Exhibit 99.3

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial information relates to the Proposed Transactions, as defined in the Current Report on Form 8-K filed on December 11, 2013. Unless the context requires otherwise, for purposes of this pro forma presentation, all references to ‘‘we,’’ ‘‘our,’’ or ‘‘us’’ refer to Devon Energy Corporation and its directly owned and indirectly owned subsidiaries.

We will account for each of the Proposed Transactions using the acquisition method of accounting. Under this method, the assets acquired, liabilities assumed and noncontrolling interests will be recognized at their estimated fair values measured as of the respective acquisition dates. The aggregate purchase price for the GeoSouthern Transaction is $6 billion. This purchase price is subject to adjustments for certain debt retirement and other payments made by us on GeoSouthern’s behalf, certain title and environmental defects, if any, as well as customary adjustments to reflect the operation of the GeoSouthern Properties following the effective date and prior to the closing date. For accounting purposes, the aggregate purchase price for the Crosstex Transaction is currently estimated to be approximately $5.8 billion. This purchase price is subject to adjustment for changes in the trading prices of the outstanding common shares of Crosstex Energy, Inc. (“Crosstex”) and the outstanding common units of Crosstex Energy, L.P. (the “Partnership”), as well as changes in the basis of the net assets Devon will contribute to the Crosstex Transaction, from current estimates to the values on the closing date.

The following unaudited pro forma consolidated financial statements are based on the historical financial statements of Devon, Crosstex and GeoSouthern. The GeoSouthern historical financial statements include amounts related to minor assets that are not included in the GeoSouthern Transaction. The unaudited pro forma consolidated financial statements include two separate sets of financial statements with one set of notes. The first set of financial statements presents the pro forma adjustments for the GeoSouthern Transaction and our pro forma consolidated financial condition and results of operations after consideration of the Proposed Transactions. The second set of financial statements presents the pro forma adjustments for the Crosstex Transaction and our pro forma consolidated financial condition and results of operations after consideration of the Crosstex Transaction.

The unaudited pro forma consolidated balance sheets as of September 30, 2013 assume the Proposed Transactions occurred on September 30, 2013. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013 assume the Proposed Transactions occurred on January 1, 2012. The unaudited pro forma consolidated financial statements do not present our actual results of operations had the Proposed Transactions been completed at the dates indicated. In addition, they do not project our results of operations for any future period. The unaudited pro forma consolidated financial statements reflect the following significant assumptions and transactions:

 

•

Devon will acquire certain GeoSouthern subsidiaries that own oil and gas properties, leasehold mineral interests and related assets located in the Eagle Ford Shale;

 

•

the GeoSouthern Properties acquired and liabilities assumed by Devon will be recorded at their fair values;

 

•

Devon will contribute its midstream assets in the Barnett, Cana-Woodford and Arkoma-Woodford Shales, as well as a 38.75% economic equity interest in Gulf Coast Fractionators to Devon Midstream Holdings, L.P. (“Midstream Holdings”), a wholly owned subsidiary of Devon;

 

•

a Devon subsidiary owning 50% of Devon’s limited partner interest in Midstream Holdings and holding $100 million in cash will merge with a subsidiary of New Public Rangers, L.L.C. (“New Public Rangers”), a wholly owned subsidiary of Devon, and Devon will receive 115,495,669 New Public Rangers Class B Units, representing an approximate 70% interest in New Public Rangers;

 

•

Devon will contribute 50% of its limited partner interest in Midstream Holdings and all of its interest in the general partner of Midstream Holdings to a wholly owned subsidiary of the Partnership in exchange for 120,542,441 Class B Partnership Units, representing an approximate 53% limited partner interest in the Partnership;

 

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•

Midstream Holdings will become a party to certain 10-year, fixed-fee gathering, processing and transportation agreements with Devon pursuant to which Devon will dedicate to Midstream Holdings specified natural gas production from certain acreage in the Barnett, Cana-Woodford and Arkoma-Woodford Shales;

 

•

New Public Rangers will issue approximately 48.9 million New Public Rangers Common Units and distribute an aggregate of $100 million in cash to Crosstex public stockholders in exchange for all of Crosstex’s outstanding shares; and

 

•

the Crosstex assets acquired and liabilities assumed by New Public Rangers, as well as the noncontrolling interests in New Public Rangers and the Partnership, will be recorded at their fair values with the excess purchase price over the estimated fair value of Crosstex’s net assets acquired recorded as goodwill.

