three years.

The following table summarizes information related to the total number of units awarded to officers and employees as of March 31, 2017:


	Restricted	Weighted Average
	Stock Unit	Grant Date Fair Value
	Awards	per Share
Unvested at December 31, 2016	1,359,142	$	5.60
Granted	33,052		4.60
Forfeited	(7,129)		4.60
Vested	—		—
Unvested at March 31, 2017	1,385,065	$	5.58

Stock compensation expense associated with the employee restricted stock unit awards was $1.1 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively, and is included in general and administrative expenses on the Company’s Consolidated Statement of Operations.

Performance Share Unit Awards

The Company has outstanding performance share unit awards granted to certain members of the senior management team of the Company under the LTIP. Prior to the second quarter of 2016, the performance share

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unit awards were described in the Company’s filings as performance unit awards. During the second quarter of 2016, the Company created a new class of equity award, described below as a performance unit award, that is settled in cash rather than shares of the Company’s Class A common stock. As a result, references to performance unit awards in the Company’s filings prior to the second quarter of 2016 refer to this description of performance share unit awards.

Upon the completion of the applicable three-year performance period, each recipient may vest in a number of performance share units. The percent of awarded performance share units in which each recipient vests at such time, if any, will range from 0% to 200% based on the Company’s total shareholder return relative to an industry peer group over the applicable three-year performance period. Each vested performance share unit is exchangeable for one share of the Company’s Class A common stock. The grant date fair value of the performance share units was determined using a Monte Carlo simulation model, which results in an estimated percentage of performance share units earned. The fair value of the performance share units is expensed on a straight-line basis over the applicable three-year performance period.

The following table summarizes information related to the total number of performance share units awarded to the senior management team as of March 31, 2017:


	Performance	Weighted Average
	Share Unit	Grant Date Fair Value
	Awards	per Share
Unvested at December 31, 2016	942,073	$	6.25
Granted	—		—
Forfeited	—		—
Vested	—		—
Unvested at March 31, 2017	942,073	$	6.25

Stock compensation expense associated with the performance share unit awards was $0.6 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively, and is included in general and administrative expenses on the Company’s Consolidated Statement of Operations.

Performance Unit Awards

The value of awarded performance units in which each recipient vests at such time, if any, will range from $0.00 to $200.00 per performance unit based on the Company’s total shareholder return relative to an industry peer group over the applicable three-year performance period. For accounting purposes, the performance units are treated as a liability award with the liability being re-measured at the end of each reporting period. Therefore, the expense associated with these awards is subject to volatility until the payout is finally determined at the end of the performance period. The value of the performance units was determined at award using a Monte Carlo simulation model, as of the grant date, which resulted in an estimated final value upon vesting of $1.3 million. The fair value measured as of March 31, 2017 was $1.0 million.

Stock compensation expense associated with the performance unit awards was less than $0.1 million and was $0.0 million for the three months ended March 31, 2017 and 2016, respectively, and is included in general and administrative expenses on the Company’s Consolidated Statement of Operations. As of March 31, 2017, $0.6 million of unrecognized compensation expense related to the performance unit awards, subject to re-measurement and adjustment for the change in estimated final value as of the end of each reporting period, is expected to be recognized over the remaining weighted average service period of 1.75 years.

Restricted Stock Awards

The Company has outstanding restricted stock awards granted to the non-employee members of the Board of Directors of the Company under the LTIP. The restricted stock will vest upon the director serving as a director of the Company for a one-year service period in accordance with the terms of the award. The fair value of the awards was based on the price of the Company’s Class A common stock on the date of grant.

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The following table summarizes information related to the total value of the awards to the Board of Directors as of March 31, 2017:


		Weighted Average
	Restricted	Grant Date Fair Value
	Stock Awards	per Share
Unvested at December 31, 2016	152,050	$	3.68
Granted	—		—
Forfeited	—		—
Vested	—		—
Unvested at March 31, 2017	152,050	$	3.68

Stock compensation expense associated with awards to the members of the Board of Directors was $0.2 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively, and is included in general and administrative expenses on the Company’s Consolidated Statement of Operations.

10. Income Taxes

The Company records federal and state income tax liabilities associated with its status as a corporation. The Company recognizes a tax liability on its share of pre-tax book income, exclusive of the non-controlling interest. JEH is not subject to income tax at the federal level and only recognizes Texas franchise tax expense.

The Company’s effective tax rate was (0.6)% and 18.1% for the three months ended March 31, 2017 and 2016, respectively. The effective tax rate reduction is primarily due to the effect of the valuation allowance recorded against the Company’s deferred tax assets. The effective rate differs from the statutory rate of 35% due to net income allocated to the non-controlling interest, percentage depletion, state income taxes, the valuation allowance recorded against deferred tax assets, and other permanent differences between book and tax accounting.

The Company’s income tax provision was an expense of less than $0.1 million and of $10.7 million for the three months ended March 31, 2017 and 2016, respectively.

The following table summarizes information related to the allocation of the income tax provision between the controlling and non-controlling interests:


	Three Months Ended March 31,
(in thousands of dollars)	2017		2016
Jones Energy, Inc.	$	14	$	10,569
Non-controlling interest		7		134
Income tax provision (benefit)	$	21	$	10,703

The Company had deferred tax assets for its federal and state net operating loss carry forwards at March 31, 2017 recorded in its deferred taxes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2017, we have a valuation allowance of $4.1 million as a result of management’s assessment of the realizability of federal and state deferred tax assets. Management believes that there will be sufficient future taxable income based on the reversal of temporary differences to enable utilization of substantially all other tax carryforwards.

Tax Receivable Agreement

In connection with the IPO, the Company entered into a Tax Receivable Agreement (the “TRA”) which obligates the Company to make payments to certain current and former owners equal to 85% of the applicable cash savings that the Company realizes as a result of tax attributes arising from exchanges of JEH Units and shares of the Company’s Class B common stock held by those owners for shares of the Company’s Class A common stock. The Company will retain the benefit of the remaining 15% of these tax savings. At the time of an exchange, the company records a liability to reflect the future payments under the TRA.

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The actual amount and timing of payments to be made under the TRA will depend upon a number of factors, including the amount and timing of taxable income generated in the future, changes in future tax rates, the use of loss carryovers, and the portion of the Company’s payments under the TRA constituting imputed interest. In the event that the Company records a valuation allowance against its deferred tax assets associated with an exchange, the TRA liability will also be reduced as the payment of the TRA liability is dependent on the realizability of the deferred tax assets. As of March 31, 2017 and December 31, 2016, the amount of the TRA liability was reduced by $3.3 million and $2.7 million, respectively, as a result of the valuation allowance recorded against the Company’s deferred tax assets. To the extent the Company does not realize all of the tax benefits in future years or in the event of a change in future tax rates, this liability may change.

As of March 31, 2017 and December 31, 2016, the Company had recorded a TRA liability of $42.4 million and $43.0 million, respectively, for the estimated payments that will be made to the Class B shareholders who have exchanged shares, after adjusting for the TRA liability reduction, along with corresponding deferred tax assets, net of valuation allowance, of $49.7 million, and $50.6 million, respectively, as a result of the increase in tax basis generated arising from such exchanges.

As of March 31, 2017, the Company had not made any significant payments under the TRA to Class B shareholders who have exchanged JEH Units and Class B common stock for Class A common stock. The Company anticipates making a payment of approximately $0.6 million under the TRA with respect to cash savings that the Company will realize on its 2016 tax returns as a result of tax attributes arising from prior exchanges, to be paid in the first quarter of 2018.

Cash Tax Distributions

A Special Committee of the Board of Directors comprised solely of directors who do not have a direct or indirect interest in such distribution approved, and JEH made, aggregate cash tax distributions during the three months ended March 31, 2017 of $1.7 million. The distributions were made pro-rata to all members of JEH, and included a $1.1 million payment to the Company and a $0.6 million payment to Class B shareholders. The tax distributions were paid as a result of JEH’s 2016 taxable income. During the three months ended March 31, 2016 the Company did not make any tax distributions.

11. Stockholders’ and Mezzanine equity

Stockholders’ equity is comprised of two classes of common stock, Class A common stock and Class B common stock. The Class B common stock is held by the owners of JEH prior to the Company’s IPO and can be exchanged (together with a corresponding number of units representing membership interests in JEH Units) for shares of Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions. The Class B common stock has no economic rights but entitles its holders to one vote on all matters to be voted on by the Company’s stockholders generally.

The Company has classified the Series A preferred stock as mezzanine equity based upon the terms and conditions that contain various redemption and conversion features. For a description of these features, please see below under “—Offering of 8.0% Series A Perpetual Convertible Preferred Stock.”

Equity Distribution Agreement

On May 24, 2016, the Company and JEH entered into an Equity Distribution Agreement (“Equity Distribution Agreement”) with Citigroup Global Markets Inc. and Wells Fargo Securities, LLC (each, a “Manager” and collectively, the “Managers”). Pursuant to the terms of the Equity Distribution Agreement, the Company may sell

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from time to time through the Managers, as the Company’s sales agents, the Company’s Class A common stock having an aggregate offering price of up to $73.0 million (the “Class A Shares”). Under the terms of the Equity Distribution Agreement, the Company may also sell Class A Shares from time to time to any Manager as principal for its own account at a price to be agreed upon at the time of sale. Any sale of Class A Shares to a Manager as principal would be pursuant to the terms of a separate terms agreement between the Company and such Manager. Sales of the Class A Shares, if any, will be made by means of ordinary brokers’ transactions, to or through a market maker or directly on or through an electronic communication network, a “dark pool” or any similar market venue, or as otherwise agreed by the Company and one or more of the Managers.

During the three months ended March 31, 2017, the Company sold approximately 1.2 million Class A Shares under the Equity Distribution Agreement for net proceeds of approximately $2.8 million ($2.9 million gross proceeds, net of approximately $0.1 million in commissions and professional services expenses). The Company used the net proceeds for general corporate purposes. At March 31, 2017, approximately $67.9 million in aggregate offering proceeds remained available to be issued and sold under the Equity Distribution Agreement.

Offering of Class A Common Stock

On August 26, 2016, the Company issued 21,000,000 shares of Class A common stock pursuant to an underwritten public offering, and on September 12, 2016 the Company issued an additional 3,150,000 shares of Class A common stock in connection with the exercise of the underwriters’ over-allotment option. The total net proceeds (after underwriters’ discounts and commissions, but before estimated expenses) of the offering, including the exercise of the over-allotment option, was $64.0 million.

Offering of 8.0% Series A Perpetual Convertible Preferred Stock

On August 26, 2016, the Company issued 1,840,000 shares of Series A preferred stock pursuant to an underwritten public offering for total net proceeds (after underwriters’ discounts and commissions but before expenses) of $88.3 million.

Holders of Series A preferred stock are entitled to receive, when as and if declared by the Company’s Board of Directors, cumulative dividends at the rate of 8.0% per annum (the “dividend rate”) per share on the $50.00 liquidation preference per share of the Series A Preferred Stock, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on November 15, 2016. Dividends may be paid in cash or, subject to certain limitations, in Class A common stock, or a combination thereof.

Under the terms of the Series A preferred stock, the Company’s ability to declare or pay dividends or make distributions on, or purchase, redeem or otherwise acquire for consideration, shares of the Company’s Class A common stock, or any junior stock or parity stock currently outstanding or issued in the future, will be subject to certain restrictions in the event that the Company does not pay in full or declare and set aside for payment in full all accrued and unpaid dividends on the Series A preferred stock (including certain unpaid excess cash payment amounts excused from payment as a dividend due to restrictions in credit facilities or other indebtedness or legal requirements (“Unpaid Excess Cash Payment Amounts”)).

Each share of Series A preferred stock has a liquidation preference of $50.00 per share and is convertible, at the holder’s option at any time, into approximately 17.0683 shares of Class A common stock after adjusting the conversion ratio for the effects of the Special Stock Dividend, as defined in Note 11, “Stockholders’ and Mezzanine equity”, (which is equivalent to a conversion price of approximately $2.93 per share after adjusting for the effects of the Special Stock Dividend), subject to specified further adjustments and limitations as set forth in the certificate of designations for the Series A preferred stock. Based on the adjusted conversion rate and the full exercise of the Preferred Stock Underwriters’ over-allotment option, approximately 31.4 million shares of Class A common stock would be issuable upon conversion of all the Series A preferred stock.

On or after August 15, 2021, the Company may, at its option, give notice of its election to cause all outstanding shares of Series A preferred stock to be automatically converted into shares of Class A common stock at the conversion rate, if the closing sale price of the Class A common stock equals or exceeds 175% of the conversion price for at least 20 trading days in a period of 30 consecutive trading days.

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On August 15, 2024 (the “designated redemption date”), each holder of Series A preferred stock may require us to redeem any or all Series A preferred stock held by such holder outstanding on the designated redemption date at a redemption price equal to a liquidation preference of $50.00 per share plus all accrued dividends on the shares up to but excluding the designated redemption date that have not been paid plus any Unpaid Excess Cash Payment Amounts (the “redemption price”). At our option, the redemption price may be paid in cash or, subject to certain limitations, in Class A common stock, or a combination thereof.

Except as required by law or the Company’s certificate of incorporation, which includes the certificate of designations for the Series A preferred stock, the holders of Series A preferred stock have no voting rights (other than with respect to certain matters regarding the Series A preferred stock or when dividends payable on the Series A preferred stock have not been paid for an aggregate of six quarterly dividend periods, or more, whether or not consecutive, as provided in the certificate of designations for the Series A preferred stock).

The Series A preferred stock is classified as mezzanine equity on the Company’s Consolidated Balance Sheet and is not listed on a national stock exchange.

A summary of the Company’s Mezzanine equity for the three months ended March 31, 2017 is as follows:


(in thousands of dollars)
Mezzanine equity at December 31, 2016	$	88,975
Dividends on preferred stock, net		—
Accretion on preferred stock		187
Mezzanine equity at March 31, 2017	$	89,162

Preferred Stock Dividend

On January 19, 2017, the Company’s Board of Directors declared a quarterly cash dividend per share equal to 8.0% based on the liquidation preference of $50.00 per share on an annualized basis, or $1.00 per share, on the Series A preferred stock. This dividend is for the period beginning on the last payment date of November 15, 2016 through February 14, 2017 and was paid in cash on February 15, 2017 to shareholders of record as of February 1, 2017.

Special Stock Dividend

On March 31, 2017, the Company paid a stock dividend (the “Special Stock Dividend”) of 0.087423 shares of the Class A common stock to holders of record as of March 15, 2017. From time-to-time, JEH makes cash distributions to the holders of JEH Units to cover tax obligations that may occur as a result of any net taxable income of JEH allocable to holders of JEH Units. As a holder of JEH Units, the Company has received such cash distributions from JEH in excess of the amount required to satisfy the Company’s associated tax obligations. As a result, the Company used the excess cash of approximately $17.5 million in the aggregate to acquire newly-issued JEH Units from JEH.

The Special Stock Dividend was distributed in order to equalize the number of shares of Class A common stock outstanding to the number of JEH Units held by the Company, and the aggregate number of shares of Class A common stock issued in the Special Stock Dividend equaled the number of additional JEH Units the Company purchased from JEH. The Company purchased 4,999,927 JEH Units at a price of $3.50 per share, which is the volume weighted average price per share of the Class A common stock for the five trading days ended February 28, 2017. Immaterial cash payments were made in lieu of fractional shares. The comparative earnings per share information has been recast to retrospectively adjust for the effects of the Special Stock Dividend.

12. Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to controlling interests by the weighted average number of shares of Class A common stock outstanding during the period. Shares of Class B common stock are not included in the calculation of earnings per share because they are not participating securities and have no economic interest in the Company. Diluted earnings per share takes into account the potential dilutive effect of shares that could be issued by the Company in conjunction with the Series A preferred

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stock and from stock awards that have been granted to directors and employees. Awards of non-vested shares are considered outstanding as of the respective grant dates for purposes of computing diluted EPS even though the award is contingent upon vesting. For the three months ending March 31, 2017, 1,385,065 restricted stock units, 942,073 performance share units, and 31,405,672 shares from the convertible Class A preferred stock, were excluded from the calculation as they would have had an anti-dilutive effect.

The following is a calculation of the basic and diluted weighted-average number of shares of Class A common stock outstanding and EPS:


	Three Months Ended March 31,
(in thousands, except per share data)	2017		2016
Income (numerator):
Net income (loss) attributable to controlling interests	$	(1,387)	$	18,911
Less: Dividends and accretion on preferred stock		(2,027)		—
Net income (loss) attributable to common shareholder	$	(3,414)	$	18,911
Weighted-average shares (denominator): (1)
Weighted-average number of shares of Class A common stock - basic		62,197		33,222
Weighted-average number of shares of Class A common stock - diluted		62,197		33,222
Earnings (loss) per share: (1)
Basic - Net income (loss) attributable to common shareholders	$	(0.05)	$	0.57
Diluted - Net income (loss) attributable to common shareholders	$	(0.05)	$	0.57

(1)

13. Related Parties

Related Party Transactions

Transactions with Our Executive Officers, Directors and 5% Stockholders

Monarch Natural Gas Holdings, LLC Natural Gas Sale and Purchase Agreement

On May 7, 2013, the Company entered into a natural gas sale and purchase agreement with Monarch Natural Gas, LLC, (“Monarch”), under which Monarch has the first right to gather the natural gas the Company produces from dedicated properties, process the NGLs from this natural gas production and market the processed natural gas and extracted NGLs. Under the Monarch agreement, the Company is paid a specified percentage of the value of the NGLs extracted and sold by Monarch, based on a set liquids recovery percentage, and the amount received from the sale of the residue gas, after deducting a fixed volume for fuel, lost and unaccounted for gas. The Company produced approximately 1.4 MMBoe of natural gas and NGLs for the year ended December 31, 2014, from the properties that became subject to the Monarch agreement. During the year ended December 31, 2014, the Company recognized $37.0 million of revenue associated with the aforementioned natural gas and NGL production. Effective May 1, 2015, the rights to gather natural gas under the sale and purchase agreement transferred from Monarch to Enable Midstream Partners LP, (“Enable”), an unaffiliated third-party. Prior to closing of the transfer of these rights, the Company produced approximately 1.0 MMBoe of natural gas and NGLs for the year ended December 31, 2015 from the properties that became subject to the Monarch agreement for which the Company recognized $10.6 million of revenue. The revenue, for all years mentioned, is recorded in Oil and gas sales on the Company’s Consolidated Statement of Operations. The initial term of the agreement, which remains unchanged by the transfer to Enable, runs for 10 years from the effective date of September 1, 2013.

At the time the Company entered into the 2013 Monarch agreement, Metalmark Capital owned approximately 81% of the outstanding equity interests of Monarch. In addition, Metalmark Capital beneficially owns in excess

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of five percent of the Company’s outstanding equity interests and two of our directors, Howard I. Hoffen and Gregory D. Myers, are managing directors of Metalmark Capital.

In connection with the Company’s entering into the 2013 Monarch agreement, Monarch issued to JEH equity interests in Monarch, having an estimated fair value of $15.0 million, in return for marketing services to be provided throughout the term of the agreement. The Company recorded this amount as deferred revenue which is being amortized on an estimated units-of-production basis commencing in September 2013, the first month of product sales to Monarch. The Company amortized $0.5 million and $0.6 million, respectively, of the deferred revenue balance during the three months ended March 31, 2017 and 2016. This revenue is recorded in Other revenues on the Company’s Consolidated Statement of Operations.

Following the issuance of the $15.0 million Monarch equity interests, JEH assigned $2.4 million of the equity interests to Jonny Jones, the Company’s chief executive officer and chairman of the Board of Directors, and reserved $2.6 million of the equity interests for future distribution through an incentive plan to certain of the Company’s officers, including Mike McConnell, Robert Brooks and Eric Niccum. The remaining $10.0 million of Monarch equity interests was distributed to certain of the Class B shareholders, which included, among others, Metalmark Capital, the Jones family entities, and certain of the Company’s officers and directors, including Jonny Jones, Mike McConnell and Eric Niccum. As of March 31, 2017, equity interests in Monarch of $0.7 million are included in Other assets on the Company’s Consolidated Balance Sheet. During the three months ended March 31, 2017, equity interests of $0.0 million were distributed to management under the incentive plan. The Company recognized expense of $0.1 million during the three months ended March 31, 2017 in connection with the incentive plan.

In September 2014, the Company signed a 10-year oil gathering and transportation agreement with Monarch Oil Pipeline LLC, pursuant to which Monarch Oil Pipeline LLC built, at its expense, a new oil gathering system and connected the gathering system to dedicated Company leases in Texas. At the time the Company entered into the agreement, Metalmark Capital owned the majority of the outstanding equity interests of Monarch Oil Pipeline LLC and/or its parent. The system began service during the fourth quarter of 2015 and provides connectivity to both a regional refinery market as well as the Cushing market hub. The Company incurred gathering fees, which were paid to Monarch Oil Pipeline LLC, of $0.7 million for the three months ended March 31, 2017, associated with the approximately 0.3 MMBoe of oil production transported under the agreement. These costs are recorded as an offset to Oil and gas sales in the Company’s Consolidated Statement of Operations. The aforementioned production was recognized as Oil and gas sales on the Company’s Consolidated Statement of Operations at the time it was sold to the purchasers, who are unaffiliated third parties, after passing through the gathering and transportation system. The audit committee of the Board of Directors reviewed and approved the terms of the agreement with Monarch Oil Pipeline LLC.

