MAGNUM HUNTER RESOURCES CORP - FORM 8-K/A - EX-99.2 - UNAUDITIED PRO FORMA FINANCIAL INFORMATION - April 28, 2011

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8-K/A - AMENDMENT TO CURRENT REPORT ON FORM 8-K - MAGNUM HUNTER RESOURCES CORPmagnum_8ka1-042711.htm
Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following Unaudited Pro Forma Combined Financial Data are derived from the consolidated financial statements of Magnum Hunter and certain historical financial data in respect of the NGAS Resources acquisition.  The Unaudited Pro Forma Combined Balance Sheet of Magnum Hunter as of December 31, 2010 has been prepared assuming the NGAS Resources acquisition and all necessary ancillary transactions had been consummated on December 31, 2010.  The Unaudited Pro Forma Combined Income Statement for the year ended December 31, 2010 has been prepared assuming the NGAS Resources acquisition and all necessary ancillary transactions had been consummated as of January 1, 2010.  The pro forma adjustments set forth on the attached Unaudited Pro Forma Combined Balance Sheet and Unaudited Pro Forma Combined Income Statements reflect the following as if they occurred on the dates hereinabove set forth:
 
 
(1)
NGAS Resources Acquisition.  The NGAS Resources acquisition as described in the Arrangement Agreement dated December 23, 2010.
 
(2)
Incurrence of indebtedness under the new revolving credit facility to be entered into and as described in the commitment letter from Bank of Montreal dated January 13, 2011 for NGAS Resources acquisition.
 
(3)
Issuance of common stock upon the closing date of the NGAS Resources acquisition.
 
(4)
Payment of change of control compensation in the NGAS Resources acquisition.
 
The Unaudited Pro Forma Balance Sheet reflects the preliminary adjustments to record the estimated fair values of the assets and liabilities acquired in the acquisition of NGAS Resources.  The final entries, and the resulting effect on Magnum Hunter’s balance sheet as well as items in Magnum Hunter’s Income Statements, may differ based on the actual determination of the fair values of the assets acquired and liabilities assumed.

Transaction costs related to the acquisition will be recorded as expenses in the periods in which these costs are incurred.  These expenses are not included in the Unaudited Pro Forma Combined Income Statements.

The Unaudited Pro Forma Combined Financial Data should be read in conjunction with the notes thereto and with the consolidated financial statements of Magnum Hunter and the notes thereto as filed in Magnum Hunter's Form 10-K.

The Unaudited Pro Forma Combined Financial Data are not indicative of the financial position or results of operations of Magnum Hunter which would actually have occurred if the transaction described above had occurred at the dates presented or which may be obtained in the future.  In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, changes in prices paid for oil and natural gas, future acquisitions, drilling activity and other factors.

The unaudited Pro Forma Combined Financial Data includes financial information received from NGAS Resources and such financial information has been accepted and incorporated as presented without independent verification of such financial information.
 
 
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2010

   
Magnum Hunter Historical
    
NGAS Resources Historical
          
NGAS Pro Forma Adjustments
    
Combined Pro Forma for Magnum Hunter and NGAS Resources
  
ASSETS
                              
CURRENT ASSETS:
                              
Cash and cash equivalents
   $ 554,186     $ 6,844,475           $ -     $ 7,398,661  
Accounts receivable
     11,705,046       5,640,891             -       17,345,937  
Notes receivable
     -       6,766,451       (1 )     (6,766,451 )     -  
Prepaids and other current assets
     867,013       552,741               -       1,419,754  
Total current assets
     13,126,245       19,804,558               (6,766,451 )     26,164,352  
                                         
PROPERTY AND EQUIPMENT (Net of Accumulated Depletion and Depreciation):
                                        
Oil and natural gas properties, successful efforts accounting
     189,911,500       174,630,484       (1 )     (57,619,814 )     306,922,170  
Equipment and other fixed assets
     42,689,125       9,475,659       (1 )     1,608,770       53,773,554  
Total property and equipment, net
     232,600,625       184,106,143               (56,011,044 )     360,695,724  
                                         
OTHER ASSETS:
                                        
Other assets
     561,711       258,945               -       820,656  
Deferred financing costs, net of amortization
     2,678,244       750,462       (1 )     (937,456 )     2,491,250  
Deferred tax asset
     -       -               -       -  
Total assets
   $ 248,966,825     $ 204,920,108             $ (63,714,951 )   $ 390,171,982  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                        
CURRENT LIABILITIES:
                                        
