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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

or

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

For the transition period from                to              

Commission File Numbers:

Athlon Holdings LP 333-195506

Athlon Finance Corp. 333-195506-02

ATHLON HOLDINGS LP

ATHLON FINANCE CORP.

(Exact name of registrant as specified in its charter)

(817) 984-8200

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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.

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

Number of units of Athlon Holdings LP outstanding as of August 20, 2014: 98,790,902.  All of Athlon Finance Corp.’s common stock is directly owned by Athlon Holdings LP.

This combined Form 10-Q is filed separately by Athlon Holdings LP and Athlon Finance Corp.  Athlon Finance Corp. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

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ATHLON HOLDINGS LP

ATHLON FINANCE CORP.

INDEX

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain information included in this Quarterly Report on Form 10-Q (the “Report”) and our other materials filed with the United States Securities and Exchange Commission (“SEC”), or in other written or oral statements made or to be made by us, other than statements of historical fact, are forward-looking statements.  These forward-looking statements give our current expectations or forecasts of future events.  Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.  These statements may include words such as “may”, “will”, “could”, “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe”, “should”, “predict”, “potential”, “pursue”, “target”, “continue”, and other words and terms of similar meaning.  You are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this Report.  Our actual results may differ significantly from the results discussed in the forward-looking statements.  Such statements involve risks and uncertainties, including, but not limited to, the matters discussed in “Risk Factors” in our final prospectus filed with the SEC pursuant to Rule 424(b)(3) of the Securities Act of 1933, as amended (the “Securities Act”), on July 24, 2014.  If one or more of these risks or uncertainties materialize (or the consequences of such a development changes), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected.  We undertake no responsibility to update forward-looking statements for changes related to these or any other factors that may occur subsequent to this filing for any reason.

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ATHLON HOLDINGS LP

ATHLON FINANCE CORP.

GLOSSARY

The following are abbreviations and definitions of certain terms used in this Report:

·                  Basin.  A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.

·                  Bbl.  One stock tank barrel, of 42 U.S. gallons liquid volume, used in reference to crude oil, condensate, or natural gas liquids.

·                  Bbl/D.  One Bbl per day.

·                  BOE.  One barrel of oil equivalent, with 6,000 cubic feet of natural gas being equivalent to one barrel of oil.

·                  BOE/D.  One barrel of oil equivalent per day.

·                  Completion.  The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

·                  Condensate.  A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

·                  Development capital.  Expenditures to obtain access to proved reserves and to construct facilities for producing, treating, and storing hydrocarbons.

·                  Dry hole.  A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

·                  Economically producible.  A resource that generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation.  For a complete definition of economically producible, refer to the SEC’s Regulation S-X, Rule 4-10(a)(10).

·                  Exploratory well.  A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

·                  FASB.  Financial Accounting Standards Board.

·                  Field.  An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.  The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.  For a complete definition of field, refer to the SEC’s Regulation S-X, Rule 4-10(a)(15).

·                  Formation.  A layer of rock which has distinct characteristics that differ from nearby rock.

·                  GAAP.  Accounting principles generally accepted in the United States.

·                  Horizontal drilling.  A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

·                  Infill wells.  Wells drilled into the same pool as known producing wells so that oil or natural gas does not have to travel as far through the formation.

·                  Lease operating expense (“LOE”).  All direct and allocated indirect costs of lifting hydrocarbons from a producing formation to the surface constituting part of the current operating expenses of a working interest.  Such costs include labor, superintendence, supplies, repairs, maintenance, allocated overhead charges, workover, insurance, and other expenses incidental to production, but exclude lease acquisition or drilling or completion expenses.

·                  LIBOR.  London Interbank Offered Rate.

·                  MBbl.  One thousand barrels of crude oil, condensate, or NGLs.

·                  MBOE.  One thousand barrels of oil equivalent.

·                  Mcf.  One thousand cubic feet of natural gas.

·                  Mcf/d.  One thousand cubic feet of natural gas per day.

·                  MMcf.  One million cubic feet of natural gas.

·                  Natural gas liquids (“NGLs”).  The combination of ethane, propane, butane, isobutane, and natural gasolines that when removed from natural gas become liquid under various levels of higher pressure and lower temperature.

·                  NYMEX.  The New York Mercantile Exchange.