Purchases of Senior Unsecured Notes

On February 29, 2016, JEH and Jones Energy Finance Corp. purchased $50.0 million principal amount of their outstanding 2023 Notes from investment funds managed by Magnetar Capital and its affiliates, which investment funds collectively own more than 5% of a class of voting securities of the Company, for approximately $23.3 million excluding accrued interest and including any associated fees. On the same day, JEH and Jones Energy Finance Corp. purchased an additional $50.0 million principal amount of their outstanding 2023 Notes from investment funds managed by Blackstone Group Management L.L.C. and its affiliates, which investment funds collectively own more than 5% of a class of voting securities of the Company, for approximately $23.3 million excluding accrued interest and including any associated fees. In conjunction with the extinguishment of this $100.0 million principal amount of debt, JEH recognized cancellation of debt income of $48.3 million on a pre-tax basis. This income is recorded in Gain on debt extinguishment on the Company’s Consolidated Statement of Operations.

Issuance of Class A Shares

In connection with the August 2016 issuance of Class A common stock pursuant to an underwritten public offering as described above under “Item 11. Stockholders’ and Mezzanine equity—Offering of Class A Common Stock,” affiliates of JVL Advisors, L.L.C. (“JVL”), who owns more than 5% of a class of voting securities of the

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Company, purchased 17,868,330 shares of Class A common stock in the offering, for gross proceeds to the Company of $25.0 million, before underwriting discounts and commissions of $1.1 million.

Following its purchase in the offering, JVL owned in excess of 15% of our outstanding voting stock. As a result, the Company entered into a letter agreement with JVL (the “JVL Letter Agreement”) in connection with the offering. The JVL Letter Agreement approved, pursuant to Section 203 of the Delaware General Corporation Law (“Section 203”), the purchase of shares of Class A common stock in the offering by JVL. This approval resulted in JVL not being subject to the restrictions on “business combinations” contained in Section 203. In consideration of such approval, JVL agreed that, among other things:

it will not acquire any material assets of the Company;

it will not become the owner of more than 19.9% of the Company’s outstanding voting stock (other than as a result of actions taken solely by the Company) without the prior approval of the Company’s independent directors who are not affiliated with JVL; and

it will not engage in any “business combination” (as defined in the JVL Letter Agreement).

On May 3, 2017, the Company amended and restated its registration rights agreement dated August 29, 2013 (as amended and restated, the “Restated Registration Rights Agreement”) to add JVL as a party in order to facilitate an orderly distribution of JVL’s shares of Class A common stock in the future, a copy of which was filed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2017.

Issuance of Series A Preferred Stock

In connection with the August 2016 issuance of Series A preferred stock pursuant to an underwritten public offering as described above under “Item 11. Stockholders’ and Mezzanine equity—Offering of 8.0% Series A Perpetual Convertible Preferred Stock,” affiliates of Metalmark, who owns more than 5% of a class of voting securities of the Company and has two representatives on our Board of Directors, purchased 200,000 shares of Series A preferred stock in the offering, for gross proceeds to the Company of $10.0 million, before underwriting discounts and commissions of $400,000.

14. Commitments and Contingencies

Litigation

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations, or liquidity.

In an action filed on June 12, 2015 in the 31 st District Court of Hemphill County, Texas, Donna Kim Flowers and Mitchell Kirk Flowers v. Jones Energy, LLC f/k/a Jones Energy Limited, LLC f/k/a Jones Energy, Ltd. (Case No. 7225), the Company was sued by Donna Kim Flowers and Mitchell Kirk Flowers (the “plaintiffs”). The plaintiffs own surface rights to property located in Hemphill County, Texas. The mineral rights are leased to third parties, and the Company is the operator of the Oil and Gas Mineral Lease. On May 28, 2010, the plaintiffs and the Company entered into a Surface Use Agreement concerning the Company’s operations on the property, which require the Company to minimize disruption and damage to the plaintiffs’ surface rights. The plaintiffs allege that the Company is in breach of such contract, and seek monetary damages. In June 2016, the Company presented a settlement offer to the plaintiffs. As a result of this settlement offer, the Company has accrued $1.5 million related to its estimated obligation under this settlement offer. This accrual was included in accrued liabilities on the Company’s Consolidated Balance Sheet as of March 31, 2017, and the charge was recorded as general and administrative expense on the Company’s Consolidated Statement of Operations during the year ended December 31, 2016. However, no certainty exists that a settlement will be reached or if so, the amount of any such settlement. Therefore, the ultimate loss could be greater or less than the amount accrued. In the event the plaintiffs and the Company are not able to reach a settlement, a court date is anticipated to occur during the third quarter of 2017.

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15. Subsequent Events

Forms of Award Agreements under LTIP

On April 15, 2017, the Compensation Committee of our Board of Directors approved new forms of award agreements for the restricted stock units, performance share units and performance units issuable under the LTIP, which forms are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively. The new forms of award agreements modify the prior forms solely to require the recipient of an award to satisfy any withholding tax requirement by selling unrestricted shares of Class A common stock to the Company at a price per share equal to the fair market value of such shares, as further described in the applicable award agreement. The foregoing description is not complete and is qualified in its entirety by reference to the full text of the applicable award agreement, which are filed as Exhibits 10.1, 10.2 and 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Preferred Stock Dividend Declared

On April 17, 2017, the Company declared a quarterly dividend per share equal to 8.0% on an annualized basis based on the liquidation preference of $50.00 per share, or $1.00 per share, on the Company’s Series A preferred stock. The dividend will be paid in a combination of cash and the Company’s Class A common stock, with the cash component equal to $0.83 per share and the stock component equal to $0.17 per share. The price per share of the Class A common stock used to determine the number of shares to be issued will be equal to 95% of the average volume-weighted average price per share for each day during the 5-consecutive day trading period ending immediately prior to the payment date. This dividend is for the period beginning on the last payment date of February 15, 2017 through May 14, 2017 and will be payable on May 15, 2017 to shareholders of record as of May 1, 2017.

Shelf Registration Statement on Form S-3

On May 3, 2017, the Company filed a registration statement on Form S-3 (the “Form S-3”) pursuant to certain rights and obligations under the Restated Registration Rights Agreement. The Form S-3 registers the offer and resale of (i) up to an aggregate of 17,868,330 shares of our Class A common stock by JVL and (ii) up to an aggregate of 181,600 shares of our Series A preferred stock by Metalmark. The Form S-3 has not yet been declared effective by the Securities and Exchange Commission.

16. Subsidiary Guarantors

The 2022 Notes and the 2023 Notes are guaranteed on a senior unsecured basis by the Company and by all of JEH’s current subsidiaries (except Jones Energy Finance Corp. and two immaterial subsidiaries) and certain future subsidiaries, including any future subsidiaries that guarantee any indebtedness under the Revolver. Each subsidiary guarantor is 100% owned by JEH, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing our 2022 Notes and 2023 Notes, as discussed below, and joint and several with all other subsidiary guarantees and the parent guarantee. Any subsidiaries of JEH other than the subsidiary guarantors and Jones Energy Finance Corp. are immaterial.

As of December 31, 2016, the 2022 Notes and the 2023 Notes were guaranteed on a senior unsecured basis by the Company and by all of its significant subsidiaries, other than Nosley SCOOP, LLC and Nosley Acquisition, LLC. These subsidiaries have since become guarantors during the first quarter of 2017 and are therefore presented accordingly in the accompanying condensed consolidated guarantor financial information.

Guarantees of the 2022 Notes and 2023 Notes will be released under certain circumstances, including (i) in connection with any sale or other disposition of (a) all or substantially all of the properties or assets of a guarantor (including by way of merger or consolidation) or (b) all of the capital stock of such guarantor, in each case, to a person that is not the Company or a restricted subsidiary of the Company, (ii) if the Company designates any restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) upon legal defeasance, covenant defeasance or satisfaction and discharge of the applicable indenture, or (iv) at such time as such guarantor ceases to guarantee any other indebtedness of the Company or any other guarantor.

The Company is a holding company whose sole material asset is an equity interest in JEH. The Company is the sole managing member of JEH and is responsible for all operational, management and administrative decisions

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related to JEH’s business. In accordance with JEH’s limited liability company agreement, the Company may not be removed as the sole managing member of JEH.

As of March 31, 2017, the Company held 63,373,033 JEH Units and all of the preferred units representing membership interests in JEH, and the remaining 29,832,098 JEH Units are held by the Class B shareholders. The Class B shareholders have no voting rights with respect to their economic interest in JEH.

The Company has two classes of common stock, Class A common stock, which was sold to investors in the IPO, and Class B common stock, and one series of preferred stock, Series A preferred stock. Pursuant to the Company’s certificate of incorporation, each share of Class A common stock is entitled to one vote per share, and the shares of Class A common stock are entitled to 100% of the economic interests in the Company. Each share of Class B common stock has no economic rights in the Company, but entitles its holder to one vote on all matters to be voted on by the Company’s stockholders generally. Except as required by law or the Company’s certificate of incorporation, which includes the certificate of designations for the Series A preferred stock, the holders of Series A preferred stock have no voting rights (other than with respect to certain matters regarding the Series A preferred stock or when dividends payable on the Series A preferred stock have not been paid for an aggregate of six quarterly dividend periods, or more, whether or not consecutive, as provided in the certificate of designations for the Series A preferred stock).

In connection with a reorganization that occurred immediately prior to the IPO, each Existing Owner was issued a number of shares of Class B common stock that was equal to the number of JEH Units that such Class B shareholders held. Holders of the Company’s Class A common stock and Class B common stock generally vote together as a single class on all matters presented to the Company’s stockholders for their vote or approval. Accordingly, the Class B shareholders collectively have a number of votes in the Company equal to the aggregate number of JEH Units that they hold.

The Class B shareholders have the right, pursuant to the terms of an exchange agreement by and among the Company, JEH and each of the Class B shareholders (the “Exchange Agreement”), to exchange their JEH Units (together with a corresponding number of shares of Class B common stock) for shares of Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions. As a result, the Company expects that over time the Company will have an increasing economic interest in JEH as Class B common stock and JEH Units are exchanged for Class A common stock. Moreover, any transfers of JEH Units outside of the Exchange Agreement (other than permitted transfers to affiliates) must be approved by the Company. The Company intends to retain full voting and management control over JEH.

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Jones Energy, Inc.

Condensed Consolidating Balance Sheet

March 31, 2017


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Assets
Current assets
Cash	$	4,781	$	239	$	3,668	$	20	$	—	$	8,708
Accounts receivable, net
Oil and gas sales		—		—		25,787		—		—		25,787
Joint interest owners		—		—		6,533		—		—		6,533
Other		—		3,907		311		—		—		4,218
Commodity derivative assets		—		30,101		—		—		—		30,101
Other current assets		342		224		6,712		—		—		7,278
Intercompany receivable		17,581		1,175,883		—		—		(1,193,464)		—
Total current assets		22,704		1,210,354		43,011		20		(1,193,464)		82,625
Oil and gas properties, net, at cost under the successful efforts method		—		—		1,764,947		—		—		1,764,947
Other property, plant and equipment, net		—		—		2,325		595		—		2,920
Commodity derivative assets		—		17,767		—		—		—		17,767
Other assets		—		4,867		895		—		—		5,762
Investment in subsidiaries		548,561		—		—		—		(548,561)		—
Total assets	$	571,265	$	1,232,988	$	1,811,178	$	615	$	(1,742,025)	$	1,874,021
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	31	$	29	$	55,697	$	—	$	—	$	55,757
Oil and gas sales payable		—		—		28,112		—		—		28,112
Accrued liabilities		58		14,813		10,077		—		—		24,948
Commodity derivative liabilities		—		8,717		—		—		—		8,717
Other current liabilities		639		1,984		600		—		—		3,223
Intercompany payable		—		—		1,583,080		2,849		(1,585,929)		—
Total current liabilities		728		25,543		1,677,566		2,849		(1,585,929)		120,757
Long-term debt		—		701,586		—		—		—		701,586
Deferred revenue		—		6,591		—		—		—		6,591
Commodity derivative liabilities		—		178		—		—		—		178
Asset retirement obligations		—		—		20,035		—		—		20,035
Liability under tax receivable agreement		41,720		—		—		—		—		41,720
Other liabilities		—		316		633		—		—		949
Deferred tax liabilities		85		2,841		—		—		—		2,926
Total liabilities		42,533		737,055		1,698,234		2,849		(1,585,929)		894,742
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at March 31, 2017		89,162		—		—		—		—		89,162
Stockholders’/ members' equity
Members' equity		—		495,933		112,944		(2,234)		(606,643)		—
Class A common stock, $0.001 par value; 63,395,635 shares issued and 63,373,033 shares outstanding at March 31, 2017		63		—		—		—		—		63
Class B common stock, $0.001 par value; 29,832,098 shares issued and outstanding at March 31, 2017		30		—		—		—		—		30
Treasury stock, at cost: 22,602 shares at March 31, 2017		(358)		—		—		—		—		(358)
Additional paid-in-capital		470,107		—		—		—		—		470,107
Retained earnings (deficit)		(30,272)		—		—		—		—		(30,272)
Stockholders' equity		439,570		495,933		112,944		(2,234)		(606,643)		439,570
Non-controlling interest		—		—		—		—		450,547		450,547
Total stockholders’ equity		439,570		495,933		112,944		(2,234)		(156,096)		890,117
Total liabilities and stockholders’ equity	$	571,265	$	1,232,988	$	1,811,178	$	615	$	(1,742,025)	$	1,874,021

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Jones Energy, Inc.

Condensed Consolidating Balance Sheet

December 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Assets
Current assets
Cash	$	27,164	$	1,975	$	5,483	$	20	$	—	$	34,642
Accounts receivable, net
Oil and gas sales		—		—		26,568		—		—		26,568
Joint interest owners		—		—		5,267		—		—		5,267
Other		—		5,434		627		—		—		6,061
Commodity derivative assets		—		24,100		—		—		—		24,100
Other current assets		—		422		2,262		—		—		2,684
Intercompany receivable		15,666		1,180,859		—		—		(1,196,525)		—
Total current assets		42,830		1,212,790		40,207		20		(1,196,525)		99,322
Oil and gas properties, net, at cost under the successful efforts method		—		—		1,743,588		—		—		1,743,588
Other property, plant and equipment, net		—		—		2,378		618		—		2,996
Commodity derivative assets		—		34,744		—		—		—		34,744
Other assets		—		5,265		785		—		—		6,050
Investment in subsidiaries		531,363		—		—		—		(531,363)		—
Total assets	$	574,193	$	1,252,799	$	1,786,958	$	638	$	(1,727,888)	$	1,886,700
Liabilities and Stockholders’ Equity
Current liabilities
Trade accounts payable	$	—	$	13	$	36,514	$	—	$	—	$	36,527
Oil and gas sales payable		—		—		28,339		—		—		28,339
Accrued liabilities		3,874		11,227		10,597		9		—		25,707
Commodity derivative liabilities		—		14,650		—		—		—		14,650
Other current liabilities		—		1,984		600		—		—		2,584
Intercompany payable		—		—		1,566,941		2,796		(1,569,737)		—
Total current liabilities		3,874		27,874		1,642,991		2,805		(1,569,737)		107,807
Long-term debt		—		724,009		—		—		—		724,009
Deferred revenue		—		7,049		—		—		—		7,049
Commodity derivative liabilities		—		1,209		—		—		—		1,209
Asset retirement obligations		—		—		19,458		—		—		19,458
Liability under tax receivable agreement		43,045		—		—		—		—		43,045
Other liabilities		—		269		523		—		—		792
Deferred tax liabilities		85		2,820		—		—		—		2,905
Total liabilities		47,004		763,230		1,662,972		2,805		(1,569,737)		906,274
Mezzanine equity
Series A preferred stock, $0.001 par value; 1,840,000 shares issued and outstanding at December 31, 2016		88,975		—		—		—		—		88,975
Stockholders’/ members' equity
Members' equity		—		489,569		123,986		(2,167)		(611,388)		—
Class A common stock, $0.001 par value; 57,048,076 shares issued and 57,025,474 shares outstanding at December 31, 2016		57		—		—		—		—		57
Class B common stock, $0.001 par value; 29,832,098 shares issued and outstanding at December 31, 2016		30		—		—		—		—		30
Treasury stock, at cost: 22,602 shares at December 31, 2016		(358)		—		—		—		—		(358)
Additional paid-in-capital		447,137		—		—		—		—		447,137
Retained earnings (deficit)		(8,652)		—		—		—		—		(8,652)
Stockholders' equity		438,214		489,569		123,986		(2,167)		(611,388)		438,214
Non-controlling interest		—		—		—		—		453,237		453,237
Total stockholders’ equity		438,214		489,569		123,986		(2,167)		(158,151)		891,451
Total liabilities and stockholders’ equity	$	574,193	$	1,252,799	$	1,786,958	$	638	$	(1,727,888)	$	1,886,700

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Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Three Months Ended March 31, 2017


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	40,677	$	—	$	—	$	40,677
Other revenues		—		458		98		—		—		556
Total operating revenues		—		458		40,775		—		—		41,233
Operating costs and expenses
Lease operating		—		—		8,806		—		—		8,806
Production and ad valorem taxes		—		—		(906)		—		—		(906)
Exploration		—		—		2,944		—		—		2,944
Depletion, depreciation and amortization		—		—		35,631		23		—		35,654
Accretion of ARO liability		—		—		201		—		—		201
General and administrative		—		2,993		5,004		44		—		8,041
Total operating expenses		—		2,993		51,680		67		—		54,740
Operating income (loss)		—		(2,535)		(10,905)		(67)		—		(13,507)
Other income (expense)
Interest expense		—		(12,814)		(73)		—		—		(12,887)
Net gain (loss) on commodity derivatives		—		22,320		—		—		—		22,320
Other income (expense)		668		(24)		(64)		—		—		580
Other income (expense), net		668		9,482		(137)		—		—		10,013
Income (loss) before income tax		668		6,947		(11,042)		(67)		—		(3,494)
Equity interest in income		(2,055)		—		—		—		2,055		—
Income tax provision (benefit)		—		21		—		—		—		21
Net income (loss)		(1,387)		6,926		(11,042)		(67)		2,055		(3,515)
Net income (loss) attributable to non-controlling interests		—		—		—		—		(2,128)		(2,128)
Net income (loss) attributable to controlling interests	$	(1,387)	$	—	$	—	$	—	$	—	$	(1,387)
Dividends and accretion on preferred stock		(2,027)		—		—		—		—		(2,027)
Net income (loss) attributable to common shareholders	$	(3,414)	$	—	$	—	$	—	$	—	$	(3,414)

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Jones Energy, Inc.

Condensed Consolidating Statement of Operations

Three Months Ended March 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating revenues
Oil and gas sales	$	—	$	—	$	25,080	$	—	$	—	$	25,080
Other revenues		—		645		133		—		—		778
Total operating revenues		—		645		25,213		—		—		25,858
Operating costs and expenses
Lease operating		—		—		8,617		—		—		8,617
Production and ad valorem taxes		—		—		1,601		—		—		1,601
Exploration		—		—		162		—		—		162
Depletion, depreciation and amortization		—		—		41,739		23		—		41,762
Accretion of ARO liability		—		—		293		—		—		293
General and administrative		—		2,878		4,601		25		—		7,504
Total operating expenses		—		2,878		57,013		48		—		59,939
Operating income (loss)		—		(2,233)		(31,800)		(48)		—		(34,081)
Other income (expense)
Interest expense		—		(15,038)		240		—		—		(14,798)
Gain on debt extinguishment		—		90,652		—		—		—		90,652
Net gain (loss) on commodity derivatives		—		17,219		—		—		—		17,219
Other income (expense)		429		(200)		(4)		—		—		225
Other income (expense), net		429		92,633		236		—		—		93,298
Income (loss) before income tax		429		90,400		(31,564)		(48)		—		59,217
Equity interest in income		28,968		—		—		—		(28,968)		—
Income tax provision (benefit)		10,486		217		—		—		—		10,703
Net income (loss)		18,911		90,183		(31,564)		(48)		(28,968)		48,514
Net income (loss) attributable to non-controlling interests		—		—		—		—		29,603		29,603
Net income (loss) attributable to controlling interests	$	18,911	$	—	$	—	$	—	$	—	$	18,911

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Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2017


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	(1,387)	$	6,926	$	(11,042)	$	(67)	$	2,055	$	(3,515)
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(23,060)		(11,848)		53,994		67		(2,055)		17,098
Net cash (used in) / provided by operations		(24,447)		(4,922)		42,952		—		—		13,583
Cash flows from investing activities
Additions to oil and gas properties		—		—		(47,110)		—		—		(47,110)
Net adjustments to purchase price of properties acquired		—		—		2,391		—		—		2,391
Proceeds from sales of assets		—		—		144		—		—		144
Acquisition of other property, plant and equipment		—		—		(192)		—		—		(192)
Current period settlements of matured derivative contracts		—		27,854		—		—		—		27,854
Net cash (used in) / provided by investing		—		27,854		(44,767)		—		—		(16,913)
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		30,000		—		—		—		30,000
Repayment of long-term debt		—		(53,000)		—		—		—		(53,000)
Payment of dividends on preferred stock		(1,840)		—		—		—		—		(1,840)
Net distributions paid to JEH unitholders		1,075		(1,637)		—		—		—		(562)
Net payments for share based compensation		—		(31)		—		—		—		(31)
Proceeds from sale of common stock		2,829		—		—		—		—		2,829
Net cash (used in) / provided by financing		2,064		(24,668)		—		—		—		(22,604)
Net increase (decrease) in cash		(22,383)		(1,736)		(1,815)		—		—		(25,934)
Cash
Beginning of period		27,164		1,975		5,483		20		—		34,642
End of period	$	4,781	$	239	$	3,668	$	20	$	—	$	8,708

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Jones Energy, Inc.

