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EX-99.1 - PRESS RELEASE ISSUED BY HALCON RESOURCES CORPORATION - BATTALION OIL CORPd425981dex991.htm

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On October 19, 2012, Halcón Resources Corporation (“Halcón”) entered into a Reorganization and Interest Purchase Agreement with Petro-Hunt, L.L.C. and Pillar Energy, LLC, pursuant to which, subject to the conditions set forth in that agreement, Halcón will acquire all of the membership interests in two newly formed limited liability companies which upon the closing of the acquisition will own an aggregate of approximately 81,000 net acres prospective for the Bakken and Three Forks formations in North Dakota (the “Williston Basin Assets”). Pursuant to the purchase agreement, Halcón will pay an aggregate purchase price of approximately $1.45 billion, subject to customary adjustments, consisting of $700 million in cash and $750 million in shares of preferred stock, which will automatically convert into common stock at $7.45 per share, subject to stockholder approval.

On October 19, 2012, Halcón also entered into a Common Stock Purchase Agreement with a wholly owned subsidiary of the Canada Pension Plan Investment Board (“CPPIB”), pursuant to which CPPIB has agreed to purchase 41,899,441 newly issued shares of Halcón common stock at $7.16 per share for a total purchase price of approximately $300.0 million. Net proceeds to Halcón are expected to be approximately $294.0 million following an approximate $6.0 million capital commitment payment by Halcón to CPPIB upon closing of the transaction.

On August 1, 2012, Halcón completed the acquisition by merger of GeoResources, Inc. (“GeoResources”). At closing of the merger (the “GeoResources Merger”), each outstanding share of GeoResources’ common stock was converted into the right to receive $20.00 in cash and 1.932 shares of Halcón common stock. Halcón also completed the acquisition of 20,628 net acres of oil and gas leasehold in East Texas (the “East Texas Assets”) on August 3, 2012. In connection with that acquisition, Halcón issued approximately 20.8 million shares of its common stock and paid approximately $301.6 million to the sellers of the East Texas Assets.

The following unaudited pro forma condensed combined financial information and explanatory notes combine the historical financial statements of Halcón, GeoResources and the East Texas Assets as of June 30, 2012 (with respect to the balance sheet information using currently available fair value information) and as of January 1, 2011 (with respect to the statements of operations information for the six months ended June 30, 2012 and the year ended December 31, 2011). The following unaudited pro forma condensed financial information and explanatory notes also adjust the pro forma combined financial statements of Halcón, GeoResources and the East Texas Assets to give effect to (i) Halcón’s pending acquisition of the Williston Basin Assets and (ii) Halcón’s pending sale of approximately 41.9 million shares to CPPIB, in each case as of June 30, 2012 (with respect to balance sheet information using currently available fair value information) and as of January 1, 2011 (with respect to statements of operations information for the six months ended June 30, 2012 and the year ended December 31, 2011).

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not intended to represent or be indicative of the consolidated results of operations or financial position of Halcón that would have been recorded had the GeoResources Merger, the East Texas Assets acquisition, the pending acquisition of the Williston Basin Assets and the pending sale of common stock to CPPIB been completed as of the dates presented and should not be taken as representative of future results of operations or financial position of Halcón. The unaudited pro forma condensed combined financial statements do not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings or economies of scale that Halcón may achieve with respect to the combined operations. Additionally, the pro forma statements of operations do not include non-recurring charges or credits and the related tax effects which result directly from the transactions. Furthermore, certain reclassifications have been made to GeoResources’ historical financial statements presented herein to conform to Halcón’s historical presentation. Additionally, the financial statements for each of the Williston Basin Assets and the East Texas Assets for the year ended December 31, 2011 and for the six-month period ended June 30, 2012 are limited to statements of revenues and direct operating expenses and therefore do not include all items of expense that would be included in full financial statements and are based on certain estimates and assumptions made by our management.

The unaudited pro forma condensed combined financial statements have been derived from and should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in the Halcón Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, the audited financial statements of GeoResources previously filed as Exhibits 99.3 and 99.4 to Halcón’s current report on Form 8-K/A filed with the Securities and Exchange Commission (the “SEC”) on September 11, 2012, the historical statements of revenues and direct operating expenses for the East Texas Assets previously filed as Exhibit 99.2 to Halcón’s current report on Form 8-K/A filed with the SEC on August 24, 2012, and the historical statements of revenues and direct operating expenses for the Williston Basin Assets previously filed as Exhibit 99.2 to Halcón’s current report on Form 8-K filed with the SEC on October 22, 2012 . The audited financial statements of revenues and direct operating expenses for the Williston Basin Assets and the East Texas Assets do not include all items of expense that would be included in full financial statements such as general and administrative expenses and depreciation, depletion and amortization expenses.