The unaudited pro forma consolidated financial statements and accompanying notes have been prepared in conformity with accounting principles generally accepted in the United States of America. These accounting principles are consistent with those used in, and should be read together with, our historical financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2012.

The adjustments reflected in the unaudited pro forma consolidated financial statements are based on currently available information and certain estimates and assumptions. Therefore, actual results may differ from the pro forma adjustments. However, management believes that the estimates and assumptions used provide a reasonable basis for presenting the significant effects of the Proposed Transactions. Management also believes the pro forma adjustments give appropriate effect to the estimates and assumptions and are applied in conformity with GAAP.

 

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DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

September 30, 2013

 

		Devon Historical				Pro Forma, As Adjusted For Crosstex Merger				GeoSouthern Historical				GeoSouthern Acquisition Adjustments(a)				Pro Forma, As Adjusted
		(in millions)
Assets
Current assets:
Cash and cash equivalents		$	4,320			$	4,334			$	107			$	(1,456	)(d)		$	2,985
Accounts receivable			1,520				1,724				152				(1	)(b)			1,875
Other current assets			475				497				11				—				508
Total current assets			6,315				6,555				270				(1,457	)			5,368
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization			73,009				73,009				1,700				3,238	(b)			77,947
Not subject to amortization			3,319				3,319				281				710	(b)			4,310
Total oil and gas			76,328				76,328				1,981				3,948				82,257
Other			6,050				8,156				59				16	(b)			8,231
Total property and equipment, at cost			82,378				84,484				2,040				3,964				90,488
Less accumulated depreciation and amortization			(54,416	)			(54,416	)			(498	)			498	(b)			(54,416	)
Property and equipment, net			27,962				30,068				1,542				4,462				36,072
Goodwill			5,954				8,604				—				—				8,604
Intangible assets			—				445				—				—				445
Other long-term assets			615				837				4				47	(b)(d)			888
Total assets		$	40,846			$	46,509			$	1,816			$	3,052			$	51,377
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,269			$	1,305			$	107			$	—			$	1,412
Revenue and royalties payable			807				807				—				—				807
Short-term debt			2,112				2,112				—				—				2,112
Other current liabilities			594				843				264				(7	)			1,100
Total current liabilities			4,782				5,067				371				(7	)			5,431
Long-term debt			7,956				9,150				662				3,838	(d)			13,650
Asset retirement obligations			2,161				2,161				4				—				2,165
Other long-term liabilities			830				938				—				—				938
Deferred income taxes			4,505				4,737				13				(13	)(c)			4,737
Stockholders’ equity			20,612				24,456				766				(766	)(b)			24,456
Total liabilities and stockholders’ equity		$	40,846			$	46,509			$	1,816			$	3,052			$	51,377

See accompanying notes to the pro forma consolidated financial statements.

 

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DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2013

 