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2016


					Guarantor		Non-Guarantor
(in thousands of dollars)	JEI (Parent)		Issuers		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities
Net income (loss)	$	18,911	$	90,183	$	(31,564)	$	(48)	$	(28,968)	$	48,514
Adjustments to reconcile net income (loss) to net cash provided by operating activities		(18,911)		(134,122)		70,677		48		28,968		(53,340)
Net cash (used in) / provided by operations		—		(43,939)		39,113		—		—		(4,826)
Cash flows from investing activities
Additions to oil and gas properties		—		—		(7,176)		—		—		(7,176)
Proceeds from sales of assets		—		—		3		—		—		3
Acquisition of other property, plant and equipment		—		—		40		—		—		40
Current period settlements of matured derivative contracts		—		42,298				—		—		42,298
Net cash (used in) / provided by investing		—		42,298		(7,133)		—		—		35,165
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		75,000		—		—		—		75,000
Purchase of senior notes		—		(73,427)		—		—		—		(73,427)
Net cash (used in) / provided by financing		—		1,573		—		—		—		1,573
Net increase (decrease) in cash		—		(68)		31,980		—		—		31,912
Cash												—
Beginning of period		100		12,448		9,325		20		—		21,893
End of period	$	100	$	12,380	$	41,305	$	20	$	—	$	53,805

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Item 2. Management’s Discussion and Analysi s of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017 with the Securities and Exchange Commission. Unless indicated otherwise in this Quarterly Report or the context requires otherwise, all references to “Jones Energy,” the “Company,” “our company,” “we,” “our” and “us” refer to Jones Energy, Inc. and its subsidiaries, including Jones Energy Holdings, LLC (“JEH”). Jones Energy, Inc. (“JONE”) is a holding company whose sole material asset is an equity interest in JEH.

Overview

We are an independent oil and gas company engaged in the exploration, development, production and acquisition of oil and natural gas properties in the mid-continent United States, spanning areas of Texas and Oklahoma. Our Chairman and CEO, Jonny Jones, founded our predecessor company in 1988 in continuation of his family’s long history in the oil and gas business, which dates back to the 1920’s. We have grown rapidly by leveraging our focus on low cost drilling and completion methods and our horizontal drilling expertise to develop our inventory and execute several strategic acquisitions. We have accumulated extensive knowledge and experience in developing the Anadarko and Arkoma basins, having concentrated our operations in the Anadarko basin for over 25 years and applied our knowledge to the Arkoma basin since 2011. We have drilled over 860 total wells as operator, including approximately 685 horizontal wells, since our formation and delivered compelling rates of return over various commodity price cycles. Our operations are focused on horizontal drilling and completions within three distinct areas in the Texas Panhandle and Oklahoma:

the Western Anadarko Basin—targeting the liquids rich Cleveland, Granite Wash, Tonkawa and Marmaton formations;

the Eastern Anadarko Basin—targeting the liquids rich Merge Woodford shale and Meramec formations in the Merge area of the STACK/SCOOP (the “Merge”); and

the Arkoma Basin—targeting the Arkoma Woodford shale formation.

We seek to optimize returns through a disciplined emphasis on controlling costs and promoting operational efficiencies, and we are recognized as one of the lowest cost drilling and completion operators in the Cleveland and Arkoma Woodford shale formations. We believe that our low-cost drilling expertise will apply directly to our new drilling in the Merge area, which is located approximately 150 miles to the east of our Cleveland play.

First Quarter 2017 Highlights:

Average daily net production for the first quarter of 2017 of 18.9 Mboe/d.

First three operated Merge wells all successfully completed and flowing back with production increasing on all three wells. IP30 has not been reached yet on any of the wells.

Completions beginning on the Company’s first Meramec target this week from the Company’s second two-well Merge pad (wells four and five).

Added 3,688 net acres in the Merge for an average price of $7,500 per acre to the initial 18,000 net acre position since September 2016. Position is currently 21,724 net acres.

Initiated long lateral program in Western Anadarko Cleveland with continued strong results and base production outperformance.

Net loss for the first quarter of 2017 of $3.5 million, or a loss of $0.05 per share, non-GAAP adjusted net income of $3.9 million, or $0.01 per share and EBITDAX of $53.3 million.

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Results of Operations

The following table sets forth selected financial data of Jones Energy, Inc. for the periods indicated.


(in thousands of dollars except for	Three Months Ended March 31,
production, sales price and average cost data)	2017		2016		Change
Revenues:
Oil	$	18,267	$	13,314	$	4,953
Natural gas		11,427		6,542		4,885
NGLs		10,983		5,224		5,759
Total oil and gas		40,677		25,080		15,597
Other		556		778		(222)
Total operating revenues		41,233		25,858		15,375
Costs and expenses:
Lease operating		8,806		8,617		189
Production and ad valorem taxes		(906)		1,601		(2,507)
Exploration		2,944		162		2,782
Depletion, depreciation and amortization		35,654		41,762		(6,108)
Accretion of ARO liability		201		293		(92)
General and administrative		8,041		7,504		537
Other operating		—		—		—
Total costs and expenses		54,740		59,939		(5,199)
Operating income (loss)		(13,507)		(34,081)		20,574
Other income (expenses):
Interest expense		(12,887)		(14,798)		1,911
Gain on debt extinguishment		—		90,652		(90,652)
Net gain (loss) on commodity derivatives		22,320		17,219		5,101
Other income/(expense)		580		225		355
Total other income (expense)		10,013		93,298		(83,285)
Income (loss) before income tax		(3,494)		59,217		(62,711)
Income tax provision (benefit)		21		10,703		(10,682)
Net income (loss)		(3,515)		48,514		(52,029)
Net income (loss) attributable to non-controlling interests		(2,128)		29,603		(31,731)
Net income (loss) attributable to controlling interests	$	(1,387)	$	18,911	$	(20,298)
Dividends and accretion on preferred stock		(2,027)		—		(2,027)
Net income (loss) attributable to common shareholders	$	(3,414)	$	18,911	$	(22,325)

Net production volumes:
Oil (MBbls)		385		479		(94)
Natural gas (MMcf)		4,655		4,920		(265)
NGLs (MBbls)		538		555		(17)
Total (MBoe)		1,699		1,854		(155)
Average net (Boe/d)		18,878		20,374		(1,496)
Average sales price, unhedged:
Oil (per Bbl), unhedged	$	47.45	$	27.80	$	19.65
Natural gas (per Mcf), unhedged		2.45		1.33		1.12
NGLs (per Bbl), unhedged		20.41		9.41		11.00
Combined (per Boe), unhedged		23.94		13.53		10.41
Average sales price, hedged:
Oil (per Bbl), hedged	$	111.33	$	84.03	$	27.30
Natural gas (per Mcf), hedged		3.60		3.67		(0.07)
NGLs (per Bbl), hedged		13.76		17.04		(3.28)
Combined (per Boe), hedged		39.44		36.54		2.90
Average costs (per BOE):
Lease operating	$	5.18	$	4.65	$	0.53
Production and ad valorem taxes		(0.53)		0.86		(1.39)
Depletion, depreciation and amortization		20.99		22.53		(1.54)
General and administrative		4.73		4.05		0.68

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Non-GAAP financial measures

EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.

We define EBITDAX as earnings before interest expense, income taxes, depreciation, depletion and amortization, exploration expense, gains and losses from derivatives less the current period settlements of matured derivative contracts and the other items described below. EBITDAX is not a measure of net income as determined by United States generally accepted accounting principles, or GAAP. Management believes EBITDAX is useful because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. EBITDAX has limitations as an analytical tool and should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity. Certain items excluded from EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical costs of depreciable assets. Our presentation of EBITDAX should not be construed as an inference that our results will be unaffected by unusual or nonrecurring items. Our computations of EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net income (loss) as determined in accordance with GAAP to EBITDAX for the periods indicated:


	Three Months Ended March 31,
(in thousands of dollars)	2017		2016
Reconciliation of EBITDAX to net income
Net income (loss)	$	(3,515)	$	48,514
Interest expense		12,887		14,798
Exploration expense		2,944		162
Income taxes		21		10,703
Depreciation and depletion		35,654		41,762
Accretion of ARO liability		201		293
Change in TRA liability		(668)		(429)
Other non-cash charges		41		(534)
Stock compensation expense		1,972		1,185
Deferred and other non-cash compensation expense		136		268
Net (gain) loss on derivative contracts		(22,320)		(17,219)
Current period settlements of matured derivative contracts		26,332		42,671
Amortization of deferred revenue		(458)		(645)
(Gain) loss on sale of assets		64		4
(Gain) on debt extinguishment		—		(90,652)
Financing expenses and other loan fees		24		200
EBITDAX	$	53,315	$	51,081

Adjusted Net Income and Adjusted Earnings per Share are supplemental non-GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements. We define Adjusted Net Income as net income excluding the impact of certain non-cash items including gains or losses on commodity derivative instruments not yet settled, impairment of oil and gas properties, non-cash compensation expense, and the other items described below. We define Adjusted Earnings per Share as earnings per share plus that portion of the components of adjusted net income allocated to the controlling interests divided by weighted average shares outstanding. We believe adjusted net income and adjusted earnings per share are useful to investors because they provide readers with a more meaningful measure of our profitability before recording certain items for which the timing or amount cannot be reasonably determined. However, these measures are provided in addition to, not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP. Our computations of adjusted net income and adjusted earnings per share may not be comparable to other similarly titled measures of other companies.

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The following tables provide a reconciliation of net income (loss) as determined in accordance with GAAP to adjusted net income for the periods indicated:


	Three Months Ended March 31,
(in thousands except per share data)	2017			2016
Net income (loss)	$	(3,515)		$	48,514
Net (gain) loss on derivative contracts		(22,320)			(17,219)
Current period settlements of matured derivative contracts		26,332			42,671
Exploration		2,944			162
Non-cash stock compensation expense		1,972			1,185
Deferred and other non-cash compensation expense		136			268
(Gain) on debt extinguishment		—			(90,652)
Change in TRA liability		(668)			(429)
Tax impact of adjusting items (1)		(1,877)			11,059
Change in valuation allowance		912			989
Adjusted net income (loss)		3,916			(3,452)
Adjusted net income (loss) attributable to non-controlling interests		973			(2,618)
Adjusted net income (loss) attributable to controlling interests		2,943			(834)
Dividends and accretion on preferred stock		(2,027)			—
Adjusted net income (loss) attributable to common shareholders	$	916		$	(834)

Earnings per share (basic and diluted): (2)	$	(0.05)		$	0.57
Net (gain) loss on derivative contracts		(0.24)			(0.26)
Current period settlements of matured derivative contracts		0.28			0.63
Exploration		0.03			—
Non-cash stock compensation expense		0.02			0.02
Deferred and other non-cash compensation expense		—			—
(Gain) on debt extinguishment		—			(1.34)
Change in TRA liability		(0.01)			(0.01)
Tax impact of adjusting items (1)		(0.03)			0.33
Change in valuation allowance		0.01			0.03
Adjusted earnings per share (basic and diluted)	$	0.01		$	(0.03)

Weighted average Class A shares outstanding: (2)
Basic		62,197			33,222
Diluted		62,197			33,222
Effective tax rate on net income (loss) attributable to controlling interests		37.6	%		31.3	%

(1)

In arriving at adjusted net income, the tax impact of the adjustments to net income is determined by applying the appropriate tax rate to each adjustment and then allocating the tax impact between the controlling and non-controlling interests.

(2)

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Results of Operations - Three months ended March 31, 2017 as compared to three months ended March 31, 2016

Operating revenues

Oil and gas sales. Oil and gas sales increased $15.6 million, or 62.2%, to $40.7 million for the three months ended March 31, 2017, as compared to $25.1 million for the three months ended March 31, 2016. The increase was attributable to the increase in commodity prices ($21.1 million), which was offset by the decline in production volumes ($5.5 million). The decrease in production volumes was driven by a temporary suspension of the drilling program late in 2015 and continuing into early 2016. The average realized oil price, excluding the effects of commodity derivative instruments, increased from $27.80 per Bbl for the three months ended March 31, 2016 to $47.45 per Bbl for the three months ended March 31, 2017, or 70.7%. The average realized natural gas price, excluding the effects of commodity derivative instruments, increased from $1.33 per Mcf for the three months ended March 31, 2016 to $2.45 per Mcf for the three months ended March 31, 2017, or 84.2%. The average realized natural gas liquids price, excluding the effects of commodity derivative instruments, increased from $9.41 per Bbl for the three months ended March 31, 2016 to $20.41 per Bbl for the three months ended March 31, 2017, or 116.9%. Average daily production decreased 7.3% to 18,878 Boe per day for the three months ended March 31, 2017 as compared to 20,374 Boe per day for the three months ended March 31, 2016.

Costs and expenses

Lease operating. Lease operating expenses increased slightly ($0.2 million, or 2.3%) to $8.8 million for the three months ended March 31, 2017, as compared to $8.6 million for the three months ended March 31, 2016. The increase in lease operating expenses is primarily attributable to the increase in number of producing wells. On a per unit basis, lease operating expenses increased $0.53 per Boe, or 11.4%, from $4.65 per Boe in the three months ended March 31, 2016 to $5.18 per Boe in the three months ended March 31, 2017.

Production and ad valorem taxes. Production and ad valorem taxes decreased by $2.5 million, or 156.3%, to an income position of $0.9 million for the three months ended March 31, 2017, as compared to an expense of $1.6 million for the three months ended March 31, 2016. During the first quarter of 2017, the Company's application for High-Cost Gas Incentive refunds in Texas was approved for qualified wells on which taxes were initially paid between October 2012 and September 2016. The Company received a net production tax refund of $3.3 million, which was recorded as a reduction in Production and ad valorem taxes on the Company’s Consolidated Statement of Operations. Production taxes, excluding the impact of this refund, increased from $1.2 million for the three months ended March 31, 2016 to $1.9 million for the three months ended March 31, 2017. Production tax rates vary between states, products, and production levels; therefore, the overall blended rate is impacted by numerous factors and the mix of producing wells at any given time. Further, estimated ad valorem taxes increased $0.1 million from $0.4 million for the three months ended March 31, 2016 to $0.5 million for the three months ended March 31, 2017. The average effective rate excluding the impact of ad valorem taxes decreased from an expense of 4.9% for the three months ended March 31, 2016 to an income position of 3.5% for the three months ended March 31, 2017.

Exploration. Exploration expense increased from $0.2 million for the three months ended March 31, 2016 to $2.9 million for the three months ended March 31, 2017. Spending during 2017 primarily related to geological data and seismic processing associated with unproved acreage. The Company recognized charges for lease abandonment of $1.6 million relating to certain leases that the Company decided during the first quarter of 2017 not to develop. No exploratory wells resulted in exploration expense during the first quarter of either year.

Depreciation, depletion and amortization. Depreciation, depletion and amortization decreased by $6.1 million, or 14.6%, to $35.7 million for the three months ended March 31, 2017, as compared to $41.8 million for the three months ended March 31, 2016. On a per unit basis, depletion expense decreased $1.54 per Boe or 6.8% from $22.53 per Boe for the three months ended March 31, 2016 as compared to $20.99 per Boe for the three months ended March 31, 2017. The decrease was primarily the result of lower production driven by a temporary suspension of the drilling program late in 2015 and continuing into early 2016. These changes to the drilling program resulted in a reduction in capital spending thereby further decreasing depletion charges per unit of production.

General and administrative. General and administrative expenses increased by $0.5 million, or 6.7%, to $8.0 million for the three months ended March 31, 2017, as compared to $7.5 million for the three months ended March 31, 2016. Non-cash compensation expense increased $0.6 million from $1.5 million for the three months ended March 31, 2016 to $2.1

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million for the three months ended March 31, 2017. On a per unit basis, general and administrative expenses, excluding non-cash items, decreased from $3.55 per Boe for the three months ended March 31, 2016 to $3.46 per Boe for the three months ended March 31, 2017.

Interest expense. Interest expense decreased by $1.9 million, or 12.8%, to $12.9 million for three months ended March 31, 2017, as compared to $14.8 million for the three months ended March 31, 2016. The decrease was driven by a reduction in the outstanding balance of the 2022 Notes and the 2023 Notes as a result of our 2016 debt extinguishments. During the three months ended March 31, 2017, borrowings under the Revolver, the 2022 Notes and the 2023 Notes bore interest at a weighted average rate of 2.59%, 6.75% and 9.25%, respectively. Average outstanding balances for the three months ended March 31, 2017 were $195.2 million, $409.1 million and $150.0 million under the Revolver, the 2022 Notes and the 2023 Notes, respectively.

Net gain (loss) on commodity derivatives. The net gain (loss) on commodity derivatives was a net gain of $22.3 million for the three months ended March 31, 2017, as compared to a net gain of $17.2 million for the three months ended March 31, 2016. The gain was primarily driven by lower average crude oil and natural gas prices ($51.62 per barrel and $3.02 per Mcf, respectively) for the three months ended March 31, 2017, as compared to the crude oil and natural gas prices as of December 31, 2016 ($53.75 per barrel and $3.71 per Mcf, respectively).

Income taxes. The provision for federal and state income taxes for the three months ended March 31, 2017 was an expense of less than $0.1 million resulting in a (0.6)% effective tax rate as a percentage of our pre-tax book income for the quarter as compared to an expense of $10.7 million resulting in an 18.1% effective tax rate as a percentage of our pre-tax book income for the three months ended March 31, 2016. Our effective tax rate is based on the statutory rate applicable to the U.S. and the blended rate of the states in which we conduct business and is adjusted from the enacted rates for the share of net income allocated to the non-controlling interest. The effective tax rate reduction is primarily due to the effect of the valuation allowance recorded against the Company’s deferred tax assets. See Note 10, “Income Taxes,” for further details.

Liquidity and Capital Resources

Historically, our primary sources of liquidity have been private and public sales of our debt and equity, borrowings under bank credit facilities and cash flows from operations. Our primary use of capital has been for the exploration, development and acquisition of oil and gas properties. As we pursue reserves and production growth, we continually consider which capital resources, including equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our ability to grow proved reserves and production will be highly dependent on the capital resources available to us. We strive to maintain financial flexibility in order to maintain substantial borrowing capacity under our Revolver (as defined below), facilitate drilling on our undeveloped acreage positions and permit us to selectively expand our acreage positions. Depending on the profitability, timing and concentration of the development of our non-proved locations, we may be required to generate or raise significant amounts of capital to develop all of our potential drilling locations should we endeavor to do so. In the event our profitability or cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may curtail our capital spending. Our balance sheet at March 31, 2017 reflects a negative working capital balance. We have historically and in the future expect to maintain a negative working capital balance, and we use our Revolver to help manage our working capital.

Availability under the Revolver is subject to a borrowing base, as well as financial covenants. Our borrowing base at March 31, 2017 was $425.0 million of which $155.0 million was utilized leaving an unused capacity of $270.0 million. The borrowing base will be re-determined at least semi-annually on or about April 1 and October 1 of each year, with such re-determination based primarily on reserve reports using lender commodity price expectations at such time. Any reduction in the borrowing base will reduce our liquidity, and, if the reduction results in the outstanding amount under our Revolver exceeding the borrowing base, we will be required to repay the deficiency within a short period of time. The financial covenants may further constrain our ability to borrow under our Revolver.

The Revolver also contains a covenant which restricts the ability of Jones Energy, Inc. to (i) hold any assets, (ii) incur, create, assume, or suffer to exist any debt or any other liability or obligation, (iii) create, make or enter into any investment or (iv) engage in any other activity or operation other than, among other exceptions described therein, its ownership of equity interests in JEH and the activities of a passive holding company and assets and operations incidental thereto (including the maintenance of cash and reserves for the payment of operational costs and expenses).

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Jones Energy, Inc. and its consolidated subsidiaries are also subject to certain covenants under the Revolver, including the requirement to maintain the following financial ratios:

a total leverage ratio, consisting of consolidated debt to EBITDAX, of not greater than 4.00 to 1.00 as of the last day of any fiscal quarter; and

a current ratio, consisting of consolidated current assets, including the unused amounts of the total commitments, to consolidated current liabilities, of not less than 1.0 to 1.0 as of the last day of any fiscal quarter.

The Company routinely enters into oil and natural gas swap contracts as seller, thus resulting in a fixed price. During 2016 and 2017, the Company realized certain mark-to-market gains associated with oil and natural gas hedges the Company had in place for years 2018 and 2019. The gains were effectively realized by purchasing, as opposed to selling, oil and natural gas swap contracts for the equal volume that was associated with the initial hedge transaction. During the first quarter of 2017, the Company unwound a portion of its realized 2018 and 2019 hedges resulting in approximately $20.0 million of recognized gains which have been included in Net gain (loss) on commodity derivatives on the Company’s Consolidated Statement of Operations. The estimated mark-to-market value of the Company’s remaining realized gains as a result of these offsetting hedges were approximately $23.5 million relating to the years ended December 31, 2018, incorporating strip pricing as of April 28, 2017, but excluding adjustments for credit risk.