The assets and liabilities of GeoResources, the East Texas Assets and the Williston Basin Assets are recorded at their preliminary estimated fair values, with the excess of the purchase price over the sum of these fair values, if any, recorded as goodwill. The actual adjustments to Halcón’s consolidated combined financial statements upon consummation of the pending acquisition of the Williston Basin Assets, and allocation of the purchase price paid in that transaction will depend on a number of factors, including additional financial information available at such time, changes in the fair value of Halcón’s common stock issued at the closing date, changes in the estimated fair value of natural gas and oil properties of the


Williston Basin Assets as of the closing date, and changes in the operating results of the Williston Basin Assets between the date of preparation of this pro forma information and the effective closing date of the acquisition. Accordingly, the final allocations of transaction consideration and the effects on the results of operations may differ materially from the preliminary allocations and unaudited pro forma combined amounts included herein.


Halcón Resources Corporation and Subsidiaries

Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2012

(In thousands)

 

       Halcón
Historical
    GeoResources
Historical
    GeoResources
Merger
Pro Forma
Adjustments
        East Texas
Assets
Pro Forma
Adjustments
        Halcón
Pro Forma for
GeoResources
Merger and East
Texas Assets
    Williston Basin
Assets
Pro Forma
Adjustments
        Halcón
Pro Forma
Combined
as Adjusted
 

Current assets:

                      

Cash and cash equivalents

     $ 219,208      $ 40,289      $ (87,085   1   $ (78,186   14   $ 94,226      $ 272,750      18   $ 366,976   

Accounts receivable

       9,340        66,027                          75,367                 75,367   

Other current assets

       13,658        20,847                          34,505                 34,505   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

       242,206        127,163        (87,085       (78,186       204,098        272,750          476,848   

Oil and natural gas properties (full cost method):

                      

Evaluated

       734,551        577,093        (34,273   1     334,080      14     1,611,451        757,634      18     2,369,085   

Unevaluated

       461,620        58,304        396,696      1     98,449      14     1,015,069        693,000      18     1,708,069   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Gross oil and natural gas properties

       1,196,171        635,397        362,423          432,529          2,626,520        1,450,634          4,077,154   

Less — accumulated depletion

       (512,538     (116,783     116,783      1              (512,538              (512,538
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net oil and natural gas properties

       683,633        518,614        479,206          432,529          2,113,982        1,450,634          3,564,616   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Other operating property and equipment:

                      

Other operating assets

       12,825        1,961        (932   1              13,854                 13,854   

Less - accumulated depreciation

       (6,963     (932     932      1              (6,963              (6,963

Land

              146                          146                 146   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net other operating property and equipment

       5,862        1,175                          7,037                 7,037   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Other noncurrent assets:

                      

Equity in oil and gas limited partnerships

              1,668        9,521      1              11,189                 11,189   

Debt issuance costs, net of amortization

       5,525        2,427        9,740      1,3     4,608      3     22,300        17,500      19     39,800   

Other noncurrent assets

       27,615        2,264                          29,879                 29,879   

Funds in escrow

       29,945                        (24,750   14     5,195                 5,195   

Goodwill

                     152,787      1          14     152,787             18     152,787   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

     $ 994,786      $ 653,311      $ 564,169        $ 334,201        $ 2,546,467      $ 1,740,884        $ 4,287,351   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Current liabilities:

                      

Accounts payable and accrued liabilities

     $ 36,774      $ 44,195      $ 43,578      2,4   $ 1,206      15   $ 125,753      $ 14,513      15   $ 140,266   

Other current liabilities

       1,446        43,225        (21,348   1,4              23,323                 23,323   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

       38,220        87,420        22,230          1,206          149,076        14,513          163,589   

Long-term debt

       242,579        80,000        456,604      1,3     203,241      3     982,424        700,000      19     1,682,424   

Other noncurrent liabilities:

                      

Other noncurrent liabilities

       33,098        9,587        (267   1     337      14     42,755        634      18     43,389   