·                  Operator.  The entity responsible for the exploration, development, and production of a well or lease.

·                  Production margin.  Total wellhead revenues less total production costs.

·                  Proved reserves.  Those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.  The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence, the project within a reasonable time.  For a

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complete definition of proved oil and natural gas reserves, refer to the SEC’s Regulation S-X, Rule 4-10(a)(22).

·                  Reasonable certainty.  A high degree of confidence.  For a complete definition of reasonable certainty, refer to the SEC’s Regulation S-X, Rule 4-10(a)(24).

·                  Reserves.  Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development prospects to known accumulations.  In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market, and all permits and financing required to implement the project.

·                  Reservoir.  A porous and permeable underground formation containing a natural accumulation of producible hydrocarbons that is confined by impermeable rock or water barriers and is separate from other reservoirs.

·                  Stacked pay.  Multiple geological zones that potentially contain hydrocarbons and are arranged in a vertical stack.

·                  Working interest.  The right granted to the lessee of a property to explore for and to produce and own oil, natural gas, or other minerals.  The working interest owners bear the exploration, development, and operating costs on either a cash, penalty, or carried basis.

·                  Workover.  Operations on a producing well to restore or increase production.

·                  WTI.  West Texas Intermediate crude oil, which is a light, sweet crude oil, characterized by an American Petroleum Institute gravity, or API gravity, between 39 and 41 and a sulfur content of approximately 0.4 weight percent that is used as a benchmark for other crude oils.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATHLON HOLDINGS LP

CONSOLIDATED BALANCE SHEETS

(in thousands)

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

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ATHLON HOLDINGS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

(unaudited)

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

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ATHLON HOLDINGS LP

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ EQUITY

(in thousands)

(unaudited)

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

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ATHLON HOLDINGS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

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

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1.         Formation of the Partnership and Description of Business

Athlon Holdings LP (together with its subsidiaries, “Holdings”), a Delaware limited partnership, is an independent exploration and production company focused on the acquisition, development, and exploitation of unconventional oil and liquids-rich natural gas reserves in the Permian Basin.  Athlon Finance Corp., a Delaware corporation, is a wholly owned subsidiary of Holdings whose sole purpose is to serve as the co-issuer of Holdings’ senior notes.  Athlon Holdings GP LLC serves as Holdings’ general partner with no obligations to make capital contributions and no rights to distributions.

On April 26, 2013, Holdings underwent a corporate reorganization and as a result, Holdings became a majority-owned subsidiary of Athlon Energy Inc. (together with its subsidiaries, “Athlon”), a Delaware corporation.  Prior to the corporate reorganization, Holdings was a party to a limited partnership agreement with its management team and certain employees and Apollo Athlon Holdings, L.P. (“Apollo”), which is an affiliate of Apollo Global Management, LLC.  Prior to the corporate reorganization, Apollo Investment Fund VII, L.P. and its parallel funds (the “Apollo Funds”) and Holdings’ management team and certain employees owned all of Holdings’ Class A limited partner interests and Holdings’ management team and certain employees owned all of Holdings’ Class B limited partner interests.

In the corporate reorganization, the Apollo Funds entered into a number of distribution and contribution transactions pursuant to which the Apollo Funds exchanged their Holdings’ Class A limited partner interests for shares of Athlon’s common stock.  The remaining holders of Holdings’ Class A limited partner interests did not exchange their interests in the reorganization transactions.  In addition, the holders of Holdings’ Class B limited partner interests exchanged their interests for shares of Athlon’s common stock subject to the same conditions and vesting terms.

Initial Public Offering

On August 7, 2013, Athlon completed its initial public offering (the “Athlon IPO”) of 15,789,474 shares of its common stock at $20.00 per share and received net proceeds of approximately $295.7 million, after deducting underwriting discounts and commissions and offering expenses.  Upon closing of the Athlon IPO, Holdings’ limited partnership agreement was amended and restated to, among other things, modify Holdings’ capital structure by replacing its different classes of interests with a single new class of units, the “New Holdings Units”.  Holdings’ management team and certain employees that held Class A limited partner interests now own 1,855,563 New Holdings Units and entered into an exchange agreement under which (subject to the terms of the exchange agreement) they have the right to exchange their New Holdings Units for shares of Athlon’s common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, and reclassifications.  Please read “Note 12. Related Party Transactions” for additional discussion.  All other New Holdings Units are held by Athlon.