The amount, timing and allocation of capital expenditures are largely discretionary and within management’s control. If oil and gas prices decline to levels below our acceptable levels or costs increase to levels above our acceptable levels, we may choose to defer a portion of our budgeted capital expenditures until later periods in order to achieve the desired balance between sources and uses of liquidity and to prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flow. We may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive. We continuously monitor and adjust our projected capital expenditures in response to success or lack of success in drilling activities, changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the availability of rigs, contractual obligations, internally generated cash flow and other factors both within and outside our control.

The following table summarizes our cash flows for the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
(in thousands of dollars)	2017		2016
Net cash provided by / (used in) operating activities	$	13,583	$	(4,826)
Net cash (used in) / provided by investing activities		(16,913)		35,165
Net cash (used in) / provided by financing activities		(22,604)		1,573
Net increase (decrease) in cash	$	(25,934)	$	31,912

Cash flow provided by / (used in) operating activities

Net cash provided by operating activities was $13.6 million during the three months ended March 31, 2017 as compared to net cash used in operating activities of $4.8 million during the three months ended March 31, 2016. The increase in operating cash flows was primarily due to the $15.6 million increase in oil and gas revenues for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, driven by an increase in commodity prices.

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Cash flow (used in) / provided by investing activities

Net cash used in investing activities was $16.9 million during the three months ended March 31, 2017 as compared to net cash provided by investing activities of $35.2 million during the three months ended March 31, 2016. The decrease in investing cash flow was primarily driven by increased capital spending, following the temporary suspension of the drilling program late in 2015 and continuing into early 2016.

Cash flow (used in) / provided by financing activities

Net cash used in financing activities was $22.6 million during the three months ended March 31, 2017 as compared to net cash provided by financing activities of $1.6 million during the three months ended March 31, 2016. The decrease in financing cash flows was primarily due to net repayments under the Revolver of $23.0 million during the three months ended March 31, 2017.

Contractual Obligations

The holders of JEH Units, including Jones Energy, Inc., incur U.S. federal, state and local income taxes on their share of any taxable income of JEH. Under the terms of its operating agreement, JEH is generally required to make quarterly pro-rata cash tax distributions to its unitholders (including us) based on income allocated to its unitholders through the end of each relevant quarter, as adjusted to take into account good faith projections by the Company of taxable income or loss for the remainder of the calendar year, to the extent JEH has cash available for such distributions and subject to certain other restrictions. This tax distribution is computed based on the estimate of net taxable income of JEH allocated to each holder of JEH Units multiplied by the highest marginal effective rate of federal, state and local income tax applicable to an individual resident in New York, New York, without regard for the federal benefit of the deduction for any state taxes.

During 2016, JEH generated taxable income, resulting in the payment of cash tax distributions to JEH unitholders. As a result of JEH’s 2016 taxable income (all of which is passed-through and taxed to us and JEH’s other unitholders), during the three months ended March 31, 2017, we made further income tax payments to federal and state taxing authorities of $4.1 million and JEH made further tax distributions to JEH unitholders (other than us) of $0.6 million.

Based on information available as of this filing, we do not anticipate that we will be required to make any additional tax payments or that JEH will make any additional tax distributions during the remainder of 2017. Estimating the tax distributions required under the operating agreement is imprecise by nature, highly uncertain, and dependent upon a variety of factors.

There have been no other material changes in our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 3. Quantitative and Qualitative Disclosure s about Market Risk

The following market risk disclosures should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as with the unaudited consolidated financial statements and notes included in this Quarterly Report.

We are exposed to certain market risks that are inherent in our financial statements that arise in the normal course of business. We may enter into derivative instruments to manage or reduce market risk, but do not enter into derivative agreements for speculative purposes. We do not designate these or future derivative instruments as hedges for

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accounting purposes. Accordingly, the changes in the fair value of these instruments are recognized currently in earnings.

Potential Impairment of Oil and Gas Properties

Oil and natural gas prices are inherently volatile and have decreased significantly since 2014. Depressed commodity prices have continued into 2017 and historically low commodity prices may exist for an extended period. Taking into consideration the business environment in which we operate, we continually review our oil and gas properties for indicators of potential impairment. No such indicators were present at March 31, 2017.

Our revenues and net income are sensitive to crude oil, NGL and natural gas prices which have been and are expected to continue to be highly volatile. The recent volatility in crude oil and natural gas prices increases the uncertainty as to the impact of commodity prices on our estimated proved reserves. Although we are unable to predict future commodity prices, a prolonged period of depressed commodity prices may have a significant impact on the volumetric quantities of our proved reserves. The impact of commodity prices on our estimated proved reserves can be illustrated as follows: if the prices used for our December 31, 2016 Reserve Report had been replaced with the unweighted arithmetic average of the first-day-of-the-month prices for the applicable commodity for the trailing 12-month period ended March 31, 2017 (without regard to our commodity derivative positions and without assuming any change in development plans, costs, or other variables), then estimated proved reserves volumes as of December 31, 2016 would have increased by approximately 2.3%. The use of this pricing example is for illustration purposes only, and does not indicate management’s view on future commodity prices, costs or other variables, or represent a forecast or estimate of the actual amount by which our proved reserves may fluctuate when a full assessment of our reserves is completed as of December 31, 2017.

Periodic revisions to the estimated reserves and related future cash flows may be necessary as a result of a number of factors, including changes in oil and natural gas prices, reservoir performance, new drilling and completion, purchases, sales and terminations of leases, drilling and operating cost changes, technological advances, new geological or geophysical data or other economic factors. All of these factors are inherently estimates and are inter dependent. While each variable carries its own degree of uncertainty, some factors, such as oil and natural gas prices, have historically been highly volatile and may be highly volatile in the future. This high degree of volatility causes a high degree of uncertainty associated with the estimation of reserve quantities and estimated future cash flows. Therefore, future results are highly uncertain and subject to potentially significant revisions. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. We cannot predict the amounts or timing of future reserve revisions, as such revisions could be negatively impacted by:

Declines in commodity prices or actual realized prices below those assumed for future years;

Increases in service costs;

Increases in future global or regional production or decreases in demand;

Increases in operating costs;

Reductions in availability of drilling, completion, or other equipment.

If such revisions are significant, they could significantly affect future amortization of capitalized costs and result in an impairment of assets that may be material. Any future impairments are difficult to predict, and although it is not reasonably practicable to quantify the impact of any future impairments at this time, such impairments may be significant.

Commodity price risk and hedges

Our principal market risk exposure is to oil, natural gas and NGL prices, which are inherently volatile. As such, future earnings are subject to change due to fluctuations in such prices. Realized prices are primarily driven by the prevailing prices for oil and regional spot prices for natural gas and NGLs. We have used, and expect to continue to use, oil, natural gas and NGL derivative contracts to reduce our risk of price fluctuations of these commodities. Pursuant to our risk management policy, we engage in these activities as a hedging mechanism against price volatility associated with

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projected production levels. The fair value of our oil, natural gas and NGL derivative contracts at March 31, 2017 was a net asset of $39.0 million.

Counterparty risk

Our derivative contracts expose us to credit risk in the event of nonperformance by counterparties. We evaluate the credit standing of our counterparties, but do not require them to post collateral. The majority of our derivative contracts currently in place are with lenders under our Revolver, who have investment grade ratings.

Interest rate risk

We are subject to market risk exposure related to changes in interest rates on our variable rate indebtedness. The terms of the senior secured revolving credit facility provide for interest on borrowings at a floating rate equal to prime, LIBOR or federal funds rate plus margins ranging from 0.50% to 2.50% depending on the base rate used and the amount of the loan outstanding in relation to the borrowing base. The base rate margins under the terminated term loan were 6.0% to 7.0% depending on the base rate used and the amount of the loan outstanding. The terms of our senior notes provide for a fixed interest rate through their respective maturity dates. During the three months ended March 31, 2017, borrowings under the Revolver, the 2022 Notes and the 2023 Notes bore interest at a weighted average rate of 2.59%, 6.75% and 9.25%, respectively.

Item 4. Controls and Procedure s

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2017, the end of the period covered by this report, our disclosure controls and procedures are effective at a reasonable assurance level.

Management’s Assessment of Internal Control over Financial Reporting

The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring every public company that files reports with the SEC to include a management report on such company’s internal control over financial reporting in its annual report. Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for up to five years or through such earlier date that we are no longer an “emerging growth company” as defined in the JOBS Act. Our Annual Report on Form 10-K for the year ended December 31, 2016 included a report of management’s assessment regarding internal control over financial reporting.

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PART II—OTHER INFORMATIO N

Item 1. Legal Proceeding s

For a discussion of legal proceedings, see Note 14 “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for further discussion appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated in this item by reference.

Item 1A. Risk Factor s

Our business faces many risks. Any of the risks discussed elsewhere in this Form 10-Q and our other SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2016, could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

For a discussion of our potential risks and uncertainties, see the information in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes in our risk factors from those described in our Annual Report.

Item 2. Unregistered Sales of Equity Securitie s and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securitie s

None.

Item 4. Mine Safety Disclosure s

Not applicable.

Item 5. Other Informatio n

Not applicable.

Item 6. Exhibit s


Exhibit No.		Description
4.1*		Amended and Restated Registration Rights and Stockholders Agreement, dated May 2, 2017, among Jones Energy, Inc., Jones Energy Holdings, LLC and the other parties thereto.
10.1*		Form of Restricted Stock Unit Award Agreement
10.2*		Form of Performance Share Unit Award Agreement
10.3*		Form of Performance Unit Award Agreement
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Jonny Jones (Principal Executive Officer).
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Robert J. Brooks (Principal Financial Officer).
32.1**		Section 1350 Certification of Jonny Jones (Principal Executive Officer).
32.2**		Section 1350 Certification of Robert J. Brooks (Principal Financial Officer).
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

* - filed herewith

** - furnished herewith

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SIGNATURE S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Jones Energy, Inc.

	(registrant)


Date: May 5, 2017	By:	/s/ Robert J. Brooks
	Name: Robert J. Brooks
	Title: Chief Financial Officer (Principal Financial Officer)

Signature Page to Form 10-Q (Q1 2017)

JONES ENERGY, INC.

AMENDED AND RESTATED

REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT

DATED AS OF MAY 2, 2017

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		Page
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION		2
1.1	Definitions	2
1.2	Rules of Construction	6
ARTICLE II BOARD OF DIRECTORS		7
2.1	Composition of Board	7
2.2	Election	7
2.3	Removal	7
2.4	Vacancies	8
2.5	Termination of Rights	8
ARTICLE III REGISTRATION RIGHTS		8
3.1	Required Registration	8
3.2	Piggyback Registration	11
3.3	Holdback Agreement	12
3.4	Preparation and Filing	12
3.5	Expenses	16
3.6	Indemnification	16
3.7	Underwriting Agreement	18
3.8	Information by Holder	19
3.9	Exchange Act Compliance	20
3.10	Postponement and Suspension	20
ARTICLE IV AMENDMENT AND WAIVER		20
4.1	Amendment	20
4.2	Waiver	21
ARTICLE V MISCELLANEOUS		21
5.1	Severability	21
5.2	Entire Agreement	21
5.3	Independence of Agreements and Covenants	21
5.4	Successors and Assigns	21
5.5	Counterparts; Validity	22
5.6	Remedies	22
5.7	Notices	22
5.8	Governing Law	23
5.9	Waiver of Jury Trial	24
5.10	Further Assurances	24
5.11	Consequential Damages	24
5.12	Conflicting Agreements	24
5.13	Third Party Reliance	24

AMENDED AND RESTATED

REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT

This Amended and Restated Registration Rights and Stockholders Agreement, dated as of May 2, 2017 (as amended, modified, supplemented or restated from time to time, this “ Agreement ”), is among Jones Energy, Inc., a Delaware corporation (the “ Company ”), the Jones Holders (as such term is defined herein), the Metalmark Holders (as such term is defined herein) and the JVL Holders (as such term is defined herein).

WHEREAS, on July 29, 2013, the Company consummated the transactions contemplated by the Company’s Registration Statement on Form S-1 (File No. 333-188896), including an initial public offering (the “ Initial Public Offering ”) of its Class A Common Stock (as defined below);

WHEREAS, the Jones Holders and the Metalmark Holders received Stockholder Shares (as defined below) in the Company as a result of a reorganization of the Jones Energy Holdings, LLC’s equity structure in connection with the Initial Public Offering (the transactions in which such Stockholders initially acquired the Stockholder Shares being referred to collectively as the “ Reorganization ”);

WHEREAS, in connection with the Initial Public Offering and the Reorganization, the Company, the Metalmark Holders and the Jones Holders entered into a Registration Rights and Stockholders Agreement, dated July 29, 2013 (the “ Original Agreement ”), pursuant to which the parties thereto provided for the terms with respect to certain matters regarding the relationship between the Company and the applicable Stockholders and the relationship among such Stockholders;

WHEREAS, the Company consummated the transactions contemplated by the Company’s final prospectus supplement dated August 19, 2016 to its prospectus dated July 26, 2016, in connection with which the Company agreed to negotiate the grant of certain registration rights to the JVL Holders;

WHEREAS, pursuant to Section 4.1 of the Original Agreement, the Original Agreement may only be amended with the prior written consent of the Company, a majority in interest of the Metalmark Holders and a majority in interest of the Jones Holders; and

WHEREAS, the parties hereto, which include the Company, a majority in interest of the Metalmark Holders and a majority in interest of the Jones Holders, desire to amend and restate the Original Agreement to grant certain registration rights to the JVL Holders.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as set forth below.

ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION

1.1 Definitions . As used in this Agreement, the following terms shall have the meanings set forth below.

“ Agreement ” has the meaning set forth in the preamble.

“ Automatic Shelf Registration Statement ” means a registration statement filed on Form S-3 (or successor form or other appropriate form under the Securities Act) by a WKSI pursuant to General Instruction I.D. or I.C. (or other successor or appropriate instruction) of such forms, respectively.

“ Board ” means the board of directors of the Company.

“ Business Day ” means any day except a Saturday, a Sunday or any other day on which commercial banks in New York, NY are authorized or required by law to close.

“ Bylaws ” means the Amended and Restated Bylaws of the Company, adopted as of July 29, 2013, as may be amended from time to time.

“ Class A Common Stock ” means the Class A common stock of the Company, par value $0.001 per share.

“ Class B Common Stock ” means the Class B common stock of the Company, par value $0.001 per share.

“ Commission ” means the U.S. Securities and Exchange Commission.

“ Common Stock ” means the Class A Common Stock and Class B Common Stock.

“ Company ” has the meaning set forth in the preamble.

“ Control ” means, (including, with correlative meaning, the terms “controlling,” “controlled by” and “under common control with”) with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or investment decisions of such Person, whether through the ownership of voting Securities, by contract or otherwise.

“ Director ” means a member of the Board.

“ Disclosure Package ” means, with respect to any offering of Securities, (a) the preliminary prospectus, (b) each Free Writing Prospectus and (c) all other information, in each case, that is deemed, under Rule 159 promulgated by the Commission under the Securities Act, to have been conveyed to purchasers of Securities at the time of sale of such Securities (including a contract of sale).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time.

“ Exchange Agreement ” means the Exchange Agreement, dated as of July 29, 2013, by and among the Company, Jones Energy Holdings, LLC, a Delaware limited liability company, and the other parties thereto.

“ FINRA ” means the Financial Industry Regulatory Authority, Inc.

“ Free Writing Prospectus ” means “free writing prospectus” as defined Rule 405 promulgated by the Commission under the Securities Act.

“ Information ” has the meaning set forth in Section 3.4(i) .

“ Initial Public Offering ” has the meaning set forth in the recitals.

“ Inspectors ” has the meaning set forth in Section 3.4(i) .

“ IPO Closing Date ” means July 29, 2013.

“ Jones Directors ” has the meaning set forth in Section 2.1(b) .

“ Jones Holders ” means Jones Energy Drilling Fund, LP, a Texas limited partnership, Jones Energy Equity Partners, LP, a Texas limited partnership, Jones Energy Equity Partners II, LP, a Texas limited partnership, Jones Energy Team 3, LP, a Texas limited partnership, and their Transferees that directly or indirectly own interests in such entities as of the date hereof and become signatory hereto from time to time.

“ JVL Holders ” means Navitas Fund LP, a Texas limited partnership, Luxiver, LP, a Delaware limited partnership, Hephaestus Energy Fund, LP, a Delaware limited partnership, Asklepios Energy Fund, LP, a Texas limited partnership, LVPU, LP, a Delaware limited partnership, Children’s Energy Fund, LP, a Delaware limited partnership, Blackbird 1846 Energy Fund, LP, a Delaware limited partnership, Panakeia Energy Fund, LP, a Delaware limited partnership, and TJS Energy Fund, LP, a Delaware limited partnership.

“ Law ” means any federal, state, county, local or foreign statute, law, ordinance, regulation, rule, code, order or rule of common law.

“ Metalmark Directors ” has the meaning set forth in Section 2.1(a) .

“ Metalmark Holders ” means MCP (C) II Jones Intermediate LLC, a Delaware limited liability company, MCP II Co-Investment Jones Intermediate LLC, a Delaware limited liability company, MCP II Jones Intermediate LLC, a Delaware limited liability company, MCP II (TE) AIF Jones Intermediate LLC, a Delaware limited liability company, MCP II (Cayman) AIF Jones Intermediate LLC, a Delaware limited liability company, MCP II Executive Fund Jones Intermediate LLC, a Delaware limited liability company.

“ Necessary Action ” shall mean, with respect to a specified result, all actions (to the extent such actions are permitted by law and, in the case of any action by the Company that requires a vote or other action on the part of the Board, to the extent such action is consistent with the fiduciary duties that the Directors may have in such capacity) necessary to cause such result, including (a) nominating, or causing to be nominated, individuals to serve as Directors, (b) voting or providing a written consent or proxy with respect to shares of Common Stock, (c) causing the adoption of stockholders’ resolutions and amendments to the organizational documents of the Company, (d) executing agreements and instruments and (e) making or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.

“ Original Agreement ” has the meaning set forth in the recitals.

“ Other Shares ” means at any time those shares of Common Stock which do not constitute Primary Shares or Registrable Shares hereunder.

“ Person ” shall be construed as broadly as possible and shall include an individual person, a partnership (including a limited liability partnership), a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental authority.

“ Primary Shares ” means, at any time, authorized but unissued shares of Class A Common Stock.

“ Prospectus ” means the prospectus included in a Registration Statement, including any amendment or prospectus subject to completion, and any such prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares and, in each case, by all other amendments and supplements to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.

“ Public Offering ” means the closing of a public offering of Common Stock pursuant to a Registration Statement declared effective under the Securities Act, except that a Public Offering shall not include an offering of Securities issuable pursuant to an employee benefit plan.

“ Records ” has the meaning set forth in Section 3.4(i) .

“ Registrable Shares ” means any Stockholder Shares; provided , that any Registrable Shares shall cease to be a Registrable Shares when (a) they have been effectively registered under the Securities Act and they have been disposed of in accordance with the Registration Statement covering them, (b) they have been sold or distributed pursuant to Rule 144, or (c) they shall have ceased to be outstanding.

“ Registration Expenses ” has the meaning set forth in Section 3.5 .

“ Registration Statement ” means any registration statement of the Company that covers an offering of any Registrable Shares, and all amendments and supplements to any such registration

statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“ Reorganization ” has the meaning set forth in the recitals.

“ Representative ” of a Person shall be construed broadly and shall include such Person’s partners, members, officers, directors, managers, investment advisors, employees, agents, advisors, counsel, accountants and other representatives.

“ Rule 144 ” means Rule 144 (including Rule 144(b)(1) and all other subdivisions thereof) promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar or successor rule then in force.

“ Secondary Offering ” an offering by Stockholders of Stockholder Shares as part of the Initial Public Offering, together with any sale of Stockholder Shares in connection with the exercise of any over-allotment option granted by Stockholders to underwriters in the Initial Public Offering.

“ Securities ” means “securities” as defined in Section 2(1) of the Securities Act and includes, with respect to any Person, the capital stock or other equity interests in such Person or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, the capital stock or other equity or equity-linked interests in such Person, including phantom stock and stock appreciation rights. Whenever a reference herein to Securities is referring to any derivative Securities, the rights of a Stockholder shall apply to such derivative Securities and all underlying Securities directly or indirectly issuable upon conversion, exchange or exercise of such derivative Securities.

“ Securities Act ” means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time.

“ Shelf Registration Statement ” shall mean a registration statement of the Company filed with the Commission on Form S-3 (or any successor form or other appropriate form under the Securities Act) for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any similar rule that may be adopted by the Commission) covering the Registrable Shares, as applicable.

“ Stockholders ” means the Jones Holders, the Metalmark Holders and the JVL Holders.

“ Stockholders’ Counsel ” has the meaning set forth in Section 3.4(b) .