Accounts payable
   $ 29,839,557     $ 5,562,836             $ -     $ 35,402,393  
Accrued liabilities
     3,914,136       6,134,962       (1 )     3,887,708       13,936,806  
Revenue payable
     2,629,999       -               -       2,629,999  
Current portion of notes payable
     7,132,455       53,298,857       (1 )     (53,298,857 )     7,132,455  
Warrant liability
     -       -       (1 )     1,746,123       1,746,123  
Derivative liability
     718,771       2,615,847       (1 )     (2,615,847 )     718,771  
Total current liabilities
     44,234,918       67,612,502               (50,280,873 )     61,566,547  
                                         
Deferred compensation
     -       985,716       (1 )     (985,716 )     -  
Deferred income tax
     -       9,534,798       (1 )     (9,534,798 )     -  
Payable on sale of partnership
     640,695                       -       640,695  
Notes payable, less current portion
     26,018,615       5,953,259       (1 )     58,789,014       90,760,888  
Asset retirement obligation
     4,455,327       2,269,442               -       6,724,769  
Derivative liability
     59,181       60,397       (1 )     (60,397 )     59,181  
Other long-term liabilities
     -       1,895,000               -       1,895,000  
Total liabilities
     75,408,736       88,311,114               (2,072,770 )     161,647,080  
                                         
COMMITMENTS AND CONTINGENCIES
                                        
                                         
REDEEMABLE PREFERRED STOCK:
                                        
Series C Cumulative Perpetual Preferred Stock
     70,236,400       -               -       70,236,400  
                                         
SHAREHOLDERS’ EQUITY:
                                        
Shareholders' equity
     101,871,350       116,608,994       (1 )     (61,642,181 )     156,838,163  
Non-controlling interest
     1,450,339       -               -       1,450,339  
Total Equity
     103,321,689       116,608,994               (61,642,181 )     158,288,502  
Total liabilities and shareholders' equity
   $ 248,966,825     $ 204,920,108             $ (63,714,951 )   $ 390,171,982  
 
See accompanying notes to Unaudited Pro Forma Combined Financial Data
 
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UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Year Ended December 31, 2010

   
Magnum Hunter Historical
    
NGAS Resources Historical
          
NGAS Resources Pro Forma Adjustments
    
Combined Pro Forma for Magnum Hunter and NGAS Resources
  
REVENUE:
                              
Oil and gas sales
   $ 27,714,542     $ 23,010,779           $ -     $ 50,725,321  
Field operations and other
     5,009,131       27,809,338             -       32,818,469  
Total revenue
     32,723,673       50,820,117             -       83,543,790  
                                       
EXPENSES:
                                      
Lease operating expenses
     10,399,323       14,675,547             -       25,074,870  
Severance taxes and marketing
     2,304,570       -             -       2,304,570  
Exploration
     936,371       -             -       936,371  
Field operations
     4,362,618       18,504,612             -       22,867,230  
Impairment of oil & gas properties
     305,786       -             -       305,786  
Impairment of goodwill
     -       313,177             -       313,177  
Depreciation, depletion and accretion
     8,923,202       13,280,961       (2 )     (6,787,960 )     15,416,203  
General and administrative
     24,900,996       13,620,819       (3 )     (625,344 )     37,896,471  
Total expenses
     52,132,866       60,395,116               (7,413,304 )     105,114,678  
                                         
LOSS FROM OPERATIONS
     (19,409,193 )     (9,574,999 )             7,413,304       (21,570,888 )
                                         
OTHER INCOME AND (EXPENSE):
                                        
Interest income
     60,526       821,923       (4 )     (821,923 )     60,526  
Interest expense
     (3,593,524 )     (7,093,001 )     (5 )     5,352,290       (5,334,235 )
Gain (Loss) on derivative contracts
     814,037       (4,394,953 )     (6 )     4,394,953       814,037  
Other, net
     -       (2,276,948 )             -       (2,276,948 )
                                         
Net loss from continuing operations before income taxes and non controlling interest
     (22,128,154 )     (22,517,978 )             16,338,624       (28,307,508 )
                                         