		Devon Historical				Pro Forma, As Adjusted For Crosstex Merger				GeoSouthern Historical				GeoSouthern Acquisition Adjustments				Pro Forma, As Adjusted
		(in millions, except per share data)
Revenues:
Oil, gas and NGL sales		$	6,367			$	6,442			$	689			$	—			$	7,131
Oil, gas and NGL derivatives			(95	)			(95	)			—				—				(95	)
Marketing and midstream revenues			1,511				2,689				18				—				2,707
Total revenues			7,783				9,036				707				—				9,743
Expenses and other, net:
Lease operating expenses			1,684				1,718				64				—				1,782
Marketing and midstream operating costs and expenses			1,128				2,124				15				—				2,139
Depreciation, depletion and amortization			2,069				2,156				127				320	(e)			2,603
Exploration expenses			—				—				3				(3	)(g)			—
General and administrative expenses			460				513				32				(23	)(g)			522
Taxes other than income taxes			353				356				22				—				378
Interest expense			322				359				6				65	(f)			430
Restructuring costs			50				50				—				—				50
Asset impairments			1,960				1,960				—				—				1,960
Other, net			83				84				—				—				84
Total expenses and other, net			8,109				9,320				269				359				9,948
Earnings (loss) before income taxes			(326	)			(284	)			438				(359	)			(205	)
Income tax expense (benefit)			(99	)			(84	)			6				22	(h)			(56	)
Net earnings (loss)			(227	)			(200	)			432				(381	)			(149	)
Noncontrolling interests			—				82				—				—				82
Net earnings (loss) attributable to Devon		$	(227	)		$	(282	)		$	432			$	(381	)		$	(231	)
Net loss per share:
Basic		$	(0.57	)		$	(0.69	)										$	(0.57	)
Diluted		$	(0.57	)		$	(0.69	)										$	(0.57	)
Weighted average number of shares outstanding:
Basic			406				406												406
Diluted			406				406												406

See accompanying notes to the pro forma consolidated financial statements.

 

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DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2012

 

		Devon Historical				Pro Forma, As Adjusted For Crosstex Merger				GeoSouthern Historical				GeoSouthern Acquisition Adjustments(a)				Pro Forma, As Adjusted
		(in millions, except per share data)
Revenues:
Oil, gas and NGL sales		$	7,153			$	7,227			$	757			$	—			$	7,984
Oil, gas and NGL derivatives			693				693				—				—				693
Marketing and midstream revenues			1,656				3,203				71				—				3,274
Total revenues			9,502				11,123				828				—				11,951
Expenses and other, net:
Lease operating expenses			2,074				2,155				61				—				2,216
Marketing and midstream operating costs and expenses			1,246				2,479				56				—				2,535
Depreciation, depletion and amortization			2,811				2,921				242				314	(e)			3,477
Exploration expenses			—				—				70				(70	)(g)			—
General and administrative expenses			692				757				47				(21	)(g)			783
Taxes other than income taxes			414				417				38				—				455
Interest expense			406				469				6				89	(f)			564
Restructuring costs			74				74				—				—				74
Asset impairments			2,024				2,024				—				—				2,024
Other, net			78				70				(1	)			—				69
Total expenses and other, net			9,819				11,366				519				312				12,197
Earnings (loss) before income taxes			(317	)			(243	)			309				(312	)			(246	)
Income tax expense (benefit)			(132	)			(105	)			4				(5	)(h)			(106	)
Net earnings (loss)			(185	)			(138	)			305				(307	)			(140	)
Noncontrolling interests			—				94				—				—				94
Net earnings (loss) attributable to Devon		$	(185	)		$	(232	)		$	305			$	(307	)		$	(234	)
Net earnings (loss) per share:
Basic		$	(0.46	)		$	(0.57	)										$	(0.58	)
Diluted		$	(0.46	)		$	(0.57	)										$	(0.58	)
Weighted average number of shares outstanding:
Basic			404				404												404
Diluted			404				404												404

See accompanying notes to the pro forma consolidated financial statements.

 

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DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

September 30, 2013

 

		Devon Historical				Crosstex Historical				Crosstex Merger Adjustments(i)				Pro Forma, As Adjusted For Crosstex Merger
		(in millions)
Assets
Current assets:
Cash and cash equivalents		$	4,320			$	14			$	—	(j)		$	4,334
Accounts receivable			1,520				204				—				1,724
Other current assets			475				22				—				497
Total current assets			6,315				240				—				6,555
Property and equipment, at cost:
Oil and gas, based on full cost accounting:
Subject to amortization			73,009				—				—				73,009
Not subject to amortization			3,319				—				—				3,319
Total oil and gas			76,328				—				—				76,328
Other			6,050				2,424				(318	)(j)			8,156
Total property and equipment, at cost			82,378				2,424				(318	)			84,484
Less accumulated depreciation and amortization			(54,416	)			(574	)			574	(j)			(54,416	)
Property and equipment, net			27,962				1,850				256				30,068
Goodwill			5,954				154				2,496	(k)			8,604
Intangible assets			—				325				120	(j)			445
Other long-term assets			615				124				98	(j)			837
Total assets		$	40,846			$	2,693			$	2,970			$	46,509
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,269			$	36			$	—			$	1,305
Revenue and royalties payable			807				—				—				807
Short-term debt			2,112				—				—				2,112
Other current liabilities			594				227				22	(j)			843
Total current liabilities			4,782				263				22				5,067
Long-term debt			7,956				1,102				92	(j)			9,150
Asset retirement obligations			2,161				—				—				2,161
Other long-term liabilities			830				28				80	(j)			938
Deferred income taxes			4,505				124				108	(l)			4,737
Stockholders’ equity			20,612				1,176				2,668				24,456
Total liabilities and stockholders’ equity		$	40,846			$	2,693			$	2,970			$	46,509

See accompanying notes to the pro forma consolidated financial statements.

 

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DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2013

 

		Devon Historical				Crosstex Historical				Crosstex Merger Adjustments				Pro Forma, As Adjusted For Crosstex Merger
		(in millions, except per share data)
Revenues:
Oil, gas and NGL sales		$	6,367			$	—			$	75	(m)		$	6,442
Oil, gas and NGL derivatives			(95	)			—				—				(95	)
Marketing and midstream revenues			1,511				1,369				(191	)(m)			2,689
Total revenues			7,783				1,369				(116	)			9,036
Expenses and other, net:
Lease operating expenses			1,684				—				34	(m)			1,718
Marketing and midstream operating costs and expenses			1,128				1,182				(186	)(m)(n)			2,124
Depreciation, depletion and amortization			2,069				102				(15	)(o)			2,156
Exploration expenses			—				—				—				—
General and administrative expenses			460				53				—				513
Taxes other than income taxes			353				—				3	(m)			356
Interest expense			322				55				(18	)(q)			359
Restructuring costs			50				—				—				50
Asset impairments			1,960				73				(73	)(p)			1,960
Other, net			83				1				—				84
Total expenses and other, net			8,109				1,466				(255	)			9,320
Earnings (loss) before income taxes			(326	)			(97	)			139				(284	)
Income tax expense (benefit)			(99	)			(8	)			23	(r)			(84	)
Net earnings (loss)			(227	)			(89	)			116				(200	)
Noncontrolling interests			—				(70	)			152	(s)			82
Net earnings (loss) attributable to Devon		$	(227	)		$	(19	)		$	(36	)		$	(282	)
Net loss per share:
Basic		$	(0.57	)										$	(0.69	)
Diluted		$	(0.57	)										$	(0.69	)
Weighted average number of shares outstanding:
Basic			406												406
Diluted			406												406

See accompanying notes to the pro forma consolidated financial statements.

 

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DEVON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2012

 