“ Stockholder Shares ” means (a) any equity Securities of the Company (including the Common Stock) held by any Stockholder or (b) any Securities issued or issuable directly or indirectly with respect to the Securities referred to in clause (a) above by way of exchange pursuant to the Exchange Agreement, stock dividend, stock split, or in connection with a combination of shares, recapitalization, reclassification, merger, consolidation or other reorganization.

“ Subsidiary ” means, at any time, with respect to any Person (the “subject person”), any other Person of which either (a) more than 50% of the Securities or other interests entitled to vote in the election of directors or comparable governance bodies performing similar functions or (b) more than a 50% interest in the profits or capital of such Person, are at the time owned or Controlled directly or indirectly by the subject person or through one or more Subsidiaries of the subject person.

“ Transfer ” of Securities shall be construed broadly and shall include any issuance, sale, assignment, transfer, participation, gift, bequest, distribution, or other disposition thereof, or any pledge or hypothecation thereof, placement of a lien thereon or grant of a security interest therein or other encumbrance thereon, in each case whether voluntary or involuntary or by operation of law or otherwise.

“ Transferee ” means a person to whom a Transfer is validly made hereunder.

“ WKSI ” means a “well-known seasoned issuer” as defined in Rule 405 promulgated under the Securities Act and which (a) is a “well-known seasoned issuer” under paragraph (1)(i)(A) of such definition or (b) is a “well-known seasoned issuer” under paragraph (1)(i)(B) of such definition and is also eligible to register a primary offering of its Securities relying on General Instruction I.B.1 of Form S-3 or Form F-3 under the Securities Act.

1.2 Rules of Construction . The use in this Agreement of the term “ including ” means “ including, without limitation .” The words “ herein ,” “ hereof ,” “ hereunder ” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular Section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to Sections, schedules and exhibits mean the Sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the Section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1 (or in the case of January 29, 30 or 31, the following month shall be March 1).

ARTICLE II
BOARD OF DIRECTORS

2.1 Composition of Board . The Company, the Metalmark Holders and the Jones Holders shall take all Necessary Actions to cause the Board to include, in addition to its other members, members designated as follows:

(a) Two nominees shall be designated by a majority in interest of the Metalmark Holders (the “ Metalmark Directors ”), which Metalmark Directors shall initially be Gregory D. Myers and Howard I. Hoffen; provided , however , that, the Metalmark Holders will only have the right to designate one nominee at such time as the Metalmark Holders hold less than 50% of the Common Stock held by the Metalmark Holders immediately following the consummation of the Initial Public Offering; provided , further , that, the right of the Metalmark Holders to designate any nominees shall terminate at such time as the Metalmark Holders hold less than 20% of the Common Stock held by the Metalmark Holders immediately following the consummation of the Initial Public Offering. At any given time, and provided that the Directors are allocated among separate classes, each Metalmark Director shall be in a different class of Directors as the other Metalmark Director.

(b) Two nominees shall be designated by a majority in interest of the Jones Holders (the “ Jones Directors ”), which Jones Directors shall initially be Jonny Jones and Mike S. McConnell; provided , however , that, the Jones Holders will only have the right to designate one nominee at such time as the Jones Holders hold less than 50% of the Common Stock held by the Jones Holders immediately following the consummation of the Initial Public Offering; provided , further , that, the right of the Jones Holders to designate any nominees shall terminate at such time as the Jones Holders hold less than 20% of the Common Stock held by the Jones Holders immediately following the consummation of the Initial Public Offering. At any given time, and provided that the Directors are allocated among separate classes, each Jones Director shall be in a different class of Directors as the other Jones Director.

2.2 Election . At each election of Directors held after the IPO Closing Date (or each written consent in lieu thereof), each Metalmark Holder and Jones Holder agrees to vote all shares of Common Stock entitled to vote in the election of directors owned or held of record by such Metalmark Holder or Jones Holder, as applicable, and to take any other Necessary Actions, to elect (or to execute such written consent consenting to the election of) the nominees designated pursuant to Section 2.1(a) and Section 2.1(b) . The voting agreements herein are coupled with an interest and may not be revoked or amended except as set forth in this Agreement.

2.3 Removal . If the Metalmark Holders and/or the Jones Holders provide written notice to each other Metalmark Holder and Jones Holder entitled to vote in the election of Directors indicating that the Metalmark Holders and/or the Jones Holders desire to remove a Metalmark Director or Jones Director, as applicable, previously designated, then such Metalmark Director or Jones Director, as applicable, shall be removed, and each Metalmark Holder and Jones Holder hereby agrees to vote all shares of Common Stock owned or held of record by such Metalmark Holder or Jones Holder, as applicable, to effect such removal. Notwithstanding the foregoing, no Metalmark Director or Jones Director shall be removed, with or without cause, without the prior written consent of the Metalmark Holders or the Jones Holders, respectively.

2.4 Vacancies .

(a) If a vacancy is created on the Board at any time by death, disability, retirement, resignation or removal (with or without cause) of a Metalmark Director nominated pursuant to this Article II (other than in connection with the resignation of such Metalmark Director as set forth in Section 2.1(a) ), a majority in interest of the Metalmark Holders shall be entitled to designate a replacement Metalmark Director to fill such vacancy.

(b) If a vacancy is created on the Board at any time by death, disability, retirement, resignation or removal (with or without cause) of a Jones Director nominated pursuant to this Article II (other than in connection with the resignation of such Jones Director as set forth in Section 2.1(b) ), a majority in interest of the Jones Holders, as applicable, shall be entitled to designate a replacement Jones Director to fill such vacancy.

(c) Any other vacancy on the Board, whether as a result of (i) the initial vacancies on the Board, (ii) an increase in size of the Board, (iii) the resignation of a Metalmark Director required by Section 2.1(a) or the resignation of a Jones Director required by Section 2.1(b) , or (iv) the death, disability, retirement, resignation, removal (with or without cause) of any Director other than a Metalmark Director or a Jones Director, as applicable, shall be filled by a Person nominated by the Nominating and Corporate Governance Committee and approved in accordance with the Bylaws.

(d) Each Metalmark Holder and Jones Holder entitled to vote in the election of Directors hereby agrees to vote all voting shares of Common Stock owned or held of record by it for the individual designated to fill such vacancies in the manner provided in this Section 2.4 ; provided , such designee was not previously removed from the Board for cause.

2.5 Termination of Rights . The nomination rights granted in this Article II shall terminate (a) with respect to the Metalmark Holders, upon receipt by the Board of written election by a majority in interest of the Metalmark Holders to waive their nomination rights hereunder, and (b) with respect to the Jones Holders, upon receipt by the Board of written election by a majority in interest of the Jones Holders to waive their nomination rights hereunder.

ARTICLE III
REGISTRATION RIGHTS

3.1 Required Registration .

(a) If the Company shall receive from a majority in interest of the Jones Holders, a majority in interest of the Metalmark Holders or a majority in interest of the JVL Holders, at any time, a written request that the Company file a registration statement with respect to such Stockholders’ Registrable Shares, then the Company shall, within ten days of the receipt thereof, give written notice of such request to all Stockholders, and subject to the limitations of this Section 3.1 , use its commercially reasonable efforts to effect, as soon as reasonably practicable, the registration under the Securities Act of the sale of all Registrable Shares that the Stockholders request to be registered, pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration; provided however , that if the managing underwriter, if any, advises the Company in writing that the inclusion of all

Primary Shares, Registrable Shares and Other Shares requested to be included in such registration would interfere with the successful marketing (within a price range acceptable to holders a majority of Registrable Securities that have been requested for inclusion) of the shares of Common Stock proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares proposed to be included in such registration shall be included in the order set forth below:

(i) first, the Registrable Shares owned by the Stockholders requesting that their Registrable Shares be included in such registration pursuant to the terms of this Section 3.1 , pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration;

(ii) second, the Primary Shares; and

(iii) third, the Other Shares.

(b) Notwithstanding anything to the contrary in this Agreement, a Stockholder may request that the Company register the sale of such Registrable Shares on an appropriate form, including a Shelf Registration Statement (so long as the Company is eligible to use Form S-3) and, if the Company is a WKSI, an Automatic Shelf Registration Statement. All long-form registrations shall be underwritten registrations. The Stockholders of a majority of the Registrable Shares initially requesting registration hereunder shall have the right to select the investment banker(s) and manager(s) to administer the offering with the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed). The Company shall not be obligated to take any action to effect any registration under this Section 3.1 :

(i) if the request comes from a majority in interest of the Metalmark Holders, after it has effected two such registrations pursuant to this Section 3.1 on behalf of the Metalmark Holders on or after the date hereof; provided , however , that a majority in interest of the Metalmark Holders shall be permitted an unlimited amount of requests for registration on a Form S-3 so long as the Company is eligible to use Form S-3; provided further that a registration shall not count as one of the permitted registrations pursuant to this Section 3.1 unless the Metalmark Holders are able to register and sell at least 80% of the Registrable Shares they requested to be included in such registration;

(ii) if the request comes from a majority in interest of the Jones Holders, after it has effected three such registrations pursuant to this Section 3.1 on behalf of the Jones Holders on or after the date hereof; provided , however , that a majority in interest of the Jones Holders shall be permitted an unlimited amount of requests for registration on a Form S-3 so long as the Company is eligible to use Form S-3; provided further that a registration shall not count as one of the permitted registrations pursuant to this Section 3.1 unless the Jones Holders are able to register and sell at least 80% of the Registrable Shares they requested to be included in such registration;

(iii) if the request comes from a majority in interest of the JVL Holders, after it has effected one such registration pursuant to this Section 3.1 on behalf of the JVL Holders on or after the date hereof ; provided further that a registration shall not

count as one of the permitted registrations pursuant to this Section 3.1 unless the JVL Holders are able to register and sell at least 80% of the Registrable Shares they requested to be included in such registration ;

(iv) within one hundred 180 days of a registration pursuant to this Section 3.1 that has been declared or ordered effective;

(v) during the period starting with the date 60 days prior to its good faith estimate of the date of filing of, and ending on a date 180 days after the effective date of, a Company-initiated registration (other than a registration relating solely to the sale of Securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or to a Commission Rule 145 transaction), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;

(vi) where the registration is on a Form S-3 and the anticipated aggregate offering price of all Securities included in such offering is equal to or less than $25,000,000;

(vii) where the registration is on a form other than a Form S-3 and the anticipated aggregate offering price of all Securities included in such offering is equal to or less than $50,000,000; or

(viii) if the Company shall furnish to such Stockholders a certificate signed by the CEO or President of the Company stating that in the good faith judgment of the Board it would be seriously detrimental to the Company and its equity holders for such registration statement to be filed at the time filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the request of the Stockholders; provided that the Company shall not defer its obligation in this manner more than once in any 12 month period; provided further that in such event, the Stockholders of Registrable Securities initially requesting such registration shall be entitled to withdraw such request and, if such request is withdrawn, such registration shall not count as one of the permitted registrations hereunder.

(c) At any time before the registration statement covering such Registrable Shares becomes effective, the Stockholder so requesting such registration may request the Company to withdraw or not to file the registration statement. In that event, unless such request of withdrawal was caused by, or made in response to, in each case as determined by such Stockholder, in good faith (i) a material adverse effect or a similar event related to the business, properties, condition, or operations of the Company not known (without imputing the knowledge of any other Person to such holders) by such Stockholder at the time their request was made, or other material facts not known at the time such request was made, or (ii) a material adverse change in the financial markets, such Stockholder shall be deemed to have used one of its registration rights under Section 3.1(b) ; provided , however , that such withdrawn registration shall not count as a requested registration pursuant to Section 3.1(b) if the Company shall have been reimbursed (in

the absence of any agreement to the contrary, pro rata by such Stockholder, as applicable) for all out-of-pocket expenses incurred by the Company in connection with such withdrawn registration.

(d) To the extent an Automatic Shelf Registration Statement has been filed under Section 3.1 , the Company shall use commercially reasonable efforts to remain a WKSI and not become an ineligible issuer (as defined in Rule 405 under the Securities Act) during the period during which such Automatic Shelf Registration Statement is required to remain effective. If the Automatic Shelf Registration Statement has been outstanding for at least three years, at the end of the third year the Company shall refile a new Automatic Shelf Registration Statement covering the Registrable Securities that remain unsold. If at any time when the Company is required to re-evaluate its WKSI status, the Company determines that it is not a WKSI, the Company shall use commercially reasonable efforts to refile the Shelf Registration Statement on Form S-3 and, if such form is not available, Form S-1 and keep such registration statement effective during the period during which such registration statement is required to be kept effective.

(e) If, after it has become effective, (i) such registration statement has not been kept continuously effective for a period of at least 180 days (or such shorter period which will terminate when all the Registrable Shares covered by such registration statement have been sold pursuant thereto), (ii) such registration requested pursuant to Section 3.1(a) becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, or (iii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived, other than by reason of some act or omission by the Stockholder requesting registration, such registration shall not count as a requested registration pursuant to Section 3.1(b) .

3.2 Piggyback Registration .

(a) If the Company, at any time, proposes for any reason to register any of its Primary Shares (in any event either for its own account or for the account of other Security holders) under the Securities Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act (or any successor forms thereto)) in connection with an underwritten offering to the public for cash on a form that would permit registration of Registrable Shares, or to otherwise engage in an underwritten offering pursuant to an effective Shelf Registration Statement, it shall give written notice to the Stockholders of its intention to so register such Primary Shares promptly and the Company shall use its commercially reasonable efforts to cause all Registrable Shares included in a written response delivered by a Stockholder to the Company within five days after delivery of the Company’s notice to be included in such registration, or in any prospectus supplement to the prospectus included in an already effective Shelf Registration Statement and underwriting involved therein on the same terms and conditions as the Securities otherwise being sold; provided , however , that in the case of an “overnight” or “bought” offering, such requests must be made within one Business Day after the delivery of any such notice by the Company; provided further , that if the managing underwriter, if any, advises the Company in writing that the inclusion of all Primary Shares, Registrable Shares and Other Shares requested to be included in such registration would interfere with the successful marketing (within a price range acceptable to holders a majority of Registrable Securities that have been requested for inclusion) of the shares of Common Stock proposed to be registered by the Company, then the number of Primary Shares,

Registrable Shares and Other Shares proposed to be included in such registration shall be included in the order set forth below:

(i) first, the Primary Shares;

(ii) second, the Registrable Shares owned by the Stockholders requesting that their Registrable Shares be included in such registration pursuant to the terms of this Section 3.2 , pro rata based upon the number of Registrable Shares owned by each such Stockholder requesting inclusion at the time of such registration; and

(iii) third, the Other Shares.

(b) No registration effected pursuant to this Section 3.2 shall relieve the Company of its obligation to effect any registration upon request under Section 3.1 hereof, nor shall any registration hereunder be deemed to have been effected pursuant to Section 3.1 . The Company will pay all Registration Expenses in connection with each registration pursuant to this Section 3.2 .

3.3 Holdback Agreement . If the Company at any time pursuant to Section 3.1 or Section 3.2 shall register under the Securities Act an offering and sale of Registrable Shares held by the Stockholders for sale to the public pursuant to an underwritten Public Offering, if requested by the lead underwriters in such underwritten Public Offering, the Company and the Stockholders shall not, without the prior written consent of the lead underwriters for such offering, effect any public sale or distribution of Securities similar to those being registered, or any Securities convertible into or exercisable or exchangeable for such Securities, during the seven days prior to and during the 90-day period beginning on the effective date of such underwritten Public Offering.

3.4 Preparation and Filing . If and whenever the Company is under an obligation pursuant to the provisions of this Agreement to use its commercially reasonable efforts to effect the registration of an offering and sale of any Registrable Shares, the Company shall, as expeditiously as practicable (but subject to the timing provisions in Section 3.2 with respect to “overnight” or “bought” offerings):

(a) use its commercially reasonable efforts to cause a Registration Statement that registers such offering of Registrable Shares to contain a “plan of distribution” that permits the distribution of Securities pursuant to all means in compliance with Law, and to cause such Registration Statement to become and remain effective pursuant to the terms of this Agreement for a period of 180 days or until all of such Registrable Shares have been disposed of (if earlier);

(b) furnish, at least five Business Days before filing a Registration Statement that registers such Registrable Shares, a Prospectus relating thereto, or, with respect to an effective Shelf Registration Statement, a prospectus supplement to the Prospectus included in such Shelf Registration Statement, and any amendments or supplements relating to such Registration Statement or Prospectus, to one counsel selected by the Stockholders for the benefit of the Stockholders whose Registrable Shares are to be covered by such Registration Statement (the “ Stockholders’ Counsel ”), copies of all such documents proposed to be filed (it being

understood that such five-Business Day period need not apply to successive drafts of the same document proposed to be filed so long as such successive drafts are supplied to such counsel in advance of the proposed filing by a period of time that is customary and reasonable under the circumstances), and shall use its commercially reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as the Stockholders whose Registrable Shares are to be covered by such Registration Statement may reasonably propose;

(c) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of at least 180 days or until all of such Registrable Shares have been disposed of (if earlier) and to comply with the provisions of the Securities Act with respect to the offering and sale or other disposition of such Registrable Shares; provided, that if the Registration Statement is a Shelf Registration Statement, then such 180 day period shall be extended, if necessary, to keep the Registration Statement continuously effective, supplemented and amended to the extent necessary to ensure that it is available for sales of such Registrable Securities, and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time until all Registrable Securities covered by such Registration Statement have been sold;

(d) notify the Stockholders’ Counsel promptly in writing of (i) any comments by the Commission with respect to such Registration Statement or Prospectus, or any request by the Commission for the amending or supplementing thereof or for additional information with respect thereto; (ii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or Prospectus or any amendment or supplement thereto or the initiation of any proceedings for that purpose; and (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of such Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes;

(e) use its commercially reasonable efforts to register or qualify such Registrable Shares under such other Securities or blue sky laws of such jurisdictions as any seller of Registrable Shares reasonably requests and do any and all other acts and things that may reasonably be necessary or advisable to enable such seller of Registrable Shares to consummate the disposition in such jurisdictions of the Registrable Shares owned by such seller; provided , that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject;

(f) furnish to each seller of such Registrable Shares such number of copies of a summary Prospectus or other Prospectus, including a preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as such seller of Registrable Shares may reasonably request in order to facilitate the Public Offering and sale or other disposition of such Registrable Shares (to the extent not publicly available on EDGAR or the Company’s website);

(g) use its commercially reasonable efforts to cause such offering and sale of Registrable Shares to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Shares;

(h) notify on a timely basis each seller of such Registrable Shares at any time when a Prospectus relating to such Registrable Shares is required to be delivered under the Securities Act within the appropriate period mentioned in Section 3.4(b) of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and , subject to Section 3.10 , at the request of such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the offerees of such shares, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(i) make available for inspection by any seller of such Registrable Shares, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the “ Inspectors ”), all pertinent financial, business and other records, pertinent corporate documents and properties of the Company (collectively, the “ Records ”), as shall reasonably be necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information (together with the Records, the “ Information ”) reasonably requested by any such Inspector in connection with such Registration Statement (and any of the Information that the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed by the Inspectors unless (i) the disclosure of such Information is necessary to avoid or correct a misstatement or omission in the Registration Statement; (ii) the release of such Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; (iii) such Information has been made generally available to the public; or (iv) the seller of Registrable Shares agrees that it will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of the Information deemed confidential);

(j) use its commercially reasonable efforts to obtain from its independent registered public accounting firm a “comfort letter” (or, in the case of any such Person which does not satisfy the conditions for receipt of a “comfort letter” specified in Statement on Auditing Standards No. 72, an “agreed upon procedures” letter) signed by the independent registered public accounting firm and addressed to the selling Stockholders, the Board, and the underwriter, if any, in customary form and covering such matters of the type customarily covered by accountants’ comfort letters;

(k) use its commercially reasonable efforts to obtain, from its counsel, an opinion or opinions in customary form (which shall also be addressed to the Stockholders selling Registrable Shares in such registration);

(l) have appropriate officers of the Company prepare and make presentations at any “road shows” and before analysts and rating agencies, as the case may be, and other information meetings organized by the underwriters, take other actions to obtain ratings for any Registrable Shares (if they are eligible to be rated) and otherwise use its commercially reasonable efforts to cooperate as reasonably requested by the sellers of such Registrable Shares in the offering, marketing or selling of such Registrable Shares, provided that the gross proceeds for such offering are reasonably anticipated by the managing underwriters to be in excess of (i) $50,000,000 where the registration statement is on a form other than a Form S-3 or (ii) $25,000,000 where the registration statement is on a Form S-3; and provided, further , that such officers shall not be required to participate in such presentations at any “road shows” and before analysts and rating agencies, as the case may be, more than twice in a 365-day period;

(m) provide a transfer agent and registrar (which may be the same Person and which may be the Company) for such Registrable Shares;

(n) list such Registrable Shares on any national securities exchange on which any shares of the Common Stock are listed or, if the Common Stock is not listed on a national securities exchange, use its commercially reasonable efforts to qualify such Registrable Shares for quotation on the automated quotation system of the NASDAQ, National Market System, Euronext or such other national securities exchange as the holders of a majority of such Registrable Shares included in such registration shall request;

(o) register such Registrable Shares under the Exchange Act, and otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its Security holders, as soon as reasonably practicable but not later than 18 months after the effective date, earnings statements (which need not be audited) covering a period of 12 months beginning within three months after the effective date of the Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(p) not take any direct or indirect action prohibited by Regulation M under the Exchange Act; provided , however , that to the extent that any prohibition is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable; and

(q) use its commercially reasonable efforts to take all other steps necessary to effect the registration and sale of such Registrable Shares contemplated hereby.