Note 2.         Basis of Presentation

Holdings’ consolidated financial statements include the accounts of its wholly owned subsidiaries.  All material intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly, in all material respects, Holdings’ financial position as of June 30, 2014, results of operations for the three and six months ended June 30, 2014 and 2013, and cash flows for the six months ended June 30, 2014 and 2013.  All adjustments are of a normal recurring nature.  These interim results are not necessarily indicative of results for an entire year.

Certain amounts and disclosures have been condensed and omitted from the unaudited consolidated financial statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).  Therefore, these unaudited consolidated financial statements should be read in conjunction with Holdings’ audited consolidated financial statements and related notes thereto included in Holdings’ final prospectus filed with the SEC pursuant to Rule 424(b)(3) of the Securities Act of 1933, as amended, on July 24, 2014.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”.  ASU 2014-09 supersedes most of the existing revenue recognition requirements in accounting principles generally accepted in the United States (“GAAP”) and requires (i) an entity to recognize revenue when it transfers promised goods or

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services and (ii) requires expanded disclosures regarding the nature, amount, timing, and certainty of revenue and cash flows from contracts with customers.  ASU 2014-09 is effective retrospectively for annual and interim reporting periods beginning after December 15, 2016, with early application not permitted.  Holdings is evaluating the impact, if any, that the adoption of ASU 2014-09 will have on its financial position, results of operations, and liquidity.

No other new accounting pronouncements issued or effective from January 1, 2014 through the date of this Report, had or are expected to have a material impact on Holdings’ unaudited consolidated financial statements.

Note 3.         Acquisitions

On June 2, 2014 and June 3, 2014, Holdings acquired certain oil and natural gas properties and related assets in the Permian Basin in West Texas from Hibernia Holdings, LLC (“Hibernia”) and Piedra Energy II, LLC (“Piedra”), respectively, for approximately $388.7 million and $290.2 million in cash, respectively (the “Acquisitions”).  The Acquisitions were financed with a portion of the net proceeds from debt and equity offerings.  Please read “Note 7. Long-Term Debt” and “Note 8. Partners’ Equity” for additional discussion of these offerings.  The operations of these properties have been included in the accompanying Consolidated Statements of Operations with those of Holdings from the date of acquisition.  Holdings incurred approximately $1.2 million of transaction costs related to the Acquisitions, which are included in “Acquisition costs” in the accompanying Consolidated Statements of Operations.

Based on currently available information, the estimated allocation of the purchase price to the fair value of the assets acquired and liabilities assumed from the Acquisitions was as follows as of June 30, 2014:

At June 30, 2014, Holdings was awaiting final close on the Acquisitions, which will contain certain customary purchase price adjustments.

The following unaudited pro forma condensed financial data was derived from the historical financial statements of Holdings and from the accounting records of Hibernia and Piedra to give effect to the Acquisitions as if they had occurred on January 1, 2013.  The unaudited pro forma condensed financial information has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the Acquisitions taken place on January 1, 2013 and is not intended to be a projection of future results.

Note 4. Evaluated Properties

Amounts shown in the accompanying Consolidated Balance Sheets as “Evaluated, including wells and related equipment” consisted of the following as of the dates indicated:

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

Note 5.  Fair Value Measurements

The book values of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments.  Commodity derivative contracts are marked-to-market each quarter and are thus stated at fair value in the accompanying Consolidated Balance Sheets.  As of June 30, 2014, the fair value of Holdings’ 73/8% senior notes due 2021 was approximately $547.5 million and the fair value of Holdings’ 6% senior notes due 2022 was approximately $674.4 million using open market quotes (“Level 1” input).

Derivative Policy

Holdings uses various financial instruments for non-trading purposes to manage and reduce price volatility and other market risks associated with its oil production.  These arrangements are structured to reduce Holdings’ exposure to commodity price decreases, but they can also limit the benefit Holdings might otherwise receive from commodity price increases.  Holdings’ risk management activity is generally accomplished through over-the-counter commodity derivative contracts with large financial institutions, most of which are lenders under Holdings’ credit agreement.