		Devon Historical				Crosstex Historical				Crosstex Merger Adjustments				Pro Forma, As Adjusted For Crosstex Merger
		(in millions, except per share data)
Revenues:
Oil, gas and NGL sales		$	7,153			$	—			$	74	(m)		$	7,227
Oil, gas and NGL derivatives			693				—				—				693
Marketing and midstream revenues			1,656				1,791				(244	)(m)			3,203
Total revenues			9,502				1,791				(170	)			11,123
Expenses and other, net:
Lease operating expenses			2,074				—				81	(m)			2,155
Marketing and midstream operating costs and expenses			1,246				1,528				(295	)(m)(n)			2,479
Depreciation, depletion and amortization			2,811				162				(52	)(o)			2,921
Exploration expenses			—				—				—				—
General and administrative expenses			692				65				—				757
Taxes other than income taxes			414				—				3	(m)			417
Interest expense			406				87				(24	)(q)			469
Restructuring costs			74				—				—				74
Asset impairments			2,024				—				—				2,024
Other, net			78				(8	)			—				70
Total expenses and other, net			9,819				1,834				(287	)			11,366
Earnings (loss) before income taxes			(317	)			(43	)			117				(243	)
Income tax expense (benefit)			(132	)			(7	)			34	(r)			(105	)
Net earnings (loss)			(185	)			(36	)			83				(138	)
Noncontrolling interests			—				(24	)			118	(s)			94
Net earnings (loss)		$	(185	)		$	(12	)		$	(35	)		$	(232	)
Net earnings (loss) per share:
Basic		$	(0.46	)										$	(0.57	)
Diluted		$	(0.46	)										$	(0.57	)
Weighted average number of shares outstanding:
Basic			404												404
Diluted			404												404

See accompanying notes to the pro forma consolidated financial statements.

 

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DEVON ENERGY CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited pro forma consolidated financial statements give effect to the Proposed Transactions under the acquisition method of accounting. Under this method, the tangible and identifiable intangible assets acquired, liabilities assumed and noncontrolling interests are recorded at their estimated fair values measured as of the respective acquisition dates. The excess of the purchase price over the estimated fair values of Crosstex’s net assets acquired will be recorded as goodwill. No goodwill is expected to result from the GeoSouthern Transaction. The pro forma adjustments have been prepared as if the Proposed Transactions had taken place on September 30, 2013 in the case of the pro forma balance sheets and on January 1, 2012 in the case of the pro forma statements of operations. These transactions and adjustments are described in Note 3 to these unaudited pro forma consolidated financial statements.

The unaudited pro forma consolidated financial statements should be read in conjunction with Devon’s Annual Report on Form 10-K for the year ended December 31, 2012 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.

2. Summary of Significant Accounting Policies

The accounting policies used in preparing the unaudited pro forma consolidated financial statements are those used by Devon as set forth in its Annual Report on Form 10-K for the year ended December 31, 2012.

3. Pro Forma Adjustments and Assumptions

The accompanying unaudited pro forma financial statements give pro forma effect to the following adjustments related to the Proposed Transactions. Additionally, the historical GeoSouthern financial statements include $18 million of assets as of September 30, 2013 and $9 million of exploration expenses for the year ended December 31, 2012 that are not associated with the GeoSouthern Transaction.

GeoSouthern Transaction Adjustments

 

(a)

Adjustments to remove the GeoSouthern assets not included in the GeoSouthern Transaction and adjustments to reflect the GeoSouthern Transaction under the acquisition method of accounting. The estimated fair values and asset useful lives are based on preliminary management estimates and are subject to adjustment after the closing of the GeoSouthern Transaction based upon our final analysis.

 

The estimated purchase price and preliminary allocation of the purchase price is as follows (in millions):

 

Aggregate purchase price(1)		$	6,000
Purchase price adjustments(2)			(758	)
Total consideration		$	5,242
GeoSouthern fair values:
Current assets		$	268
Property, plant and equipment, net			6,004
Other current liabilities			(364	)
Long-term debt			(662	)
Asset retirement obligations			(4	)
Total consideration		$	5,242

 

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(1)

The aggregate purchase price is a known, fixed amount.

(2)

The purchase price adjustments consist of certain debt retirement and other payments made by us on GeoSouthern’s behalf, certain title and environmental defects, if any, as well as customary adjustments to reflect the operation of the GeoSouthern Properties following the effective date and prior to the closing date. This estimate is based on the GeoSouthern working capital and debt balances as of September 30, 2013. Changes in the adjustments would increase or decrease the amount of property, plant and equipment recognized by the same amount.

 

(b)

Adjustments to remove the GeoSouthern assets not included in the GeoSouthern Transaction and adjustments to reflect GeoSouthern’s assets and liabilities at their estimated fair values. We estimated the fair values of property, plant and equipment based upon forecasted discounted future cash flows.