3.5 Expenses . Except as expressly provided otherwise, all expenses incident to the Company’s performance of or compliance with Sections 3.1 , 3.2 , and 3.4 , including, without limitation, (a) all registration and filing fees, and any other fees and expenses associated with filings required to be made with any stock exchange, the Commission and FINRA (including, if applicable, the fees and expenses of any “qualified independent underwriter” and its counsel as may be required by the rules and regulations of FINRA); (b) all fees and expenses of compliance with state securities or “blue sky” laws (including reasonable fees and disbursements of counsel for the underwriters or Stockholders in connection with “blue sky” qualifications of the Registrable Shares and determination of their eligibility for investment under the laws of such jurisdictions as

the managing underwriters may designate); (c) all printing and related messenger and delivery expenses (including expenses of printing prospectuses); (d) all fees and disbursements of counsel for the Company and of all independent certified public accountants of the issuer (including the expenses of any special audit and “comfort letters” required by or incident to such performance); (e) all fees and expenses incurred in connection with the listing of the Registrable Shares on any securities exchange and all rating agency fees; (f) all reasonable and documented fees and disbursements of counsel (plus appropriate special and local counsel) selected by the Stockholders to represent them in connection with such registration (it being understood that all other expenses incurred by a Stockholder shall be borne by such Stockholder); and (g) all fees and disbursements of underwriters customarily paid by the issuer or sellers of Securities, excluding underwriting fees, commissions, discounts and allowances, if any, and fees and disbursements of counsel to underwriters (other than such fees and disbursements incurred in connection with any registration or qualification of Registrable Shares under the Securities or “blue sky” laws of any state) (all such expenses being herein called “ Registration Expenses ”), will be borne by the Company, regardless of whether the Registration Statement becomes effective. In addition, the Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any audit and the fees and expenses of any Person, including special experts, retained by the Company.

3.6 Indemnification .

(a) In connection with any registration of any offering and sale of Registrable Shares under the Securities Act pursuant to this Agreement, the Company and its Subsidiaries shall indemnify and hold harmless the seller of such Registrable Shares, each underwriter, broker or any other Person acting on behalf of such seller, each other Person, if any, who Controls any of the foregoing Persons within the meaning of the Securities Act and each Representative of any of the foregoing Persons, against any losses, claims, damages or liabilities, joint or several, to which any of the foregoing Persons may become subject, whether commenced or threatened, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement under which such Registrable Shares were registered, any preliminary Prospectus or final Prospectus contained therein, any offering circular, offering memorandum or Disclosure Package, or any amendment or supplement thereto, or any document incident to registration or qualification of any offering and sale of any Registrable Shares, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any Prospectus, necessary to make the statements therein in light of the circumstances under which they were made not misleading, or any violation by the Company or any of its Subsidiaries of the Securities Act or state securities or blue sky laws applicable to the Company or any of its Subsidiaries and relating to action required or inaction of the Company or its Subsidiaries in connection with such registration or qualification under such state securities or blue sky laws, and the Company and its Subsidiaries shall promptly reimburse such seller, underwriter, broker, Controlling Person or Representative for any legal or other expenses incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that neither the Company nor its Subsidiaries shall be liable to any such Person to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged

omission made in said Registration Statement, preliminary Prospectus, amendment thereto, or any document incident to registration or qualification of any Registrable Shares in reliance upon and in conformity with written information furnished to the Company or its Subsidiaries through an instrument duly executed by such Person, or a Person duly acting on their behalf, specifically for use in the preparation thereof.

(b) In connection with any registration of an offering and sale of Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares severally, and not jointly, shall indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.6(a) ) the Company, its Subsidiaries, their directors and officers, each underwriter or broker involved in such offering, each other seller of Registrable Shares under such Registration Statement, each Person who Controls any of the foregoing Persons within the meaning of the Securities Act and any Representative of the foregoing Persons with respect to any untrue statement or allegedly untrue statement in or omission or alleged omission from such Registration Statement, any preliminary Prospectus, final Prospectus or Free Writing Prospectus contained therein, any amendment or supplement thereto or any document incident to registration or qualification of any such offering and sale of Registrable Shares, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company, its Subsidiaries, or such underwriter through an instrument duly executed by such seller or a Person duly acting on such seller’s behalf specifically for use in connection with the preparation of such Registration Statement, preliminary Prospectus, final Prospectus, Free Writing Prospectus, amendment or supplement; provided , however , that the maximum amount of liability in respect of such indemnification shall be limited, in the case of each seller of Registrable Shares, to an amount equal to the proceeds (net of underwriting discounts and commissions) actually received by such seller from the sale of Registrable Shares effected pursuant to such registration.

(c) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding paragraphs of this Section 3.6 , such indemnified party will, if a claim in respect thereof is not made against an indemnifying party, give written notice to the latter of the commencement of such action ( provided , however , that an indemnified party’s failure to give such notice in a timely manner shall only relieve the indemnification obligations of an indemnifying party to the extent such indemnifying party is materially prejudiced by such failure). In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided , however , that if any indemnified party shall have reasonably concluded (based upon the written advice of counsel) that there may be one or more legal or equitable defenses available to such indemnified party which are in addition to or in conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section 3.6 , the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying party shall reimburse such indemnified party and any Person Controlling such indemnified party for that portion of the fees and expenses of any one lead counsel (plus appropriate special and local

counsel) retained by the indemnified party that are reasonably related to the matters covered by the indemnity agreement provided in this Section 3.6 ; provided, further , that, if there is more than one indemnified party, then the indemnifying party shall only be required to reimburse the expenses for the lead counsel (plus appropriate special and local counsel) approved in writing by the indemnified party or parties (as applicable) holding a majority of the Registrable Shares held by all indemnified parties.

(d) If the indemnification provided for in this Section 3.6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage or liability referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations; provided , however , that the maximum amount of liability in respect of such contribution shall be limited, in the case of each seller of Registrable Shares, to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Shares effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(e) The indemnification and contribution provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party and will survive the Transfer of Registrable Shares.

3.7 Underwriting Agreement .

(a) Notwithstanding the provisions of Section 3.3 , Section 3.4 and Section 3.6 , to the extent that the Stockholders selling Registrable Shares in a proposed registration shall enter into an underwriting or similar agreement that contains provisions covering one or more issues addressed in such Sections of this Agreement, the provisions contained in such Sections of this Agreement addressing such issue or issues shall be of no force or effect with respect to such registration, but this provision shall not apply to the Company if the Company is not a party to the underwriting or similar agreement.

(b) If any registration pursuant to Section 3.1 is requested to be an underwritten Public Offering, the Company shall negotiate in good faith to enter into a reasonable and customary underwriting agreement with the underwriters thereof. Such underwriting agreement shall be satisfactory in form and substance to the Stockholder requesting registration, or if such Stockholder is not participating in such offering, holders of a majority of Registrable Securities included in such offering, and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type. Any Stockholder participating in the offering shall be a party to such underwriting agreement and, at its option, may require that any or all of the representations and

warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also shall be made to and for the benefit of such Stockholder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Stockholder; provided , however , that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a selling Stockholder for inclusion in the registration statement. No Stockholder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Stockholder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of such Stockholder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of underwriting discounts and commissions) that it derives from such registration. The Company shall be entitled to receive indemnities from lead institutions, underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement and to the extent customarily given their role in such distribution.

(c) No Stockholder may participate in any registration hereunder that is underwritten unless such Stockholder agrees to sell such Stockholder’s Registrable Shares proposed to be included therein on the basis provided in any underwriting arrangements reasonably acceptable to the Company.

3.8 Information by Holder . Each holder of Registrable Shares to be included in any registration shall furnish to the Company and the managing underwriter such written information regarding such holder and the distribution proposed by such holder as the Company or the managing underwriter may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. Each Stockholder shall as expeditiously as possible, notify the Company of the occurrence of any event concerning such Stockholder as a result of which the Prospectus relating to such registration contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

3.9 Exchange Act Compliance . From and after the date a registration statement is filed by the Company pursuant to the Exchange Act relating to the Company’s Securities and shall have become effective, the Company shall comply with all of the reporting requirements of the Exchange Act (whether or not it shall be required to do so) and shall comply with all other public information reporting requirements of the Commission that are conditions to the availability of Rule 144 for the sale of the Common Stock. The Company shall cooperate with each Stockholder in supplying such information as may be necessary for such Stockholder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of Rule 144.

3.10 Postponement and Suspension . Anything contained in this Agreement to the contrary notwithstanding, the Company may postpone the filing of any registration statement

required under this Article III for a reasonable period of time if the Board determines that such disclosure would have a material adverse effect on the Company. The Company shall not be required to cause a registration statement requested pursuant to this Article III to become effective prior to 180 days following the effective date of a registration statement initiated by the Company if the request for registration has been received by the Company subsequent to the giving of written notice by the Company to the Stockholders that the Company is commencing to prepare a Company-initiated registration statement (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any other similar rule under the Securities Act is applicable). If after any Registration Statement to which rights hereunder apply becomes effective (and prior to completion of any sales thereunder), the Board determines that the failure of the Company to (i) suspend sales of Securities under the Registration Statement or (ii) amend or supplement the Registration Statement, would have a material adverse effect on the Company, the Company shall so notify each Stockholder participating in such registration and each Stockholder shall suspend any further sales under such Registration Statement until the Company advises the Stockholder that the Registration Statement has been amended or that conditions no longer exist that would require such suspension; provided that the Company shall be entitled to suspend the use of any prospectus and Registration Statement covering any Registrable Securities on one occasion in any 6 month period, for a period of time not to exceed 60 days in the aggregate in any 6 month period and 75 days in any 12 month period. In connection with any such suspension the Company shall deliver to the Stockholders a certificate signed by an executive officer certifying that such registration and offering would have a material adverse effect on the Company. Such certificate shall contain a statement of the reasons for such suspension and an approximation of the anticipated length of such suspension. In such event, the Company may (but shall not be obligated to) withdraw the effectiveness of any registration statement subject to this provision.

ARTICLE IV
AMENDMENT AND WAIVER

4.1 Amendment . Except as expressly set forth herein, the provisions of this Agreement may only be amended or waived with the prior written consent of (a) the Company, (b) a majority in interest of the Metalmark Holders, (c) a majority in interest of the Jones Holders and (d) if such amendment or waiver materially and adversely affects the rights, preferences or obligations of the JVL Holders hereunder, a majority in interest of the JVL Holders.

4.2 Waiver . No course of dealing between the Company and the Stockholders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

ARTICLE V
MISCELLANEOUS

5.1 Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public

policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

5.2 Entire Agreement . This Agreement embodies the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede and preempt any and all prior and contemporaneous understandings, agreements, arrangements or representations by or among the parties, written or oral, which may relate to the subject matter hereof or thereof in any way.

5.3 Independence of Agreements and Covenants . All agreements and covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant, the fact that such action or condition is permitted by another agreement or covenant shall not affect the occurrence of such default, unless expressly permitted under an exception to such initial agreement or covenant.

5.4 Successors and Assigns . Except as otherwise provided herein, this Agreement will bind and inure to the benefit of and be enforceable by the Company and its successors and permitted assigns and the Stockholders. Except as specifically set forth herein, the Company may not assign its rights or obligations hereunder without the prior written consent of a majority in interest of the Metalmark Holders and a majority in interest of the Jones Holders (which consent shall not be unreasonably withheld, conditioned or delayed); provided , that notwithstanding any such assignment by the Company, the Company shall remain liable for its obligations hereunder. Any Stockholder may Transfer all or a portion of its Registrable Shares to another Stockholder (to the extent such Transfer is otherwise permissible under this Agreement) in connection with an assignment of its rights hereunder with respect thereto. In the event of any Transfer by any Stockholder of all or a portion of its Registrable Shares to any third party other than a Stockholder, all rights under this Agreement with respect to the Registrable Shares so Transferred shall cease and terminate.

5.5 Counterparts; Validity . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by facsimile, electronic mail or otherwise) to the other party, it being understood that all parties need not sign the same counterpart. Any counterpart or other signature hereupon delivered by facsimile shall be deemed for all purposes as constituting good and valid execution and delivery of this Agreement by such party.

5.6 Remedies .

(a) Each Stockholder shall have all rights and remedies reserved for such Stockholder pursuant to this Agreement and all rights and remedies which such holder has been granted at any time under any other agreement or contract and all of the rights which such holder has under any law or equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or equity.

(b) The parties hereto agree that if any parties seek to resolve any dispute arising under this Agreement pursuant to a legal proceeding, the prevailing parties to such proceeding shall be entitled to receive reasonable fees and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with such proceedings.

5.7 Notices . All notices, amendments, waivers or other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, sent by electronic mail (email) or facsimile, sent by nationally recognized overnight courier or mailed by registered or certified mail with postage prepaid, return receipt requested, to the parties hereto at the following addresses (or at such other address for a party as shall be specified by like notice):

(a) if to the Company:

Jones Energy, Inc.

807 Las Cimas Parkway, Suite 350

Austin, Texas 78746

Attention: Chief Executive Officer

Email: jjones@jonesenergy.com

Fax: 512-328-5394

with a copy to:

Baker Botts LLP

98 San Jacinto Blvd., Suite 1500

Austin, Texas 78701

Attention: Michael L. Bengtson

Email: Mike.Bengtson@bakerbotts.com

Fax: 512-322-8349

(b) if to the Metalmark Holders:

c/o Metalmark Capital Holdings, LLC

1177 Avenue of the Americas, 40th Floor

New York, New York 10036

Attention: Gregory D. Myers

Email: greg.myers@metalmarkcapital.com

Fax: 212-823-1949

c/o Jones Energy Management

807 Las Cimas Parkway, Suite 245

Austin, Texas 78746

Attention: Robin Picard

Email: rpicard@jrjmgmt.com

Fax: 512-328-6971

(d) if to the JVL Holders:

c/o JVL Advisors, L.L.C.

10000 Memorial Drive, Suite 550

Houston, Texas 77024

Attention: Derek Michaelis

Email: dmichaelis@jvladvisors.com

Fax: 713-579-2611

(e) if to any Stockholder, to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith.

Any such notice or communication shall be deemed to have been given and received (a) when delivered, if personally delivered; (b) when sent, if sent by electronic mail or facsimile during normal business hours (or, if not sent during normal business hours, on the next Business Day after the date sent); (c) on the next Business Day after dispatch, if sent by nationally recognized overnight courier guaranteeing next Business Day delivery; and (d) on the fifth Business Day following the date on which the piece of mail containing such communication is posted, if sent by mail.

5.8 Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.

5.9 Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. EACH

OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED OR HAD THE OPPORTUNITY TO REVIEW THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

5.10 Further Assurances . Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the provisions of this Agreement and the consummation of the transactions contemplated hereby or thereby.

5.11 Consequential Damages . Each party hereto hereby waives and agrees not to seek consequential or punitive damages with respect to any claim, controversy, or dispute arising out of or relating to this Agreement or the breach thereof.

5.12 Conflicting Agreements . No Stockholder shall enter into any stockholder agreements or arrangements of any kind with any Person with respect to any Stockholder Shares on terms inconsistent with the provisions of this Agreement (whether or not such agreements or arrangements are with other Stockholders or with Persons that are not parties to this Agreement), including agreements or arrangements with respect to the acquisition or disposition of Stockholder Shares in a manner which is inconsistent with this Agreement.

5.13 Third Party Reliance .

(a) Anything contained herein to the contrary notwithstanding, the covenants of the Company contained in this Agreement (i) are being given by the Company as an inducement to the Stockholders to enter into this Agreement (and the Company acknowledges that the Stockholders have expressly relied thereon) and (ii) are solely for the benefit of the Stockholders. Accordingly, no third party (including, without limitation, any holder of capital stock of the Company) or anyone acting on behalf of any thereof other than the Stockholders, shall be a third party or other beneficiary of such covenants and no such third party shall have any rights of contribution against the Stockholders or the Company with respect to such covenants or any matter subject to or resulting in indemnification under this Agreement or otherwise.

(b) None of the provisions hereof shall create, or be construed or deemed to create, any right to employment in favor of any Person by the Company.

[Signature pages follow]

IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated Registration Rights and Stockholders Agreement as of the date set forth above.


	COMPANY:

	JONES ENERGY, INC.

	By:	/s/ Jonny Jones
		Jonny Jones
		Chief Executive Officer

Signature Page to Amended and Restated Registration Rights and Stockholders Agreement


	JONES HOLDERS:

	jones energy holdings, llc

	By:	/s/ Jonny Jones
		Jonny Jones
		Chief Executive Officer

	jones energy drilling fund, lp

	By: Jones Energy Management, LLC, its General Partner

	By:	/s/ Jonny Jones
		Jonny Jones
		Manager

	jones energy equity partners, lp

	By: Jones Energy Management, LLC, its General Partner

	By:	/s/ Jonny Jones
		Jonny Jones
		Manager

	jones energy equity partners II, lp

	By: Jones Energy Management, LLC, its General Partner

	By:	/s/ Jonny Jones
		Jonny Jones
		Manager

	JONES ENERGY TEAM 3, LP

	B y: JET 3 GP, LLC, its General Partner
	By: Jon Rex Jones Jr. Trust V, its Managing Member

	By:	/s/ Jonny Jones
		Jonny Jones
		Trustee

METALMARK HOLDERS:

Signature Page to Amended and Restated Registration Rights and Stockholders Agreement


	MCP (C) II JONES INTERMEDIATE LLC

	B y: Metalmark Capital Partners II GP, L.P., its General Partner
	By: Metalmark Capital Holdings LLC, its General Partner

	By:	/s/ Gregory D. Myers
		Gregory D. Myers
		Managing Director

	MCP II CO-INVESTMENT JONES INTERMEDIATE LLC

	By:	/s/ Gregory D. Myers
		Gregory D. Myers
		Managing Director

	MCP II JONES INTERMEDIATE LLC

	By:	/s/ Gregory D. Myers
		Gregory D. Myers
		Managing Director

	MCP II (TE) AIF JONES INTERMEDIATE LLC

	By:	/s/ Gregory D. Myers
		Gregory D. Myers
		Managing Director

	MCP II (CAYMAN) aif JONES INTERMEDIATE LLC

	By:	/s/ Gregory D. Myers
		Gregory D. Myers
		Managing Director

	MCP ii executive fund JONES INTERMEDIATE LLC

	By:	/s/ Gregory D. Myers
		Gregory D. Myers
		Managing Director

Signature Page to Amended and Restated Registration Rights and Stockholders Agreement

	JVL HOLDERS:

	NAVITAS FUND, LP

	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

	LUXIVER, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

	HEPHAESTUS ENERGY FUND, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

	ASKLEPIOS ENERGY FUND, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

	LVPU, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

	CHILDREN’S ENERGY FUND, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

Signature Page to Amended and Restated Registration Rights and Stockholders Agreement

	BLACKBIRD 1846 ENERGY FUND, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

	PANAKEIA ENERGY FUND, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

Signature Page to Amended and Restated Registration Rights and Stockholders Agreement

	TJS ENERGY FUND, LP
	B y: JVL Advisors, L.L.C., its General Partner

	By:	/s/ John V. Lovoi
		John V. Lovoi
		Managing Partner

Signature Page to Amended and Restated Registration Rights and Stockholders Agreement

JONES-LOGO-HZL-4C

EMPLOYEE RESTRICTED STOCK UNIT AWARD AGREEMENT

Under the

JONES ENERGY, INC. 2013 OMNIBUS INCENTIVE PLAN

(As Amended and Restated May 4, 2016)

THIS EMPLOYEE RESTRICTED STOCK UNIT AWARD AGREEMENT (this “ Award ”) is made as of ________, 2017 (the “ Grant Date ”), by and between Jones Energy, Inc., a Delaware corporation (the “ Company ”), and ____________ (the “ Grantee ”).

W I T N E S S E T H:

WHEREAS , pursuant to the Jones Energy, Inc. 2013 Omnibus Incentive Plan, as amended and restated May 4, 2016 (the “ Plan ”), the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) has determined that it would be in the interest of the Company and its stockholders to grant restricted stock units of the Company (“ Restricted Stock Units ”), each of which represents the value of one share of Company Class A Common Stock, par value $0.001 per share (the “ Common Stock ”), as provided herein, in order to encourage the Grantee to remain in the employ of the Company or its Subsidiaries, to encourage the sense of proprietorship of the Grantee in the Company and to stimulate the active interest of the Grantee in the development and financial success of the Company.

NOW THEREFORE , the Company awards the Restricted Stock Units to the Grantee, subject to the following terms and conditions of this Award:

1. Grant of Restricted Stock Units. Subject to the terms and conditions contained herein, including, but not limited to, the restrictions in Sections 3 and 4 of this Award, the Company hereby grants to the Grantee an award of __________ Restricted Stock Units under the Plan. Capitalized terms used, but not otherwise defined, herein shall have the meanings set forth in the Plan.

2. Establishment of Bookkeeping Account. The grant of Restricted Stock Units pursuant to this Award shall be implemented by a credit to a bookkeeping account maintained by the Company evidencing the accrual in favor of the Grantee of the unfunded and unsecured right to receive such Restricted Stock Units, which right shall be subject to the terms, conditions and restrictions set forth in the Plan and to the further terms, conditions and restrictions set forth in this Award.