Deferred income taxes

              67,517        191,350      1              258,867                 258,867   

Mezzanine equity:

                      

Redeemable preferred stock

                                              750,000      18     750,000   

Stockholders’ equity:

                      

Common stock

       15        256        (251   1     2      14     22        4      23     26   

Additional paid-in capital

       932,145        284,673        42,453      1,2     130,621      14     1,389,892        293,996      23     1,683,888   

Treasury stock

       (9,298                              (9,298              (9,298

Accumulated other comprehensive income (loss)

              6,263        (6,263   2                                

Accumulated earnings (deficit)

       (241,973     117,595        (141,687   2     (1,206   15     (267,271     (18,263   15     (285,534
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

       680,889        408,787        (105,748       129,417          1,113,345        275,737          1,389,082   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

     $ 994,786      $ 653,311      $ 564,169        $ 334,201        $ 2,546,467      $ 1,740,884        $ 4,287,351   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 


Halcón Resources Corporation and Subsidiaries

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended June 30, 2012

(In thousands, except per share amounts)

 

    Halcón
Historical
    GeoResources
Historical
    GeoResources
Merger
Pro Forma
Adjustments
        East Texas
Assets
Pro Forma
Adjustments
          Halcón
Pro Forma for
GeoResources

Merger and East
Texas Assets
    Williston Basin
Assets
Pro Forma
Adjustments
          Halcón
Pro Forma
Combined
as Adjusted
 

Operating revenues:

                   

Oil and natural gas sales

                   

Oil

  $ 43,380      $ 94,361      $ (10,014   8, 11(a)   $ 32,948        16      $ 160,675      $ 83,605        21      $ 244,280   

Natural gas

    2,908               6,111      11(a)     206        16        9,225        908        21        10,133   

NGLs

    3,792               2,365      11(a)     1,031        16        7,188               21        7,188   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total oil and natural gas sales

    50,080        94,361        (1,538       34,185          177,088        84,513          261,601   

Other

    71        18,742        (440   11(b)              18,373                 18,373   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total operating revenues

    50,151        113,103        (1,978       34,185          195,461        84,513          279,974   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Operating expenses:

                   

Production:

                   

Lease operating

    16,610        15,171                 2,015        16        33,796        5,592        21        39,388   

Taxes

    2,922        6,080                 1,541        16        10,543        9,088        21        19,631   

Restructuring

    1,007                                 1,007                 1,007   

Workovers

    1,261        1,792                          3,053                 3,053   

Exploration expense

           281        (281   6                                

General and administrative

    33,421 (a)      13,041        (7,236   17     (369     17        38,857                 38,857   

Depletion, depreciation and accretion

    11,935        23,390        10,977      5     12,744        5        59,046        38,023        5        97,069   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    67,156        59,755        3,460          15,931          146,302        52,703          199,005   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Income (loss) from operations

    (17,005     53,348        (5,438       18,254          49,159        31,810          80,969   

Other expenses:

                   

Interest expense and other, net

    (17,176 )(b)      (1,169     (26,130   9, 10, 11(b)     (10,506     9        (54,981     (32,529     20        (87,510

Net gain on derivative contracts

    8,726 (b)             11,562      8, 12              20,288                 20,288   

Hedge ineffectiveness

           98        (98   12                                
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total other expenses

    (8,450     (1,071     (14,666       (10,506       (34,693     (32,529       (67,222
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Income (loss) before income taxes

    (25,455     52,277        (20,104       7,748          14,466        (719       13,747   

Income tax provision (benefit)

    208        20,153        (7,640   13     2,944        13        15,665        (274     13        15,391   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss)

    (25,663     32,124        (12,464       4,804          (1,199     (445       (1,644

Preferred dividend

    (88,445                              (88,445     (32,798     22        (121,243
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss) available to common stockholders

  $ (114,108   $ 32,124      $ (12,464     $ 4,804        $ (89,644   $ (33,243     $ (122,887
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss) per common share:

                   

Basic

  $ (1.11   $ 1.25                        $ (0.51            $ (0.57

Diluted

  $ (1.11   $ 1.23                        $ (0.51            $ (0.57

Weighted average common shares outstanding:

                   

Basic

    102,441        25,622        51,345          20,770          174,556        41,899          216,455   

Diluted

    102,441        26,114        51,345          20,770          174,556        41,899          216,455   

 

(a) Includes approximately $13 million of recapitalization and change in control related charges in connection with the Company’s recapitalization on February 8, 2012.