Holdings applies the provisions of the “Derivatives and Hedging” topic of the Accounting Standards Codification, which requires each derivative instrument to be recorded in the accompanying Consolidated Balance Sheets at fair value.  If a derivative has not been designated as a hedge or does not otherwise qualify for hedge accounting, it must be adjusted to fair value through earnings.  Holdings elected not to designate its current portfolio of commodity derivative contracts as hedges for accounting purposes.  Therefore, changes in fair value of these derivative instruments are recognized in earnings and included in “Derivative fair value loss (gain)” in the accompanying Consolidated Statements of Operations.

Holdings enters into commodity derivative contracts for the purpose of economically fixing the price of its anticipated oil production even though Holdings does not designate the derivatives as hedges for accounting purposes.  Holdings classifies cash flows related to derivative contracts based on the nature and purpose of the derivative.  As the derivative cash flows are considered an integral part of Holdings’ oil and natural gas operations, they are classified as cash flows from operating activities in the accompanying Consolidated Statements of Cash Flows.

Commodity Derivative Contracts

Commodity prices are often subject to significant volatility due to many factors that are beyond Holdings’ control, including but not limited to: prevailing economic conditions, supply and demand of hydrocarbons in the marketplace, actions by speculators, and geopolitical events such as wars or natural disasters.  Holdings manages oil price risk with swaps, which provide a fixed price for a notional amount of sales volumes.  The following table summarizes Holdings’ open commodity derivative contracts as of June 30, 2014:

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

Counterparty Risk.  At June 30, 2014, Holdings did not have a net asset position with any of its counterparties.

Holdings does not require collateral from its counterparties for entering into derivative instruments, so in order to mitigate the credit risk associated with such derivative instruments, Holdings enters into an International Swap Dealers Association Master Agreement (“ISDA Agreement”) with each of its counterparties.  The ISDA Agreement is a standardized, bilateral contract between a given counterparty and Holdings.  Instead of treating each derivative transaction between the counterparty and Holdings separately, the termination provision of the ISDA Agreement enables the counterparty and Holdings to aggregate all trades under such agreement and treat them as a single agreement.  This arrangement is intended to benefit Holdings in two ways: (i) default by a counterparty under a single trade can trigger rights to terminate all trades with such counterparty that are subject to the ISDA Agreement; and (ii) netting of settlement amounts reduces Holdings’ credit exposure to a given counterparty in the event of close-out.  Holdings’ accounting policy is to not offset fair value amounts between different counterparties for derivative instruments in the accompanying Consolidated Balance Sheets.

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

Tabular Disclosures of Fair Value Measurements

The following table summarizes the fair value of Holdings’ derivative instruments not designated as hedging instruments as of the dates indicated:

(a)         Represents counterparty netting under ISDA Agreements, which allow for netting of commodity derivative contracts.  These derivative instruments are reflected net on the accompanying Consolidated Balance Sheets.

The following table summarizes the effect of derivative instruments not designated as hedges on the accompanying Consolidated Statements of Operations for the periods indicated:

Fair Value Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are defined as follows:

·                  Level 1 — Inputs such as unadjusted, quoted prices that are available in active markets for identical assets or liabilities.

·                  Level 2 — Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable, such as quoted prices for similar assets and liabilities or quoted prices in inactive markets.

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

·                  Level 3 — Inputs that are unobservable for use when little or no market data exists requiring the use of valuation methodologies that result in management’s best estimate of fair value.

As required by GAAP, Holdings utilizes the most observable inputs available for the valuation technique used.  The financial assets and liabilities are classified in their entirety based on the lowest level of input that is of significance to the fair value measurement.  Holdings’ assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the financial assets and liabilities and their placement within the fair value hierarchy levels.  The following methods and assumptions were used to estimate the fair values of Holdings’ assets and liabilities that are accounted for at fair value on a recurring basis:

·                  Level 2 — Fair values of swaps are estimated using a combined income-based and market-based valuation methodology based upon forward commodity price curves obtained from independent pricing services.  Settlement is determined by the average underlying price over a predetermined period of time.  Holdings uses observable inputs in an option pricing valuation model to determine fair value such as: (i) current market and contractual prices for the underlying instruments; (ii) quoted forward prices for oil; (iii) interest rates, such as a LIBOR curve for a term similar to the commodity derivative contract; and (iv) appropriate volatilities.