3. Transfer Restrictions. Except as expressly provided herein, this Award and the Restricted Stock Units are non-transferrable and may not otherwise be assigned,

pledged, hypothecated or otherwise disposed of and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award provided for herein shall immediately become null and void, and the Restricted Stock Units shall be immediately cancelled and forfeited.

4. Vesting. Unless earlier vested pursuant to Section 5 or Section 7 of this Award, the Restricted Stock Units shall vest, in the following amounts on the following dates (each a “ Vesting Date ”):

(i) __________on April 1, 2018;

(ii) __________on April 1, 2019; and

(iii) __________on April 1, 2020;

provided, however , that the Grantee is continuously employed by the Company or a Subsidiary from the Grant Date through each of the above respective Vesting Dates. Any fractional shares shall be rounded-up to the next whole share (not to exceed the total number of shares of Restricted Stock Units granted under this Award). If the Grantee does not remain continuously employed by the Company or a Subsidiary until the Vesting Dates specified above, then (except as provided in Section 5 or Section 7) all outstanding unvested Restricted Stock Units shall be cancelled and forfeited immediately as of the termination date of the Grantee’s employment.

5. Vesting Due to Death or Disability. Notwithstanding any provision in this Award to the contrary, if the Grantee’s employment terminates due to death or Disability prior to the final Vesting Date (and a Change in Control), provided the Grantee is continuously employed by the Company or a Subsidiary from the Grant Date through such termination date (the “Vesting Date” for purposes of this Section 5), any unvested Restricted Stock Units as of the date of such termination shall immediately vest in full.

6. Distribution Following Vesting. As soon as administratively feasible following the Vesting Date or vesting event of Restricted Stock Units pursuant to Section 4, 5 or 7 of this Award, but no later than 15 days after the date such vesting occurs and subject to the withholding referenced in Section 9, the Company will cause to be issued and delivered to the Grantee (or Grantee’s estate in the event of death) one share of Common Stock (in certificate or electronic form) with respect to each vested Restricted Stock Unit.

7. Change in Control.

(a) In the event of a Change in Control (as defined in the Plan) prior to the final Vesting Date, provided the Grantee is continuously employed by the Company or a Subsidiary from the Grant Date through the date of the Change in Control, then, for purposes of Section 4 of this Award, except as provided in Section 7(b) below, the Restricted Stock Units shall continue to vest on each of the Vesting Dates occurring after the date of the Change in Control, provided the Grantee remains continuously employed by the Company or a Subsidiary from the date of the Change in Control

through such Vesting Dates (except as provided in Section 7(b) below). The vested Restricted Stock Units will be distributed to the Grantee as soon as practicable after each Vesting Date occurring after the date of the Change in Control, but in no event later than the 15th day after such vesting occurs and subject to the withholding referenced in Section 9, in the same percentage of cash (if any) and equity (if any) for each unit as is received by shareholders of the Company in connection with the Change in Control for a share of Common Stock. In the event all or a portion of the Restricted Stock Units are paid in cash, at the time of payment the Grantee will receive an additional amount in cash for interest on such cash amount based on a rate of 6%, compounded annually, from the date of the Change in Control until the applicable Vesting Date (the “ Interest Rate ”).

(b) The foregoing notwithstanding, if after the date of the Change in Control but prior to the final Vesting Date the Grantee’s employment is (i) involuntarily terminated by the Company or its successor for any reason other than Cause (as defined below), (ii) terminated by the Grantee for Good Reason (as defined below), (iii) terminated due to death or Disability, then the Restricted Stock Units determined under Section 7(a) that have not been distributed as of the Grantee’s termination date will be distributed to the Grantee within 30 days following the Grantee’s termination date. In the event all or a portion of the Restricted Stock Units are paid in cash, at the time of payment the Grantee will receive an additional amount in cash interest on such cash amount for the period beginning on the date of the Change in Control and ending on the Grantee’s termination based on the Interest Rate. If after the date of the Change in Control but prior to the final Vesting Date the Grantee’s employment is (x) involuntarily terminated by the Company or its successor for Cause or (y) voluntarily terminated by the Grantee for any reason other than Good Reason, then the Grantee shall have no rights under this Award and all the Restricted Stock Units shall be forfeited as of his or her termination date.

(c) For purposes of Section 7(b), “ Cause ” shall mean, if not otherwise defined in an employment agreement between the Grantee and the Company or its successor in effect as of the date of his or her termination, the Grantee’s (i) failure to reasonably and substantially perform his or her duties (other than as a result of physical or mental illness or injury); (ii) willful misconduct or gross negligence that has caused or is reasonably expected to result in material injury to the Company’s or successor’s business, reputation or prospects; or (iii) conviction or plea of nolo contendere with respect to the commission of a felony or other serious crime involving moral turpitude.

(d) For purposes of Section 7(b), “ Good Reason ” shall mean the occurrence of any of the following events: (i) a material diminution in the Grantee’s base salary; (ii) a material diminution in the Grantee’s position, authority, duties or responsibilities in connection with the Change in Control; or (iii) the involuntary relocation of the geographic location of the Grantee’s principal place of employment by more than 50 miles from the location of the Grantee’s principal place of employment as of the Grant Date. Notwithstanding the foregoing, any assertion by the Grantee of a termination of employment for Good Reason shall not be effective unless all of the following requirements are satisfied: (1) the condition described in clause (i), (ii) or (iii) above giving rise to the Grantee’s termination of employment must have arisen without the Grantee’s consent; (2) the Grantee must provide written notice to the Company of such condition

in accordance with Section 12 within 30 days of the initial existence of the condition; (3) the condition specified in such notice must remain uncorrected for 30 days after receipt of such notice by the Company (“ cure period ”); and (4) the Grantee’s termination of employment must occur within 30 days after the end of the cure period. If the Grantee does not provide the notice described in clause (2) above, or if the Company corrects the event during the cure period as described in clause (3) above, or the Grantee does not terminate employment as described in clause (4) above, then the event shall not constitute Good Reason.

8. Adjustments. As provided in Section 15 of the Plan, certain adjustments may be made to the Restricted Stock Units upon the occurrence of events or circumstances described in Section 15 of the Plan.

9. Tax Withholding; Code Section 409A.

(a) The obligation of the Company to issue and deliver to the Grantee (in certificate or electronic form) shares of Common Stock as provided in Section 6 hereof shall be subject to the receipt by the Company from the Grantee of any withholding taxes required as a result of the award of the Restricted Stock Units, vesting or lapsing of restrictions thereon. The Grantee shall satisfy such withholding tax requirement selling to the Company a designated number of shares of Common Stock that otherwise would have been delivered to the Grantee in settlement of this Award, the price per share of which shall be equal to the Fair Market Value of such shares, provided that the aggregate value of the shares sold does not exceed the minimum required tax withholding obligation.

(b) The Restricted Stock Units granted under this Award are intended to be exempt from Code Section 409A under the “short term deferral exclusion” and ambiguous provisions of this Award, if any, shall be construed and interpreted in a manner consistent with such intent.

10. Incorporation of Plan Provisions. This Award and the award of Restricted Stock Units hereunder are made pursuant to the Plan and are subject to all of the terms and provisions of the Plan as if the same were fully set forth herein. In the event that any provision of this Award conflicts with the Plan, the provisions of the Plan shall control. The Grantee acknowledges receipt of a copy of the Plan and agrees that all decisions under and interpretations of the Plan by the Committee shall be final, binding and conclusive upon the Grantee.

11. No Rights to Employment. Nothing contained in this Award shall confer upon the Grantee any right to continued employment by the Company or any Subsidiary of the Company, or limit in any way the right of the Company or any Subsidiary to terminate or modify the terms of the Grantee’s employment at any time.

12. Notice . Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this

Award shall be in writing and shall be delivered personally or sent by courier or first class mail, postage prepaid to the following address:

Jones Energy, Inc.

807 Las Cimas Parkway, Suite 350

Austin, Texas 78746

Attn: Corporate Secretary

Any notice or other communication to the Grantee with respect to this Award shall be in writing and shall be delivered personally, or shall be sent by courier or first class mail, postage prepaid, to the Grantee’s address as listed in the records of the Company on the Grant Date, unless the Company has received written notification from the Grantee of a change of address.

13. Compliance with Recoupment Policy. Any amounts payable, paid, or distributed under this Award are subject to the recoupment policy of the Company as in effect from time to time.

14. Miscellaneous.

(a) THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS.

(b) This Award shall be binding upon and inure to the benefit of the Company and its successors and assigns.

(d) If any term or provision of this Award should be invalid or unenforceable, such provision shall be severed from this Award, and all other terms and provisions hereof shall remain in full force and effect.

(e) This Award, including the relevant provisions of the Plan, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, with respect to the subject hereof. This Award may not be amended, except by an instrument in writing signed by the Company and the Grantee.

(f) This Award may be executed in one or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

JONES ENERGY, INC.

By:

Name: Jonny Jones

Title: Chief Executive Officer

The Grantee acknowledges receipt of a copy of the Plan, represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all of the terms and provisions hereof and thereof.

GRANTEE

By:

Name: __________

JONES-LOGO-HZL-4C

PERFORMANCE SHARE UNIT AWARD AGREEMENT

January 1, 2017 - December 31, 2019 Performance Period

Under the

JONES ENERGY, INC. 2013 OMNIBUS INCENTIVE PLAN

(As Amended and Restated May 4, 2016)

THIS PERFORMANCE SHARE UNIT AWARD AGREEMENT (this “ Award ”) is made as of _________, 2017 (the “ Grant Date ”), by and between Jones Energy, Inc., a Delaware corporation (the “ Company ”), and ____________ (the “ Grantee ”).

W I T N E S S E T H:

WHEREAS , pursuant to the Jones Energy, Inc. 2013 Omnibus Incentive Plan, as amended and restated May 4, 2016 (the “ Plan ”), the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) has determined that it would be in the interest of the Company and its stockholders to grant a number of performance share units (“ Performance Share Units ”), as provided herein, in order to encourage the Grantee to remain in the employ of the Company or its Subsidiaries, to encourage the sense of proprietorship of the Grantee in the Company and to stimulate the active interest of the Grantee in the development and financial success of the Company.

NOW THEREFORE , the Company awards the Performance Share Units to the Grantee, subject to the following terms and conditions of this Award:

1. Terms. This Award and the Plan together govern the Grantee’s rights with respect to the Performance Share Units and set forth all of the conditions and limitations affecting such rights. Terms used in this Award that are not defined herein will have the meanings ascribed to them in the Plan. Pursuant to the terms and conditions of the Plan and this Award, the Grantee has been granted Performance Share Units as outlined below:

Performance Period: January 1, 2017 through December 31, 2019

Vesting Date: December 31, 2019

Performance Share Units At “Target” _________

Performance Goal: Schedule I to this Award describes the manner in which the final number of Performance Share Units that vest hereunder will be calculated, which shall be between 0% and 200% of the Target number of Performance Share Units and

shall be based on the total shareholder return of the Company’s Class A Common Stock, par value $0.001 per share (“ Common Stock ”) as compared to the total shareholder return of the identified Comparison Index, as described in more detail on Schedule I (the “ Performance Goal ”).

2. Vesting.

(a) General . After the close of the Performance Period, but in no event later than 45 days following the last day of the Performance Period, the Committee shall determine and certify the extent to which the Performance Goal has been achieved in accordance with Schedule I . The Performance Share Units will vest and become non‑forfeitable on the Vesting Date in an amount determined (if any) based on the results of the Performance Goal, as certified by the Committee, provided the Grantee has been continuously employed by the Company or a Subsidiary of the Company at all times from the Grant Date until the Vesting Date. For the avoidance of doubt, if the Committee determines that the level of achievement of the Performance Goal does not meet the minimum threshold requirement specified in Schedule I , then all Performance Share Units shall be forfeited. Except as provided in Sections 2(b) or 2(c) below, if the Grantee does not remain continuously employed by the Company or a Subsidiary of the Company until the Vesting Date, the Grantee shall have no rights under this Award and all the Performance Share Units shall be forfeited as of his or her termination date.

(b) Vesting Due to Retirement . Notwithstanding any provision in this Award to the contrary, except as provided in Section 7 below, if the Grantee’s employment with the Company and its Subsidiaries terminates due to Retirement (as defined below) prior to the Vesting Date, then, on the Vesting Date, the Grantee will vest in the number of Performance Share Units (if any) determined by multiplying (i) the number of Performance Share Units that would have vested as determined in accordance with Section 2(a) above had the Grantee’s employment not terminated and (ii) a fraction, the numerator of which is the number of days that elapsed between the first day of the Performance Period and the date of the Grantee’s termination of employment due to Retirement and the denominator of which is the total number of days in the Performance Period. For purposes of this Award, “ Retirement ” means the Grantee’s voluntary termination of employment on or after the date when the Grantee is at least 60 years old and has at least ten years of continuous service (based on the Grantee’s employment with the Company and its Subsidiaries or predecessor companies); provided, however , that if the Committee determines, in its sole discretion, at any time prior to the Vesting Date that the Grantee has taken any action or actions that are detrimental or injurious to the Company or any of its Subsidiaries, then the Grantee’s termination of employment shall be treated as a voluntary termination and not Retirement, and as a result the Grantee’s Performance Share Units shall be forfeited as of such determination date.

(c) Vesting Due to Death or Disability . Notwithstanding any provision in this Award to the contrary, if the Grantee’s employment with the Company and its Subsidiaries terminates due to death or Disability prior to the Vesting Date, then, as of the

Grantee’s termination date, the Grantee will vest in the Target number of Performance Share Units.

3. Book Entry Account. The Company shall establish (or shall instruct its transfer agent or stock plan administrator to establish) a book entry account representing the Performance Share Units at Target in the Grantee’s name effective as of the Grant Date, provided, however , that the Company shall retain control of the Performance Share Units in such account until the Performance Share Units have become vested in accordance with this Award and shares of Common Stock have been issued, if any, in settlement of the Performance Share Units.

4. Distribution of Shares. The Grantee shall receive one share of Common Stock as determined under Sections 2(a), (b) or (c) above, as applicable, in satisfaction of each vested Performance Share Unit credited to his or her account, which shall be registered in the Grantee’s name. Shares of Common Stock with respect to Performance Share Units that vest under Sections 2(a) and (b) of this Award shall be paid to the Grantee as soon as practicable after the Committee determines and certifies the extent to which the Performance Goal has been met, but in no event later than the 70th day following the Vesting Date. Shares of Common Stock with respect to Performance Share Units that vest under Section 2(c) of this Award shall be paid to the Grantee (or to the Grantee’s estate in the event of death) within 30 days following the Grantee’s termination date (subject to Section 9(b), if applicable).

5. Stockholder Rights; Dividend Equivalents. The Performance Share Units do not confer on the Grantee any rights of a stockholder of the Company unless and until shares of Common Stock are in fact issued to the Grantee in connection with the vesting of Performance Share Units. However, to the extent that cash dividends or other cash distributions are paid or distributed with respect to the Common Stock during the Performance Period, the Grantee shall be entitled to a payment of cash equal to the value of such distributions on the number of Performance Share Units that become vested under this Award, which amount, if any, shall be paid in cash at the same time shares of Common Stock are delivered to the Grantee (or the Grantee’s estate in the event of death) in settlement of vested Performance Share Units under this Award.

6. Transferability. No rights granted under this Award can be assigned or transferred, whether voluntarily or involuntarily, by operation of law or otherwise, except by will or the laws of descent and distribution. In the event of any transfer or assignment of rights granted under this Award in accordance with this Section 6, the person or persons, if any, to whom such rights are transferred by will or by the laws of descent and distribution shall be treated after the Grantee’s death the same as the Grantee under this Award. Any attempted transfer or assignment of rights under this Award prohibited under this Section 6 shall be null and void.

7. Change in Control.

achievement of the Performance Goal through the end of such adjusted Performance Period, calculated in accordance with Schedule I . The Performance Share Units determined pursuant to the foregoing sentence, shall be become vested as of the Vesting Date, provided the Grantee has been continuously employed by the Company (or its successor) or one of its Subsidiaries at all times from the Grant Date until the Vesting Date. The value of the Performance Share Units will be distributed to the Grantee as soon as practicable after the Vesting Date, but in no event later than the 70th day following the Vesting Date, in the same percentage of cash (if any) and equity (if any) as is received by shareholders of the Company in connection with the Change in Control. In the event all or a portion of the Performance Share Units are paid in cash, at the time of payment the Grantee will receive an additional amount in cash for interest on such cash amount based on a rate of 6%, compounded annually, from the date of the Change in Control until the Vesting Date (the “ interest rate ”).

(b) Termination of Employment; Forfeiture . Section 7(a) notwithstanding, if the Grantee’s employment is involuntarily terminated by the Company or its successor for any reason other than Cause (as defined below) or the Grantee terminates employment for Good Reason (as defined below) after the date of the Change in Control but prior to the Vesting Date, then the Performance Share Units determined under Section 7(a) will be distributed to the Grantee within 30 days following the Grantee’s termination date (subject to Section 9(b), if applicable). In the event all or a portion of the Performance Share Units are paid in cash, at the time of payment the Grantee will receive an additional amount in cash interest on such cash amount for the period beginning on the date of the Change in Control and ending on the Grantee’s termination date based on the interest rate. If prior to the Vesting Date the Grantee’s employment is (i) involuntarily terminated by the Company or its successor for Cause or (ii) voluntarily terminated by the Grantee for any reason other than Good Reason, then the Grantee shall have no rights under this Award and all the Performance Share Units shall be forfeited as of his or her termination date.

(c) Cause . For purposes of Section 7(b), “ Cause ” shall mean, if not otherwise defined in an employment agreement between the Grantee and the Company or its successor in effect as of the date of his or her termination, the Grantee’s (i) failure to reasonably and substantially perform his or her duties (other than as a result of physical or mental illness or injury); (ii) willful misconduct or gross negligence that has caused or is reasonably expected to result in material injury to the Company’s or successor’s business, reputation or prospects; or (iii) conviction or plea of nolo contendere with respect to the commission of a felony or other serious crime involving moral turpitude.

(d) Good Reason . For purposes of Section 7(b), “ Good Reason ” shall mean the occurrence of any of the following events: (i) a material diminution in the Grantee’s base salary; (ii) a material diminution in the Grantee’s position, authority, duties or responsibilities in connection with the Change in Control; or (iii) the involuntary relocation of the geographic location of the Grantee’s principal place of employment by more than 50 miles from the location of the Grantee’s principal place of employment as of the Grant Date. Notwithstanding the foregoing, any assertion by the Grantee of a termination of employment for Good Reason shall not be effective unless all of the following requirements are satisfied: (1) the condition described in clause (i), (ii) or (iii)

above giving rise to the Grantee’s termination of employment must have arisen without the Grantee’s consent; (2) the Grantee must provide written notice to the Company of such condition in accordance with Section 12 within 30 days of the initial existence of the condition; (3) the condition specified in such notice must remain uncorrected for 30 days after receipt of such notice by the Company (“ cure period ”); and (4) the Grantee’s termination of employment must occur within 30 days after the end of the cure period. If the Grantee does not provide the notice described in clause (2) above, or if the Company corrects the event during the cure period as described in clause (3) above, or the Grantee does not terminate employment as described in clause (4) above, then the event shall not constitute Good Reason.

(e) Retirement . Notwithstanding any provision hereof to the contrary, if the Grantee’s employment with the Company or its successor is terminated due to Retirement after the date of a Change in Control but prior to the Vesting Date, the Grantee will vest in the number of Performance Share Units (if any) determined by multiplying (i) the number of Performance Share Units determined in accordance with Section 7(a) and (ii) a fraction, the numerator of which is the number of days that elapsed between the first day of the Performance Period and the date of the Grantee’s termination of employment due to Retirement and the denominator of which is the total number of days in the original Performance Period without taking into account any shorter deemed Performance Period under Section 7(a). The Performance Share Units determined under this Section 7(e) will be distributed to the Grantee within 30 days following the Grantee’s termination date (subject to Section 9(b), if applicable). Notwithstanding Section 2(b), if a Change in Control occurs after the Grantee’s Retirement but before the Vesting Date, then the determination of Performance Share Units under Section 7(a), and not Section 2(a), shall apply for purposes of determining the number of Performance Share Units subject to pro-ration.

(f) Death and Disability . Notwithstanding any provision in this Award to the contrary, if the Grantee’s employment with the Company and its Subsidiaries terminates due to death or Disability after the date of a Change in Control but prior to the Vesting Date, then, as of the Grantee’s termination date, the Grantee will vest in the number of Performance Share Units determined in accordance with Section 7(a) and will be distributed to the Grantee within 30 days following the Grantee’s termination date (subject to Section 9(b), if applicable). In the event all or a portion of the Performance Share Units are paid in cash, at the time of payment the Grantee will receive an additional amount in cash interest on such cash amount for the period beginning on the date of the Change in Control and ending on the Grantee’s termination date based on the interest rate.

8. Adjustments . As provided in Section 15 of the Plan, certain adjustments may be made to the Common Stock related to the Performance Share Units upon the occurrence of events or circumstances described in Section 15 of the Plan. Without limiting the generality of the foregoing, and except as otherwise provided in the Plan, in the event of any merger, consolidation, reorganization, recapitalization, reclassification or other capital or corporate structure change of the Company, for all purposes references herein to Common Stock or to Performance Share Units shall mean and include all securities or other property (other than cash) that holders of Common Stock are entitled to receive in respect of Common Stock by reason of each such

successive event, which securities or other property (other than cash) shall be treated in the same manner and shall be subject to the same restrictions as the underlying Performance Share Units .

9. Tax Withholding; Code Section 409A.

(a) The obligation of the Company to issue and deliver to the Grantee (in certificate or electronic form) shares of Common Stock as provided in Section 4 or 7 hereof shall be subject to the receipt by the Company from the Grantee of any withholding taxes required as a result of such issuance or delivery. The Grantee shall satisfy such withholding tax requirement by selling to the Company a designated number of unrestricted shares of Common Stock held by the Grantee at a price per share equal to the Fair Market Value of such shares, provided that the aggregate value of the shares sold does not exceed the minimum required tax withholding obligation.

(b) The Performance Share Units granted under this Award are intended to comply with or be exempt from Code Section 409A, and ambiguous provisions of this Award, if any, shall be construed and interpreted in a manner consistent with such intent. If the Participant is Retirement eligible and is identified by the Company as a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) on the date on which the Participant has a “separation from service” (other than due to death) within the meaning of Treasury Regulation § 1.409A-1(h), and his or her vested Performance Share Units are “deferred compensation” payable or settled on account of a separation from service, then such vested Performance Share Units shall be paid or settled on the earliest of (i) the first business day following the expiration of six months from the Grantee’s separation from service, (ii) the date of the Grantee’s death, or (iii) such earlier date as complies with the requirements of Code Section 409A.

10. Incorporation of Plan Provisions. This Award and the award of Performance Share Units hereunder are made pursuant to the Plan and are subject to all of the terms and provisions of the Plan as if the same were fully set forth herein. In the event that any provision of this Award conflicts with the Plan, the provisions of the Plan shall control. The Grantee acknowledges receipt of a copy of the Plan and agrees that all decisions under and interpretations of the Plan by the Committee shall be final, binding and conclusive upon the Grantee.

12. Notice. Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this Award shall be in writing and shall be delivered personally or sent by courier or first class mail, postage prepaid to the following address:

Jones Energy, Inc.

807 Las Cimas Parkway, Suite 350

Austin, Texas 78746

Attn: Corporate Secretary

13. Requirements of Law. The granting of Performance Share Units and the issuance of shares of Common Stock under the Plan will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

14. Compliance with Recoupment Policy. Any amounts payable, paid or distributed under this Award are subject to the recoupment policy of the Company as in effect from time to time.

15. Miscellaneous.

(a) THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS.

(b) This Award shall be binding upon and inure to the benefit of the Company and its successors and assigns.

(f) This Award may be executed in one or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

JONES ENERGY, INC.

By:

Name: Jonny Jones

Title: Chief Executive Officer

GRANTEE

By:

Name: ____________

SCHEDULE I

JONES ENERGY, INC. 2013 OMNIBUS INCENTIVE PLAN

(As Amended and Restated May 4, 2016)

PERFORMANCE SHARE UNIT AWARD AGREEMENT

January 1, 2017 - December 31, 2019 Performance Period

Definitions

(i) “ Adjustment Factor ” means the adjustment factor calculated in accordance with this Schedule I as provided below.

(ii) “ Beginning Price ” means the average closing price of a share of Common Stock or the CI, as applicable, for the 10-consecutive trading day period including and prior to the first day of the Performance Period.

(iii) “ Comparison Index ” or “CI” means the S&P Oil and Gas Exploration & Production Select Industry Index.

(iv) “ Dividends ” means the sum of all ordinary and extraordinary dividends paid during the Performance Period with respect to the applicable share of Common Stock.

(v) “ Ending Price ” means the average closing price of a share of Common Stock or the CI, as applicable, for the 10-consecutive trading day period including and prior to the last day of the Performance Period.

(vi) “ Total Shareholder Return ” means a fraction, the numerator of which is the Ending Price plus Dividends minus the Beginning Price, and the denominator of which is the Beginning Price, expressed as a percentage.

Schedule I

Calculation of Performance Share Unit Adjustment

The number of Performance Share Units that shall vest as of the Vesting Date shall be equal to the product of (i) the Target Units, multiplied by (ii) the Adjustment Factor.

The Total Shareholder Return of the Company and of the Comparison Index shall be calculated and certified by the Committee.

The Company’s Total Shareholder Return as compared to the Total Shareholder Return of the Comparison Index shall determine the Adjustment Factor using the chart below. In no event shall the Adjustment Factor exceed 200%. If the performance ranking is below the lowest performance threshold, the Adjustment Factor shall be zero. The Adjustment Factor for performance rankings between points on the chart shall be determined by linear interpolation between the values listed.

Example: This example is provided for illustrative purposes only. If the Comparative Index had a Total Shareholder Return of 5% over the Performance Period, the Company needs a Total Shareholder Return of 38.33% (5% + 33.33%) or higher for the Grantee to receive a maximum payout. For the Grantee to receive a threshold payout, the Company needs a Total Shareholder Return of -15% (5% - 20%).

Performance Ranking	Performance Threshold	Adjustment Factor
Maximum	Company outperforms CI by 33.3 percentage points or more (+33.3%)	200%
Target	Company performance equals CI (1.0x) (“ Target ”)	100%
Threshold	Company underperforms CI by less than 20.0 percentage points (-20%)	50%
No Payout	Company underperforms CI by more than 20.0 percentage points	0%

Schedule I

JONES-LOGO-HZL-4C

PERFORMANCE UNIT AWARD AGREEMENT
(Cash Award)

January 1, 2017 - December 31, 2019 Performance Period

Under the

JONES ENERGY, INC. 2013 OMNIBUS INCENTIVE PLAN
(As Amended and Restated May 4, 2016)

THIS PERFORMANCE UNIT AWARD AGREEMENT (this “ Award ”) is made as of _________, 2017 (the “ Grant Date ”), by and between Jones Energy, Inc., a Delaware corporation (the “ Company ”), and ____________ (the “ Grantee ”).

W I T N E S S E T H:

WHEREAS , pursuant to the Jones Energy, Inc. 2013 Omnibus Incentive Plan, as amended and restated May 4, 2016 (the “ Plan ”), the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) has determined that it would be in the interest of the Company and its stockholders to grant a number of performance units (“ Performance Units ”), each Performance Unit representing an initial notional value of $100.00 (“ Target Value ”), as provided herein, in order to encourage the Grantee to remain in the employ of the Company or its Subsidiaries, to encourage the sense of proprietorship of the Grantee in the Company and to stimulate the active interest of the Grantee in the development and financial success of the Company.

NOW THEREFORE , the Company awards the Performance Units to the Grantee, subject to the following terms and conditions of this Award:

1. Terms. This Award and the Plan together govern the Grantee’s rights with respect to the Performance Units and set forth all of the conditions and limitations affecting such rights. Terms used in this Award that are not defined herein will have the meanings ascribed to them in the Plan. Pursuant to the terms and conditions of the Plan and this Award, the Grantee has been granted Performance Units as outlined below:

Performance Period: January 1, 2017 through December 31, 2019

Vesting Date: December 31, 2019

Performance Units: _________

Performance Goal: Schedule I to this Award describes the manner in which the Final Value (as defined in Schedule I ) of each Performance Unit that vests

hereunder will be calculated, which Final Value shall be between $0 and $200 per Performance Unit and shall be based on the total shareholder return of the Company’s Class A Common Stock, par value $0.001 per share (“ Common Stock ”) as compared to the total shareholder return of the identified Comparison Index, as described in more detail on Schedule I (the “ Performance Goal ”).

2. Vesting.

(a) General . After the close of the Performance Period, but in no event later than 45 days following the last day of the Performance Period, the Committee shall determine and certify the extent to which the Performance Goal has been achieved and will determine the Final Value (if any) of each Performance Unit in accordance with Schedule I . The Performance Units will vest and become non‑forfeitable on the Vesting Date, provided the Grantee has been continuously employed by the Company or a Subsidiary of the Company at all times from the Grant Date until the Vesting Date. For the avoidance of doubt, if the Committee determines that the Final Value based on the Performance Goal specified in Schedule I is equal to zero, then all Performance Units shall be forfeited. Except as provided in Sections 2(b) or 2(c) below, if the Grantee does not remain continuously employed by the Company or a Subsidiary of the Company until the Vesting Date, the Grantee shall have no rights under this Award and all the Performance Units shall be forfeited as of his or her termination date.

(b) Vesting Due to Retirement . Notwithstanding any provision in this Award to the contrary, except as provided in Section 5 below, if the Grantee’s employment with the Company and its Subsidiaries terminates due to Retirement (as defined below) prior to the Vesting Date, then, on the Vesting Date, the Grantee will vest in the number of Performance Units determined by multiplying (i) the number of Performance Units and (ii) a fraction, the numerator of which is the number of days that elapsed between the first day of the Performance Period and the date of the Grantee’s termination of employment due to Retirement and the denominator of which is the total number of days in the Performance Period. The Final Value (if any) of each Performance Unit will be determined in accordance with Schedule I on the Vesting Date. For purposes of this Award, “ Retirement ” means the Grantee’s voluntary termination of employment on or after the date when the Grantee is at least 60 years old and has at least ten years of continuous service (based on the Grantee’s employment with the Company and its Subsidiaries or predecessor companies); provided, however , that if the Committee determines, in its sole discretion, at any time prior to the Vesting Date that the Grantee has taken any action or actions that are detrimental or injurious to the Company or any of its Subsidiaries, then the Grantee’s termination of employment shall be treated as a voluntary termination and not Retirement, and as a result the Grantee’s Performance Units shall be forfeited as of such determination date.

Grantee’s termination date, the Grantee will vest in the Performance Units at the Target Value.

3. Settlement and Payment. The aggregate Final Value (if any) of the Performance Units that vest under Sections 2(a) and (b) of this Award shall be paid to the Grantee in a lump sum cash payment as soon as practicable after the Committee determines and certifies the extent to which the Performance Goal has been met, but in no event later than the 70th day following the Vesting Date. Cash with respect to the Final Value (if any) of the Performance Units that vest under Section 2(c) of this Award shall be paid to the Grantee (or to the Grantee’s estate in the event of death) in a lump sum cash payment within 30 days following the Grantee’s termination date (subject to Section 6(b), if applicable).

4. Transferability. No rights granted under this Award can be assigned or transferred, whether voluntarily or involuntarily, by operation of law or otherwise, except by will or the laws of descent and distribution. In the event of any transfer or assignment of rights granted under this Award in accordance with this Section 4, the person or persons, if any, to whom such rights are transferred by will or by the laws of descent and distribution shall be treated after the Grantee’s death the same as the Grantee under this Award. Any attempted transfer or assignment of rights under this Award prohibited under this Section 4 shall be null and void.

5. Change in Control.

(a) General . In the event of a Change in Control (as defined in the Plan) prior to end of the Performance Period, the Performance Period shall be deemed to end on the date of the Change in Control and the Final Value (if any) of the Performance Units as of date of the Change in Control shall be determined based on the level of achievement of the Performance Goal through the end of such adjusted Performance Period, calculated in accordance with Schedule I . The Performance Units shall be become vested as of the Vesting Date, provided the Grantee has been continuously employed by the Company (or its successor) or one of its Subsidiaries at all times from the Grant Date until the Vesting Date. The aggregate Final Value of the Performance Units will be paid to the Grantee in a lump sum cash payment as soon as practicable after the Vesting Date, but in no event later than the 70th day following the Vesting Date. At the time of payment the Grantee will receive an additional amount in cash for interest on such cash amount based on a rate of 6%, compounded annually, from the date of the Change in Control until the Vesting Date (the “ interest rate ”).

(b) Termination of Employment; Forfeiture . Section 5(a) notwithstanding, if the Grantee’s employment is involuntarily terminated by the Company or its successor for any reason other than Cause (as defined below) or the Grantee terminates employment for Good Reason (as defined below) after the date of the Change in Control but prior to the Vesting Date, then the aggregate Final Value of the Performance Units determined under Section 5(a) will be paid to the Grantee in a lump sum cash payment within 30 days following the Grantee’s termination date (subject to Section 6(b), if applicable). At the time of payment the Grantee will receive an additional amount in cash interest on such cash amount for the period beginning on the date of the Change in Control and ending on the Grantee’s termination date based on the interest rate. If

prior to the Vesting Date the Grantee’s employment is (i) involuntarily terminated by the Company or its successor for Cause or (ii) voluntarily terminated by the Grantee for any reason other than Good Reason, then the Grantee shall have no rights under this Award and all the Performance Units shall be forfeited as of his or her termination date.

(c) Cause . For purposes of Section 5(b), “ Cause ” shall mean, if not otherwise defined in an employment agreement between the Grantee and the Company or its successor in effect as of the date of his or her termination, the Grantee’s (i) failure to reasonably and substantially perform his or her duties (other than as a result of physical or mental illness or injury); (ii) willful misconduct or gross negligence that has caused or is reasonably expected to result in material injury to the Company’s or successor’s business, reputation or prospects; or (iii) conviction or plea of nolo contendere with respect to the commission of a felony or other serious crime involving moral turpitude.

(d) Good Reason . For purposes of Section 5(b), “ Good Reason ” shall mean the occurrence of any of the following events: (i) a material diminution in the Grantee’s base salary; (ii) a material diminution in the Grantee’s position, authority, duties or responsibilities in connection with the Change in Control; or (iii) the involuntary relocation of the geographic location of the Grantee’s principal place of employment by more than 50 miles from the location of the Grantee’s principal place of employment as of the Grant Date. Notwithstanding the foregoing, any assertion by the Grantee of a termination of employment for Good Reason shall not be effective unless all of the following requirements are satisfied: (1) the condition described in clause (i), (ii) or (iii) above giving rise to the Grantee’s termination of employment must have arisen without the Grantee’s consent; (2) the Grantee must provide written notice to the Company of such condition in accordance with Section 9 within 30 days of the initial existence of the condition; (3) the condition specified in such notice must remain uncorrected for 30 days after receipt of such notice by the Company (“ cure period ”); and (4) the Grantee’s termination of employment must occur within 30 days after the end of the cure period. If the Grantee does not provide the notice described in clause (2) above, or if the Company corrects the event during the cure period as described in clause (3) above, or the Grantee does not terminate employment as described in clause (4) above, then the event shall not constitute Good Reason.

(e) Retirement . Notwithstanding any provision hereof to the contrary, if the Grantee’s employment with the Company or its successor is terminated due to Retirement after the date of a Change in Control but prior to the Vesting Date, the Grantee will vest in the number of Performance Units determined by multiplying (i) the number of Performance Units and (ii) a fraction, the numerator of which is the number of days that elapsed between the first day of the Performance Period and the date of the Grantee’s termination of employment due to Retirement and the denominator of which is the total number of days in the original Performance Period without taking into account any shorter deemed Performance Period under Section 5(a). The Final Value of the Performance Units for purposes of this Section 5(e) will be determined in accordance with Section 5(a) and the aggregate Final Value of the Performance Units determined under this Section 5(e) will be paid to the Grantee in a lump sum cash payment within 30 days following the Grantee’s termination date (subject to Section 6(b), if applicable). Notwithstanding Section 2(b), if a Change in Control occurs after the Grantee’s

Retirement but before the Vesting Date, then the determination of Performance Units under this Section 5(e), and not Section 2(a), shall apply for purposes of determining the Final Value of Performance Units.

(f) Death and Disability . Notwithstanding any provision in this Award to the contrary, if the Grantee’s employment with the Company and its Subsidiaries terminates due to death or Disability after the date of a Change in Control but prior to the Vesting Date, then, as of the Grantee’s termination date, the Grantee will vest in the Performance Units with a Final Value determined in accordance with Section 5(a) and will be paid in a cash lump sum cash payment to the Grantee within 30 days following the Grantee’s termination date (subject to Section 6(b), if applicable). At the time of payment the Grantee will receive an additional amount in cash interest on such cash amount for the period beginning on the date of the Change in Control and ending on the Grantee’s termination date based on the interest rate.

6. Tax Withholding; Code Section 409A.

(a) The Company’s obligation under this Award to pay cash to the Grantee as provided in Section 2 or 5 hereof shall be subject to the receipt by the Company from the Grantee of any withholding taxes required as a result of such payment.

(b) The Performance Units granted under this Award are intended to comply with or be exempt from Code Section 409A, and ambiguous provisions of this Award, if any, shall be construed and interpreted in a manner consistent with such intent. If the Participant is Retirement eligible and is identified by the Company as a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) on the date on which the Participant has a “separation from service” (other than due to death) within the meaning of Treasury Regulation § 1.409A-1(h), and his or her vested Performance Units are “deferred compensation” payable or settled on account of a separation from service, then such vested Performance Units shall be paid or settled on the earliest of (i) the first business day following the expiration of six months from the Grantee’s separation from service, (ii) the date of the Grantee’s death, or (iii) such earlier date as complies with the requirements of Code Section 409A.

7. Incorporation of Plan Provisions. This Award and the award of Performance Units hereunder are made pursuant to the Plan and are subject to all of the terms and provisions of the Plan as if the same were fully set forth herein. In the event that any provision of this Award conflicts with the Plan, the provisions of the Plan shall control. The Grantee acknowledges receipt of a copy of the Plan and agrees that all decisions under and interpretations of the Plan by the Committee shall be final, binding and conclusive upon the Grantee.

8. No Rights to Employment. Nothing contained in this Award shall confer upon the Grantee any right to continued employment by the Company or any Subsidiary of the Company, or limit in any way the right of the Company or any Subsidiary to terminate or modify the terms of the Grantee’s employment at any time.

9. Notice. Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this Award shall be in writing and shall be delivered personally or sent by courier or first class mail, postage prepaid to the following address:

Jones Energy, Inc.

807 Las Cimas Parkway, Suite 350

Austin, Texas 78746

Attn: Corporate Secretary

10. Requirements of Law. The granting of Performance Units and payment of cash under the Plan will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

11. Compliance with Recoupment Policy. Any amounts payable, paid or distributed under this Award are subject to the recoupment policy of the Company as in effect from time to time.

12. Miscellaneous.

(a) THIS AWARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS.

(b) This Award shall be binding upon and inure to the benefit of the Company and its successors and assigns.

(f) This Award may be executed in one or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

[Execution Page Follows]

JONES ENERGY, INC.

By:

Name: Jonny Jones

Title: Chief Executive Officer

GRANTEE

By:

Name:

SCHEDULE I

JONES ENERGY, INC. 2013 OMNIBUS INCENTIVE PLAN
(As Amended and Restated May 4, 2016)

PERFORMANCE UNIT AWARD AGREEMENT

(Cash Award)

January 1, 2017 - December 31, 2019 Performance Period

Definitions

(i) “ Beginning Price ” means the average closing price of a share of Common Stock or the CI, as applicable, for the 10 consecutive trading day period including and prior to the first day of the Performance Period.

(ii) “ Comparison Companies ” means the S&P Oil and Gas Exploration & Production Select Industry Index.

(iii) “ Dividends ” means the sum of all ordinary and extraordinary dividends paid during the Performance Period with respect to the applicable share of Common Stock.

(iv) “ Ending Price ” means the average closing price of a share of Common Stock or the CI, as applicable, for the 10 consecutive trading day period including and prior to the last day of the Performance Period.

(v) “ Final Value ” means the final value per Performance Unit as calculated in accordance with this Schedule I as provided below.

Schedule I

Calculation of Performance Share Unit Adjustment

The aggregate value of Performance Units that shall vest as of the Vesting Date shall be equal to the product of (i) the Performance Units, multiplied by (ii) the Final Value.

The Total Shareholder Return of the Company and of the Comparison Index shall be calculated and certified by the Committee.

The Company’s Total Shareholder Return as compared to the Total Shareholder Return of the Comparison Index shall determine the Final Value using the chart below. In no event shall the Final Value exceed $200 per Performance Unit. If the performance ranking is below the lowest performance threshold, the Final Value shall be zero. The Final Value for performance rankings between points on the chart shall be determined by linear interpolation between the values listed.

Performance Ranking	Performance Threshold	Final Value
Maximum	Company outperforms CI by 33.3 percentage points or more (+33.3%)	$200
Target	Company performance equals CI (1.0x) (“ Target ”)	$100
Threshold	Company underperforms CI by less than 20.0 percentage points (-20%)	$50
No Payout	Company underperforms CI by more than 20.0 percentage points	$0

Schedule I

Table of Contents

Exhibit 31.1

Certification by Chief Executive Officer pursuant to

Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jonny Jones, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Jones Energy, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Jonny Jones
		Jonny Jones
		Chief Executive Officer

Date: May 5, 2017

Table of Contents

Exhibit 31.2

Certification by Chief Financial Officer pursuant to

Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. Brooks, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Jones Energy, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Robert J. Brooks
		Robert J. Brooks
		Chief Financial Officer

Date: May 5, 2017

Table of Contents

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Jones Energy, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonny Jones, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ Jonny Jones
		Jonny Jones
		Chief Executive Officer

Date: May 5, 2017

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Jones Energy, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Brooks, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ Robert J. Brooks
		Robert J. Brooks
		Chief Financial Officer

Date: May 5, 2017