 

(b) Interest expense and other, net and net gain on derivative contracts contain approximately $7.3 million and $1.0 million, respectively, of charges related to the recapitalization and associated termination of the prior credit facility and change in derivative counterparties.


Halcón Resources Corporation and Subsidiaries

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2011

(In thousands, except per share amounts)

 

       Halcón
Historical
    GeoResources
Historical
    GeoResources
Merger
Pro Forma
Adjustments
        East Texas
Assets
Pro Forma
Adjustments
        Halcón
Pro Forma for
GeoResources

Merger and East
Texas Assets
    Williston Basin
Assets
Pro Forma
Adjustments
        Halcón
Pro Forma
Combined
as Adjusted
 

Operating revenues:

                      

Oil and natural gas sales

                      

Oil

     $ 82,968      $ 130,608      $ (15,456)      8, 11(a)   $ 16,531      16   $ 214,651      $ 69,025      21   $ 283,676   

Natural gas

       10,673               14,931      11(a)     118      16     25,722        483      21     26,205   

NGLs

       9,880               2,521      11(a)     462      16     12,863             21     12,863   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total oil and natural gas sales

       103,521        130,608        1,996          17,111          253,236        69,508          322,744   

Other

       168        7,140        (447)      11(b)              6,861                 6,861   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total operating revenues

       103,689        137,748        1,549          17,111          260,097        69,508          329,605   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Operating expenses:

                      

Production:

                      

Lease operating

       31,363        24,806                 902      16     57,071        4,410      21     61,481   

Taxes

       5,740        8,028                 740      16     14,508        7,773      21     22,281   

Restructuring costs

       1,071                                 1,071                 1,071   

Workovers

       1,967        2,628                          4,595                 4,595   

Exploration expense

              989        (989)      6                                

General and administrative

       20,763        13,875                          34,638                 34,638   

Impairment

              6,043        (6,043)      7                                

Depletion, depreciation and accretion

       22,986        27,659        29,521      5     11,999      5     92,165        37,974      5     130,139   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

       83,890        84,028        22,489          13,641          204,048        50,157          254,205   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Income (loss) from operations

       19,799        53,720        (20,940)          3,470          56,049        19,351          75,400   

Other expenses:

                      

Interest expense and other, net

       (17,879)        (1,909)        (53,123)      9, 10, 11(b)     (21,013)      9     (93,924)        (65,059)      20     (158,983)   

Gain on derivative contracts

       3,479               1,973      8, 12              5,452                 5,452   

Hedge ineffectiveness

              (569)        569      12                                
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Total other expenses

       (14,400)        (2,478)        (50,581)          (21,013)          (88,472)        (65,059)          (153,531)   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Income (loss) before income taxes

       5,399        51,242        (71,521)          (17,543)          (32,423)        (45,708)          (78,131)   

Income tax provision (benefit)

       6,802        19,991        (27,178)      13     (6,666)      13     (7,051)        (17,369)      13     (24,420)   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss)

       (1,403)        31,251        (44,343)          (10,877)          (25,372)        (28,339)          (53,711)   

Preferred dividend

                                              (61,824)      22     (61,824)   

Less: Net loss attributable to noncontrolling interest

              (87)                          (87)                 (87)   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss) available to common stockholders

     $ (1,403)      $ 31,338      $ (44,343)        $ (10,877)        $ (25,285)      $ (90,163)        $ (115,448)   
    

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss) per common share:

                      

Basic

     $ (0.05)      $ 1.24                        $ (0.26)               $ (0.82)   

Diluted

     $ (0.05)      $ 1.22                        $ (0.26)               $ (0.82)   

Weighted average common shares outstanding:

                      

Basic

       26,258        25,172        51,345          20,770          98,373        41,899          140,272   

Diluted

       26,258        25,599        51,345          20,770          98,373        41,899          140,272   


Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

 

1. These adjustments reflect the elimination of the components of GeoResources historical stockholders’ equity, the value of consideration paid by Halcón in the GeoResources merger using the lowest price of Halcón common stock on August 1, 2012 and to reflect the adjustments to the historical book values of GeoResources’ assets and liabilities as of June 30, 2012 to their estimated fair values, in accordance with acquisition accounting. The following table reflects the preliminary allocation of the total purchase price of GeoResources to the assets acquired and the liabilities assumed and the resulting goodwill based on the preliminary estimates of fair value (in thousands, except stock price):