Holdings adjusts the valuations from the valuation model for nonperformance risk.  For commodity derivative contracts which are in an asset position, Holdings adds the counterparty’s credit default swap spread to the risk-free rate.  If a counterparty does not have a credit default swap spread, Holdings uses other companies with similar credit ratings to determine the applicable spread.  For commodity derivative contracts which are in a liability position, Holdings uses the yield on its senior notes less the risk-free rate.  All fair values have been adjusted for nonperformance risk resulting in a decrease in the net commodity derivative liability of approximately $630,000 and $39,000 as of June 30, 2014 and December 31, 2013, respectively.

The following table sets forth Holdings’ assets and liabilities that were accounted for at fair value on a recurring basis as of the dates indicated:

Note 6. Asset Retirement Obligations

Asset retirement obligations relate to future plugging and abandonment expenses on oil and natural gas properties and related facilities disposal.  The following table summarizes the changes in Holdings’ asset retirement obligations for the six months ended June 30, 2014 (in thousands):

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

Note 7. Long-Term Debt

Long-term debt consisted of the following as of the dates indicated:

Senior Notes

In April 2013, Holdings issued $500 million aggregate principal amount of 73/8% senior unsecured notes due 2021 (the “2021 Notes”).  Athlon is an unconditional guarantor of the 2021 Notes.  Under the indenture, starting on April 15, 2016, Holdings will be able to redeem some or all of the 2021 Notes at a premium that will decrease over time, plus accrued and unpaid interest to the date of redemption.  Prior to April 15, 2016, Holdings will be able, at its option, to redeem up to 35% of the aggregate principal amount of the 2021 Notes at a price of 107.375% of the principal thereof, plus accrued and unpaid interest to the date of redemption, with an amount equal to the net proceeds from certain equity offerings.  In addition, at Holdings’ option, prior to April 15, 2016, Holdings may redeem some or all of the 2021 Notes at a redemption price equal to 100% of the principal amount of the 2021 Notes, plus an “applicable premium”, plus accrued and unpaid interest to the date of redemption.  Certain asset dispositions or a change in control will be triggering events that may require Holdings to repurchase all or any part of a noteholder’s 2021 Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to but excluding the date of repurchase.  Interest on the 2021 Notes is payable in cash semi-annually in arrears, commencing on October 15, 2013, through maturity.

On May 1, 2014, Holdings completed a private placement of $650 million aggregate principal amount of 6% senior unsecured notes due 2022 (the “2022 Notes”) and received net proceeds of approximately $639.1 million, after deducting initial purchasers’ discounts and debt issuance costs, which were used to fund a portion of the purchase price of the Acquisitions, to provide additional liquidity for use in Holdings’ drilling program, and for general partnership purposes.  Athlon is an unconditional guarantor of the 2022 Notes.  Under the indenture, starting on May 1, 2017, Holdings will be able to redeem some or all of the 2022 Notes at a premium that will decrease over time, plus accrued and unpaid interest to the date of redemption.  Prior to May 1, 2017, Holdings will be able, at its option, to redeem up to 35% of the aggregate principal amount of the 2022 Notes at a price of 106% of the principal thereof, plus accrued and unpaid interest to the date of redemption, with an amount equal to the net proceeds from certain equity offerings.  In addition, at Holdings’ option, prior to May 1, 2017, Holdings may redeem some or all of the 2022 Notes at a redemption price equal to 100% of the principal amount of the 2022 Notes, plus an “applicable premium”, plus accrued and unpaid interest to the date of redemption.  If a change of control occurs on or prior to July 15, 2015, Holdings may redeem all, but not less than all, of the 2022 Notes at 110% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date.  Certain asset dispositions or a change of control that occurs after July 15, 2015 will be triggering events that may require Holdings to repurchase all or any part of a noteholder’s 2022 Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, up to but excluding the date of repurchase.  Interest on the 2022 Notes is payable in cash semi-annually in arrears, commencing on November 1, 2014, through maturity.

The indentures governing Holdings’ senior notes contain covenants, including, among other things, covenants that restrict Holdings’ ability to:

·                  make distributions, investments, or other restricted payments if Holdings’ fixed charge coverage ratio is less than 2.0 to 1.0;

·                  incur additional indebtedness if Holdings’ fixed charge coverage ratio would be less than 2.0 to 1.0; and

·                  create liens, sell assets, consolidate or merge with any other person, or engage in transactions with affiliates.