Income tax benefit
     -       3,024,751       (7 )     (3,024,751 )     -  
                                         
 Net (income) loss attributable to non-controlling interest
     (128,586 )     -               -       (128,586 )
                                         
Net loss attributable to Magnum Hunter from continuing operations
     (22,256,740 )     (19,493,227 )             13,313,873       (28,436,094 )
Income from discontinued operations
     8,456,811       -               -       8,456,811  
                                         
Net loss
     (13,799,929 )     (19,493,227 )             13,313,873       (19,979,283 )
                                         
Dividends on preferred stock
     (2,466,679 )     -               -       (2,466,679 )
                                         
Net loss attributable to common shareholders
   $ (16,266,608 )   $ (19,493,227 )           $ 13,313,873     $ (22,445,962 )
                                         
Loss per common share
                                        
Basic and diluted
   $ (0.25 )                           $ (0.32 )
                                         
Weighted average number of common shares outstanding
                                        
Basic and diluted
     63,921,525               (8 )     7,015,245       70,936,770  
                                         
 
See accompanying notes to Unaudited Pro Forma Combined Financial Data
 
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 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

1)  
To record the acquisition of NGAS Resources’ assets for a purchase price of $122.5 million.  The purchase price includes the shares of common stock of Magnum Hunter to be issued to shareholders of NGAS Resources, payment to a third-party to restructure an “out-of-market” gas gathering and transportation agreement, the assumption of the senior credit facility of NGAS Resources, the assumption of certain notes payable related to equipment included in the transaction, and the payoff in cash of the remaining NGAS Resources 6% Convertible Notes. The acquisition is accounted for under the purchase method of accounting.  All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment.  The following table summarizes the assets acquired, liabilities assumed, and purchase price paid:

Fair value of total purchase price:
      
6,633,783 shares of common stock at $7.99 per share
   $ 53,003,926  
Senior credit facility assumed
     33,281,853  
NGAS Resources 6% Convertible notes to be paid off in cash at closing
     13,682,533  
Contract payment in cash
     10,575,000  
Other long-term debt assumed
     6,145,877  
381,462 shares of common stock issued for change in control payments at $7.99 per share
     3,047,881  
Tax on change of control payments paid in cash
     1,057,010  
Common stock warrants and options
     1,746,123  
Total
   $ 122,540,203  
         
Amounts recognized for assets acquired and liabilities assumed:
        
Working capital
   $ (1,649,399 )
Bonds and deposits
     258,945  
Oil and gas properties
     117,010,670  
Equipment and other fixed assets
     11,084,429  
Other long term liabilities
     (4,164,442 )
Total
   $ 122,540,203  
         
Working capital acquired:
        
Cash
   $ 6,844,475  
Accounts receivable
     5,640,891  
Prepaid expenses
     552,741  
Accounts payable
     (5,562,836 )
Accrued liabilities
     (736,452 )
Transaction closing costs
     (3,639,053 )
Drilling advances
     (4,749,165 )
    Total working capital acquired
   $ (1,649,399 )
 
2)  
To record the pro forma adjustment to NGAS Resources’ depletion and depreciation expense as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2010.  Depletion was calculated using the units of production method.
 
3)  
To record the pro forma adjustment to NGAS Resources' refinancing costs amortized as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2010.
 
4)  
To record the pro forma adjustment to NGAS Resources’ interest income on notes receivable as the result of restructuring a gas gathering and transportation agreement as if it had occurred January 1, 2010.
 
5)  
To record the pro forma adjustment to NGAS Resources’ interest expense as the result of treating the acquisition of NGAS Resources and the payment of assumed debt using Magnum Hunter’s credit facility as if it had occurred January 1, 2010.
 
6)  
To record the pro forma adjustment to NGAS Resources’ gain (loss) on derivative contracts as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2010.  The derivative loss reported by NGAS Resources was the result of the convertible feature on certain notes payable which will be paid at closing.
 
7)  
To record the pro forma adjustment to NGAS Resources’ income tax benefit on its income statements as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2010.  The deferred tax liability and income tax benefit on the NGAS Resources financial statements will be eliminated as the result of the fair market value adjustment to the oil and gas properties resulting from the acquisition.
 
8)  
Acquisition shares were added to the weighted average number of common shares outstanding as if the shares were issued January 1, 2010.
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