 

Purchase Price(i):

  

Shares of Halcón common stock issued to GeoResources’ stockholders

     50,379   

Shares of Halcón common stock issued to GeoResources’ stock option holders

     966   
  

 

 

 

Total Halcón common stock issued

     51,345   

Halcón common stock price

   $ 6.26   
  

 

 

 

Fair value of common stock issued

   $ 321,416   

Cash consideration paid to GeoResources’ stockholders(ii)

     521,526   

Cash consideration paid to GeoResources’ stock option holders(ii)

     9,996   

Fair value of stock warrants assumed(iii)

     1,474   
  

 

 

 

Total purchase price

   $ 854,412   
  

 

 

 

Estimated Fair Value of Liabilities Assumed:

  

Current liabilities

   $ 87,420   

Long-term and current deferred tax liability(iv)

     261,246   

Other non-current liabilities

     89,320   
  

 

 

 

Amount attributable to liabilities assumed

   $ 437,986   
  

 

 

 

Total purchase price plus liabilities assumed

   $ 1,292,398   
  

 

 

 

Estimated Fair Value of Assets Acquired:

  

Current assets

   $ 127,163   

Natural gas and oil properties(v)

     997,820   

Net other operating property and equipment

     1,175   

Equity in oil and gas limited partnerships

     11,189   

Other non-current assets

     2,264   
  

 

 

 

Amount attributable to assets acquired

   $ 1,139,611   
  

 

 

 

Goodwill(i)

   $ 152,787   
  

 

 

 

Eliminate GeoResources historical additional paid-in capital

   $ (284,673

Fair value of common stock to be issued net of $5 par value

     321,411   

Recognize GeoResources’ acceleration of share-based compensation

     5,715   
  

 

 

 

Pro forma adjustments to additional paid-in capital

   $ 42,453   
  

 

 

 

 

  (i) Under the terms of the merger agreement, consideration paid by Halcón consisted of $20.00 in cash plus 1.932 shares of Halcón common stock for each share of GeoResources common stock and assumed warrants with a fair value of $1.5 million. The total purchase price is based upon the lowest price of Halcón common stock on the closing date of the transaction, August 1, 2012, and approximately 26.6 million shares of GeoResources common stock outstanding at the effective time of the merger. The Company issued a total of 51.3 million shares of its common stock and paid $531.5 million in cash to former GeoResources stockholders in exchange for their shares of GeoResources common stock.


  (ii) Components of cash consideration funding (in thousands):

 

Total cash consideration for merger and stock options

   $ (531,522

Issuance of 9.75% senior notes, net of discount

     536,604   

Deferred debt issuance costs

     (12,167

Retirement of GeoResources’ long-term debt

     (80,000
  

 

 

 

Pro forma adjustments to cash and cash equivalents

   $ (87,085
  

 

 

 

 

  (iii) Represents the fair value consideration for outstanding warrants to purchase GeoResources common stock assumed by Halcón and converted into warrants to acquire Halcón common stock. The $1.47 million fair value of the assumed warrants was calculated using a Black-Scholes valuation model with assumptions for the following variables: lowest price of Halcón stock price on the closing date of the merger; risk-free interest rates; and expected volatility. The assumed warrants have been classified as liabilities as the warrant holders can receive cash. The assumed warrants are classified as current liabilities as all warrants will expire within 12 months from June 30, 2012.

 

  (iv) Halcón received carryover tax basis in GeoResources’ assets and liabilities because the merger was not a taxable transaction under the United States Internal Revenue Code of 1986, as amended (the Code). Based upon the preliminary purchase price allocation, a step-up in financial reporting carrying value related to the property acquired from GeoResources is expected to result in a Halcón deferred tax of approximately $2.4 million current liability and $258.8 million long term liability ($261.2 million total), an increase of approximately $193.7 million to GeoResources’ existing $67.5 million deferred tax liability.

 

  (v) Weighted average commodity prices utilized in the determination of the pro forma fair value of natural gas and oil properties were $5.40 per Mcf of natural gas, $55.11 per barrel of oil equivalent for NGLs and $95.22 per barrel of oil, after adjustment for transportation fees and regional price differentials.