These covenants are subject to a number of important qualifications, limitations, and exceptions.  In addition, the indenture contains other customary terms, including certain events of default upon the occurrence of which Holdings’ senior notes may be declared immediately due and payable.

As of June 30, 2014, Holdings was in compliance with all covenants of its senior notes.

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

Credit Agreement

Holdings is a party to an amended and restated credit agreement dated March 19, 2013 (the “Credit Agreement”), which matures on March 19, 2018.  The Credit Agreement provides for revolving credit loans to be made to Holdings from time to time and letters of credit to be issued from time to time for the account of Holdings or any of its restricted subsidiaries.  The aggregate amount of the commitments of the lenders under the Credit Agreement is $1.0 billion.  Availability under the Credit Agreement is subject to a borrowing base, which is redetermined semi-annually and upon requested special redeterminations.  As of June 30, 2014, the borrowing base was $837.5 million and there were no outstanding borrowings and no outstanding letters of credit under the Credit Agreement.

Obligations under the Credit Agreement are secured by a first-priority security interest in substantially all of Holdings’ proved reserves.  In addition, obligations under the Credit Agreement are guaranteed by Athlon.

Loans under the Credit Agreement are subject to varying rates of interest based on (i) outstanding borrowings in relation to the borrowing base and (ii) whether the loan is a Eurodollar loan or a base rate loan.  Eurodollar loans under the Credit Agreement bear interest at the Eurodollar rate plus the applicable margin indicated in the following table, and base rate loans under the Credit Agreement bear interest at the base rate plus the applicable margin indicated in the following table.  Holdings also incurs a quarterly commitment fee on the unused portion of the Credit Agreement indicated in the following table:

The “Eurodollar rate” for any interest period (either one, two, three, or six months, as selected by Holdings) is the rate equal to the British Bankers Association London Interbank Offered Rate (“LIBOR”) for deposits in dollars for a similar interest period.  The “Base Rate” is calculated as the highest of: (i) the annual rate of interest announced by Bank of America, N.A. as its “prime rate”; (ii) the federal funds effective rate plus 0.5%; or (iii) except during a “LIBOR Unavailability Period”, the Eurodollar rate (for dollar deposits for a one-month term) for such day plus 1.0%.

Any outstanding letters of credit reduce the availability under the Credit Agreement.  Borrowings under the Credit Agreement may be repaid from time to time without penalty.

The Credit Agreement contains covenants including, among others, the following:

·                  a prohibition against incurring additional debt, subject to permitted exceptions;

·                  a restriction on creating liens on Holdings’ assets and the assets of its operating subsidiaries, subject to permitted exceptions;

·                  restrictions on merging and selling assets outside the ordinary course of business;

·                  restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business;

·                  a requirement that Holdings maintain a ratio of consolidated total debt to EBITDAX (as defined in the Credit Agreement) of not more than 4.5 to 1.0; and

·                  a provision limiting commodity derivative contracts to a volume not exceeding 85% of projected production from proved reserves for a period not exceeding 66 months from the date the commodity derivative contract is entered into.

As of June 30, 2014, Holdings was in compliance with all covenants of the Credit Agreement.

The Credit Agreement contains customary events of default, including our failure to comply with the financial ratios described above, which would permit the lenders to accelerate the debt if not cured within applicable grace periods.  If an event of default occurs

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ATHLON HOLDINGS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

(unaudited)

and is continuing, lenders with a majority of the aggregate commitments may require Bank of America, N.A. to declare all amounts outstanding under the Credit Agreement to be immediately due and payable.

Note 8. Partners’ Equity

On April 23, 2014, Athlon completed a public offering of 14,806,250 shares of its common stock at $40.00 per share and received net proceeds of approximately $570.8 million, after deducting underwriting discounts and commissions and offering expenses, which were used to fund a portion of the purchase price of the Acquisitions, to reduce outstanding indebtedness under the Credit Agreement, to provide additional liquidity for use in Holdings’ drilling program, and for general partnership purposes.  Upon consummation of the offering, Athlon’s ownership percentage of Holdings increased.

The following table shows Holdings’ partnership interests as of June 30, 2014: