Exhibit 99.4

 

 

 

 

 

 

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Introduction

 

The following unaudited pro forma financial statements of QR Energy, LP and subsidiaries (“QR Energy,” “QRE” or the “Partnership”) reflect the unaudited and audited historical results of QR Energy on a pro forma basis to give effect to: (i) the acquisition on December 28, 2012 by the Partnership of oil and natural gas properties and a processing plant in the Jay Field located in the Florida panhandle (the “December 2012 Transferred Properties”) from affiliate sellers for approximately $30 million in cash and the assumption of $115 million in debt, subject to customary purchase price adjustments, (the “December 2012 Transaction”) and (ii) the acquisition on December 4, 2012 by the Partnership of predominantly oil properties located in the Ark-La-Tex area and an equity method interest in a saltwater disposal company (the “East Texas Oil Field Properties”) from a private seller for $215 million in cash, subject to customary purchase price adjustments (the “East Texas Oil Field Acquisition”).

 

The unaudited pro forma financial statements of QRE also contemplate the following previously completed transactions: (i) the acquisition on April 20, 2012 by the Partnership of  predominantly low decline, long life oil properties, primarily located in the Ark-La-Tex area (the “Prize Properties”) from Prize Petroleum LLC and Prize Pipeline, LLC (collectively, “Prize”) for approximately $225 million in cash after customary purchase price adjustments (the “Prize Acquisition”), and (ii) the partial financing of the Prize Acquisition with the April 17, 2012 issuance of 8,827,263 of common units (including 2,625,000 common units pursuant to the exercise in full of the option by the underwriters) to the public for $19.18 per unit, resulting in approximately $162 million in net proceeds (the “April 2012 Offering”).

 

The affiliates from which the Partnership acquired the December 2012 Transferred Properties include Quantum Resources A1, LP, QAB Carried WI, LP, QAC Carried WI, LP and Black Diamond Resources, LLC (collectively the “Affiliate Sellers”).  QR Energy and the Affiliate Sellers of the December 2012 Transferred Properties are entities under common control. As a result, the December 2012 Transaction will be accounted for as a transaction between entities under common control whereby the assets and liabilities transferred will be recorded by QR Energy at the historical book value of the Affiliate Sellers without any adjustment to current fair values. The East Texas Oil Field Acquisition will be accounted for as a business combination for which the accounting is dependent upon certain valuations and other studies that are not yet complete. Accordingly, the pro forma adjustments are preliminary and subject to revision based on final determination of fair value.

 

Pro Forma Financial Statements

 

The unaudited pro forma balance sheet of QR Energy as of September 30, 2012 is based on the unaudited historical consolidated balance sheet of QR Energy and includes pro forma adjustments to give effect to the December 2012  Transaction and the East Texas Oil Field Acquisition as if they had occurred on September 30, 2012. Since the December 2012 Transaction represents a transaction between entities under common control, the historic impact of the acquired assets and liabilities are carried forward from the date of common control.

 

The unaudited pro forma statements of operations of QR Energy for the nine months ended September 30, 2012 are based on the unaudited historical consolidated statements of operations of QR Energy, and the unaudited statements of revenues and direct operating expenses attributable to the December 2012 Transferred Properties, the East Texas Oil Field Properties, and the Prize Properties, giving effect to the December 2012 Transaction as if they had occurred on the date of common control, and the East Texas Oil Field Acquisition, the Prize Acquisition and the April 2012 Offering as if they had occurred on January 1, 2011.  The unaudited pro forma statements of operations of QR Energy for the year ended December 31, 2011 are based on the audited historical consolidated statement of operations of QR Energy and audited statements of revenues and direct operating expenses attributable to the December 2012 Transferred Properties, the East Texas Oil Field Properties, and the Prize Properties,  giving effect to the December 2012 Transaction as if it had occurred on the date of common control, and the East Texas Oil Field Acquisition,  the Prize Acquisition and the April 2012 Offering as if they had occurred on January 1, 2011.

 

The unaudited pro forma financial statements have been prepared on the basis that QR Energy is a partnership for federal income tax purposes. The unaudited pro forma financial statements should be read in conjunction with the notes accompanying these unaudited pro forma financial statements and with the unaudited and audited historical financial statements related to QR Energy, the December 2012 Transferred Properties and East Texas Oil Field Properties, included or incorporated as exhibits in this Current Report.

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The pro forma adjustments to the unaudited and audited historical financial statements are based upon currently available information and certain estimates and assumptions. The actual effect of the transactions discussed in the accompanying notes ultimately may differ from the unaudited pro forma adjustments included herein. However, management believes that the assumptions utilized to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and the unaudited pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions and reflect those items expected to have a continuing impact on QR Energy.

 

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QR ENERGY, LP

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.

 

 

The following unaudited pro forma financial statements of QR Energy reflect the unaudited and audited historical result of QR Energy on a pro forma basis to give effect to the December 2012 Transaction for $145 million (before estimated purchase price adjustments) and the East Texas Oil Field Acquisition for $215 million (before estimated purchase price adjustments).  The following unaudited pro forma financial statements of QR Energy also contemplate the previously completed transactions related to the Prize Acquisition for $225 million and the April 2012 Offering resulting in $162 million in net proceeds.  The acquisition of the December 2012 Transferred Properties, the East Texas Oil Field Properties and the Prize Properties are collectively referred to herein as the “Transactions.”

The unaudited pro forma balance sheet of QR Energy as of September 30, 2012 is based on the unaudited historical consolidated balance sheet of QR Energy and includes pro forma adjustments to give effect to the December 2012 Transaction and the East Texas Oil Field Acquisition as if they had occurred on September 30, 2012. Since the December 2012 Transaction represents a transaction between entities under common control, the historic impact of the acquired assets and liabilities are carried forward from the date of common control.

 

The unaudited pro forma statements of operations of QR Energy for the nine months ended September 30, 2012 are based on the unaudited historical consolidated statements of operations of QR Energy, and the unaudited statements of revenues and direct operating expenses attributable to the December 2012 Transferred Properties, the East Texas Oil Field Properties, and the Prize Properties, giving effect to the December 2012 Transaction as if it had occurred on the date of common control, and the East Texas Oil Field Acquisition, the Prize Acquisition and the April 2012 Offering as if they had occurred on January 1, 2011.  The unaudited pro forma statements of operations of QR Energy for the year ended December 31, 2011 are based on the audited historical consolidated statement of operations of QR Energy and audited statements of revenues and direct operating expenses attributable to the December 2012 Transferred Properties, the East Texas Oil Field Properties, and the Prize Properties,  giving effect to the December 2012 Transaction as if it had occurred on the date of common control, and the East Texas Oil Field Acquisition, the Prize Acquisition and the April 2012 Offering as if they had occurred on January 1, 2011.

 

Pro forma data is based on currently available information and certain estimates and assumptions as explained in the notes to the unaudited pro forma financial statements. Pro forma data is not necessarily indicative of the financial results that would have been attained had the Transactions and April 2012 Offering occurred on January 1, 2011. As actual adjustments may differ from the pro forma adjustments, the pro forma amounts presented should not be viewed as indicative of operations in the future periods. The accompanying unaudited pro forma financial statements of the Partnership should be read in conjunction with QR Energy’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012 and Annual Report on Form 10-K for the year ended December 31, 2011.

 

2. Pro Forma Adjustments and Assumptions

 

Unaudited Pro Forma Balance Sheet

 

 

(b)  Reflects the borrowing of $214.3 million through available capacity under our revolving credit facility to fund the East Texas Oil Field Acquisition.

 

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(c)  Reflects net assets acquired as follows:

 

 

 

 

⁽¹⁾   Represents a reclamation deposit in escrow as security for abandonment and redemption obligations.

 

 

 

 

(d) Pro forma adjustment to reflect the excess of the $143.6 million after estimated purchase price adjustments for the December 2012 Transaction over the $71.0 million in net assets acquired from the Affiliate Sellers.  Since the December 2012 Transferred Properties represents a transaction between entities under common control where the net assets acquired have been transferred at the historical book value of the Affiliate Sellers, such excess of $72.6 million has been treated as a deemed distribution and has been allocated to QR Energy’s partner accounts.

 

Unaudited Pro Forma Statements of Operations

 

(e)    Reflects revenue and direct operating expenses related to the oil and gas properties acquired pursuant to the December 2012 Transaction, the East Texas Oil Field Acquisition and the Prize Acquisition.

 

(f)    Reflects incremental depletion expense related to the oil and gas properties acquired pursuant to the Transactions.

 

(g)  Reflects incremental accretion of the asset retirement obligations acquired pursuant to the Transactions.

 

(h)  Reflects incremental G&A expense associated with the oil and gas properties acquired in the Transactions. The adjustment results from an incremental allocation of general and administrative expenses from our Affiliate Sellers based on a relative percentage of production, per the Services Agreement with QRE GP and its affiliates, of the Partnership and the other affiliate entities.

 

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(i) Reflects the unrealized losses on commodity derivative contracts associated with the December 2012 Transferred Properties, as applicable.

 

(j) Reflects interest expense associated with borrowings under the Partnership’s revolving credit facility. The incremental interest expense is calculated as if the cash used to facilitate the Transactions had occurred on the earlier of January 1, 2011 or the date of common control

 

3. Pro Forma Net Income Per Limited Partner Unit

Pro forma net income per limited partner unit is determined by dividing the pro forma net income available to the limited partner unitholders, after deducting QR Energy’s general partner 0.1% interest in net income, by the weighted average number of limited partner units outstanding during the nine months ended September 30, 2012 and the year ended December 31, 2011. QR Energy’s general partner interest in pro forma net income was not adjusted for any changes to the management incentive fee resulting from the Transactions and the April 2012 Offering.

 

The following sets forth the calculation of pro forma net income per limited partner unit for the nine months ended September 30, 2012 and for the year ended December 31, 2011. The historical calculation has been adjusted to show the effect of the Transactions and the April 2012 Offering as if they had occurred on January 1, 2011.

 

 

 

(1)    For the year ended December 31, 2011, we had weighted average preferred units of 4,109,589 which are contingently convertible. These units have an antidilutive effect on earnings per unit and have been excluded in the earnings per share calculation for the year ended December 31, 2011.

 

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Supplemental Oil and Gas Information (Unaudited)

 

The following table sets forth certain unaudited pro forma information regarding estimates of the Partnership’s proved crude oil, natural gas and natural gas liquids reserves as of December 31, 2011 after giving effect to the Transactions as if they had occurred on January 1, 2011. Because oil reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures.

 

 

Summarized in the following table is information for the Partnership’s unaudited pro forma standardized measure of discounted cash flows relating to estimated proved reserves as of December 31, 2011 after giving effect to the Transactions as if it had occurred on January 1, 2011. The Standardized Measure of discounted future net cash flows was determined based on the economic conditions in effect at December 31, 2011. The disclosures below do not purport to present the fair market value of the Partnership’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money, and risks inherent in reserve estimates. The pro forma standardized measure of discounted future net cash flows is presented as follows:

 

The following table sets forth unaudited pro forma information for the principal sources of changes in the standardized measure of discounted future net cash flows for the year ended December 31, 2011 after giving effect to the Transactions as if it had occurred on January 1, 2011:

 

 

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