 

2. Pro forma adjustments to certain components of stockholders’ equity are as follows (in thousands):

 

Eliminate GeoResources’ historical retained earnings

  $ (117,595

Accrue estimated transaction costs to be incurred by Halcón(i)

    (15,030

Recognize GeoResources’ acceleration of share-based compensation due to change in control

    (5,715

Accrue change in control payments to key employees of GeoResources(i)

    (3,024

Accrue payroll taxes related to stock options of employees of GeoResources(i)

    (323
 

 

 

 

Pro forma adjustments to accumulated earnings (deficit)

  $ (141,687
 

 

 

 

 

  (i) To accrue for estimated transaction costs of $15 million related to the acquisition of GeoResources not reflected in the financial statements. In addition, adjustments to accrue $3 million in change in control payments made to certain key employees of GeoResources and $0.3 million in payroll taxes related to stock options of employees of GeoResources not reflected in the financial statements have been included. The change in control payments are not contingent on future service requirements. No adjustments have been made to the unaudited pro forma income statement as these costs are non-recurring in nature.

 

       Eliminate GeoResources’ historical accumulated other comprehensive income (loss) of $6.3 million which consisted of net unrealized gains on commodity derivatives.

 

3.

To adjust Halcón’s financial statements for the issuance of $750 million in principal amount of 9.75% senior notes at 98.646% of principal used to fund the cash consideration portion of the GeoResources merger and a portion of the cash component of the East Texas Assets acquisition, and the associated


  deferral of issuance costs of $16.8 million, offset by the extinguishment of GeoResources’ historical long-term debt of $80 million. The $750 million principal is recorded net of $10.2 million original issue discount.

 

4. Reclassification of GeoResources’ revenues and royalties payable to accounts payable and accrued liabilities to present the financial statements of Halcón and GeoResources in a consistent manner.

 

5. To adjust the historical depletion, depreciation and amortization (DD&A) provision to the estimated total for the combination of Halcón and GeoResources as well as the East Texas Assets and the Williston Basin Assets under the Full Cost method of accounting to compute the estimated pro forma DD&A provisions.

 

6. To convert Successful Efforts method financial statements of GeoResources to Full Cost method financial statements to reflect that exploration expenses would have been capitalized under Full Cost method of accounting for oil and natural gas activities.

 

7. To eliminate the historical oil and natural gas properties impairment as impairments of oil and natural gas properties are evaluated on a single cost center basis under Full Cost rules as compared to a field by field basis under Successful Efforts rules. There would not have been an impairment as measured under Full Cost accounting, therefore an adjustment is necessary to eliminate the historical impairment recorded in the year ended December 31, 2011.

 

8. To adjust GeoResources’ oil and natural gas revenue for net settlements on commodity derivatives that under cash flow hedge accounting were included in GeoResources’ revenues from oil and natural gas sales. Halcón, in accordance with its accounting policy, does not apply cash flow hedge accounting treatment to commodity derivatives and, therefore $1.5 million for the six-month period ended June 30, 2012 and $2 million for the year ended December 31, 2011 has been reclassified to gain (loss) on derivative contracts.

 

9. To record interest expense, at a rate of 9.75% per annum, of approximately $37.2 million for the six-month period ended June 30, 2012 and $74.4 million for the year ended December 31, 2011 for the issuance of $750 million in new debt, net of a $10.2 million discount, related to the acquisition of GeoResources and the East Texas Assets, and to record amortization of deferred issuance costs of approximately $1.1 million for the six-month period ended June 30, 2012 and $2.1 million for the year ended December 31, 2011.

 

10. To eliminate previous interest expense on GeoResources’ historical long-term debt of approximately $1.2 million for the six-month period ended June 30, 2012 and $1.9 million for the year ended December 31, 2011.

 

11. The following are reclassification entries to present the financial statements of Halcón and GeoResources in a consistent manner:

 

  a. Reclassification of GeoResources’ natural gas revenues reported as a component of oil and gas revenues to natural gas revenue and NGLs; and

 

  b. Reclassification of GeoResources’ interest and other income to below Income from Operations.

 

12. Halcón, in accordance with its accounting policy, does not apply cash flow hedge accounting treatment to commodity derivatives. To comply with Halcón’s accounting policy, hedge ineffectiveness on GeoResources’ income statement and mark-to-market gains and losses included in other comprehensive income (loss) are reclassified to gain (loss) on derivative contracts. The adjustments are as follows (in thousands):

 


     Six months ended
June 30, 2012
     Year ended
December 31,  2011
 

Gain (loss) due to ineffectiveness

   $ 98       $ (569

Mark-to-market gain

     9,926         4,538   
  

 

 

    

 

 

 
   $ 10,024       $ 3,969   
  

 

 

    

 

 

 

 

13. To adjust the income tax provision for the estimated effects of combining Halcón’s and GeoResources’ operations and the impact of adjustments for revenue and direct operating expenses related to the East Texas Assets acquisition and Williston Basin Assets acquisition, as well as other, pre-tax pro forma adjustments (which were adjusted for income taxes using a combined federal and state tax rate of 38%).

 

14. These adjustments reflect the value of consideration paid by Halcón for the East Texas Assets acquisition and to reflect the estimated fair values of assets and liabilities for the East Texas Assets as of June 30, 2012, in accordance with the acquisition method of accounting. The following table reflects the preliminary allocation of the total purchase price of the East Texas Assets to the assets acquired and the liabilities assumed and the resulting goodwill based on the preliminary estimates of fair value (in thousands, except stock price):

 

Purchase Price(i):

  

Shares of Halcón common stock issued for the East Texas Assets on 8/1/12

     16,460   

Shares of Halcón common stock issued for the East Texas Assets on 8/2/12

     4,310   
  

 

 

 

Total shares of Halcón common stock issued for the East Texas Assets

     20,770   

Halcón common stock price 8/1/12

   $ 6.26   

Halcón common stock price 8/2/12

   $ 6.40   

Fair value of Halcón common stock issued to East Texas Assets Sellers

   $ 130,623   

Cash consideration paid to East Texas Assets Sellers(ii)

     301,569   
  

 

 

 

Total purchase price

   $ 432,192   
  

 

 

 

Estimated Fair Value of Liabilities Assumed:

  

Other non-current liabilities

     337   
  

 

 

 

Amount attributable to liabilities assumed

   $ 337   
  

 

 

 

Total purchase price plus liabilities assumed

   $ 432,529   
  

 

 

 

Estimated Fair Value of Assets Acquired:

  

Natural gas and oil properties(iii)

   $ 432,529   

Amount attributable to assets acquired

   $ 432,529   
  

 

 

 

Goodwill(i)

   $   
  

 

 

 

 

  (i) Based on the terms of the purchase and sale agreements relating to the East Texas Assets, consideration paid by Halcón at closing consisted of $301.6 million in cash plus 20.8 million shares of Halcón common stock. The total purchase price is based upon the lowest price on August 1, 2012 of $6.26 per share of Halcón’s common stock for CH4 Energy, Petro Texas and Petromax Leon (Initial Sellers) and lowest price on August 2, 2012 of $6.40 per share of Halcon’s common stock for King King USA.


  (ii) Components of cash consideration funding (in thousands):

 

Total cash consideration for acquisition

   $ (301,569

Issuance of 9.75% senior notes, net of discount

     203,241   

Deferred debt issuance costs

     (4,608

Cash funding from funds in escrow

     24,750   
  

 

 

 

Pro Forma adjustments to cash and cash equivalents

   $ (78,186
  

 

 

 

 

  (iii) Weighted average commodity prices utilized in the determination of the pro forma fair value of natural gas and oil properties were $5.10 per Mcf of natural gas, $49.72 per barrel of oil equivalent for NGLs and $96.56 per barrel of oil, after adjustment for transportation fees and regional price differentials.

 

15. To accrue for estimated transaction costs of $1.2 million related to the acquisition of the East Texas Assets, estimated transaction costs of $14.5 million and one-time payment of bridge loan fees of $3.8 million related to the acquisition of the Williston Basin Assets not reflected in the financial statements. The transaction costs and bridge loan fees are not included in the statement of operations due to the fact that these expenses are non-recurring and are not expected to have a continuing impact on the Company.

 

16. To reflect the oil and gas revenues and direct operating expenses related to the East Texas Assets. See Statements of Revenue and Direct Operating Expenses in Exhibit 99.1 to the Company’s Form 8-K/A filed on August 24, 2012.

 

17. To eliminate transaction costs related to GeoResources and the East Texas Assets acquisitions that were included in general and administrative expenses as these expenses are non-recurring and are not expected to have a continuing impact on the Company.

 

18. These adjustments reflect the value of consideration paid by Halcón for the Williston Basin Assets acquisition and to reflect the estimated fair values of assets and liabilities for the Williston Basin Assets as of June 30, 2012, in accordance with the acquisition method of accounting. The following table reflects the preliminary allocation of the total purchase price of the Williston Basin Assets to the assets acquired and the liabilities assumed and the resulting goodwill based on the preliminary estimates of fair value (in thousands, except stock price):

 

Purchase Price(i):

  

Halcón preferred shares to be issued to the Williston Basin Assets Sellers(ii)

   $ 750,000   

Cash consideration to be paid to the Williston Basin Assets Sellers(iii)

     700,000   
  

 

 

 

Total purchase price

   $ 1,450,000   
  

 

 

 

Estimated Fair Value of Liabilities Assumed:

  

Other non-current liabilities

     634   
  

 

 

 

Amount attributable to liabilities assumed

   $ 634   
  

 

 

 

Total purchase price plus liabilities assumed

   $ 1,450,634   
  

 

 

 

Estimated Fair Value of Assets Acquired:

  

Natural gas and oil properties(iv)

   $ 1,450,634   

Amount attributable to assets acquired

   $ 1,450,634   
  

 

 

 

Goodwill(i)

   $   
  

 

 

 

 

  (i) Based on the terms of the purchase and sale agreement, consideration paid by Halcón will consist of $700 million in cash plus shares of 8% Automatically Convertible Preferred Stock.

 

  (ii)

Represents 8% Automatically Convertible Preferred Stock par value $0.0001 per share to be issued to sellers. The preferred shares will accrue dividends at 8% per annum and the shares will be redeemable in October 2020 if they have not yet converted at that time. The


  preferred shares are presented on the balance sheet as mezzanine equity due to the fact that the conversion of the preferred shares to common shares is contingent upon shareholder approval.

 

  (iii) Components of cash consideration funding (in thousands):

 

Total cash consideration for acquisition

   $ (700,000

Issuance of     % notes due 2021

     700,000   

Deferred debt issuance costs

     (17,500

Bridge loan fees

     (3,750

Proceeds from private placement(v)

     294,000   
  

 

 

 

Pro forma adjustments to cash and cash equivalents

   $ (272,750
  

 

 

 

 

  (iv) Weighted average commodity prices utilized in the determination of the pro forma fair value of natural gas and oil properties were $13.99 per Mcf of natural gas and $89.63 per barrel of oil, after adjustment for transportation fees and regional price differentials.

 

  (v) See discussion of the private placement of common stock in footnote 23.

 

19. To adjust Halcón’s financial statements for the issuance of $700 million in principal amount of 9% senior notes used to fund a portion of the cash purchase price of the acquisition of the Williston Basin Assets, and the associated deferral of issuance costs of $17.5 million.

 

20. To record interest expense, at an assumed rate of 9% per annum, of approximately $31.5 million for the six month period ended June 30, 2012 and $63 million for the year ended December 31, 2011 for the issuance of $700 million in new debt, related to the acquisition of the Williston Basin Assets, and to record amortization of deferred issuance costs of approximately $1.1 million for the six-month period ended June 30, 2012 and $ 2.1 million for the year ended December 31, 2011.

 

21. To reflect the oil and gas revenues and direct operating expenses related to the Williston Basin Assets. See Statements of Revenue and Direct Operating Expenses in Exhibit 99.2 to the Company’s Form 8-K filed on October 22, 2012.

 

22. Adjustment to record dividends on 8% Automatically Convertible Preferred Stock to be issued to the Sellers of the Williston Basin Assets. The preferred shareholders are entitled to receive dividends on a cumulative basis at a rate of 8% per annum if the preferred shares have not converted to common shares 121 days after issuance. As the common shareholder vote to approve the conversion of the preferred shares to common shares has not yet occurred, an adjustment is necessary to record preferred dividends.

 

23. Halcón will issue approximately 41.9 million shares of common stock to an institutional investor in a private placement concurrently with the closing of the Williston Basin Assets acquisition for gross proceeds of $300 million. Halcón will make a $6 million capital commitment payment to the investor which will be recorded as reduction of gross proceeds of the equity offering.