 

(c)

Represents the elimination of GeoSouthern’s historical deferred tax liabilities. We do not expect significant deferred tax liabilities to result from the GeoSouthern Transaction because our tax basis will be based on the GeoSouthern Transaction values.

 

(d)

Represents our issuance of $4.5 billion of new debt, including $51 million of issuance costs, as well as an adjustment to retire $662 million of GeoSouthern’s debt. The adjustment to cash and cash equivalents is the result of the following (in millions):

 

Issuance of debt, net of issuance costs		$	4,449
Consideration paid			(5,242	)
GeoSouthern debt retirement			(662	)
Assets not contributed			(1	)
Net pro forma adjustment		$	(1,456	)

 

(e)

Reflects adjustments to depreciation, depletion and amortization resulting from the effects of the purchase accounting adjustments in (b) above.

 

(f)

Represents estimated interest expense and amortization of debt issuance costs associated with the new debt issued in (d) above, using an assumed effective interest rate of 2.12%, which is based on the terms of our bridge loan commitment. Based on current market conditions, we anticipate our weighted-average effective interest rate will be lower than that for our bridge loan commitment. A 25-basis point change in the assumed effective interest rate would change annual interest expense by approximately $11 million. This adjustment is partially offset by the elimination of GeoSouthern’s historical interest expense associated with the retired GeoSouthern debt discussed in (d) above.

 

(g)

GeoSouthern uses the successful efforts method of accounting for its oil and gas properties, whereas Devon uses the full cost method of accounting for its oil and gas properties. Accordingly, we capitalize all costs incidental to the acquisition, exploration and development of oil and gas properties, including exploration and certain general and administrative expenses. The adjustments reflect the reversal of GeoSouthern’s historical exploration expense and capitalization of general and administrative expenses directly related to the acquisition, exploration and development of oil and gas properties. The adjustments to general and administrative expenses also include the reversal of an investment management fee and certain other fees that we are not assuming as part of the GeoSouthern Transaction.

 

(h)

GeoSouthern’s historical operations are not subject to income taxes. However, GeoSouthern’s operations will be subject to federal and state income taxes after the GeoSouthern Transaction. This adjustment reflects the additional income tax expense attributable to GeoSouthern’s operations.

Crosstex Transaction Adjustments

 

(i)

Adjustments to reflect the Crosstex Transaction under the acquisition method of accounting. The estimated fair values and asset useful lives are based on preliminary management estimates and are subject to adjustment after the closing of the Crosstex Transaction based upon our final analysis.

 

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The following table summarizes the preliminary estimate of the purchase price (in millions, except conversion ratio, share price and unit price).

 

Midstream Holdings carryover basis:
Total carryover basis		$	1,764
Adjustment for change in tax status			189
Total consideration before noncontrolling interests		$	1,953
Crosstex outstanding common shares subject to conversion			48.9
Conversion ratio			1.0
Converted shares			48.9
Crosstex common share price(1)		$	31.00
Crosstex common shares conversion value		$	1,515
Crosstex outstanding stock options value			1
Crosstex consideration		$	1,516
Partnership outstanding units			91.3
Partnership common unit price(2)		$	25.50
Partnership consideration		$	2,328
Total fair value of noncontrolling interests(3)		$	3,844
Total consideration and fair value of noncontrolling interests		$	5,797

 

(1)

For purposes of estimating and determining the final purchase price, the $100 million cash distribution to Crosstex’s public shareholders is assumed to be included in the market price of Crosstex common stock. The final purchase price will be based on the fair value of the shares of Crosstex common stock subject to conversion as of the closing date of the Crosstex Transaction. The estimated fair value of the shares of Crosstex common stock is based on a price that approximates the trading price as of November 14, 2013, which may vary materially from the current estimate. A 10% or 20% change in the trading price of the shares of Crosstex common stock would change the total purchase price by approximately $152 million or $258 million, respectively. The purchase price change would increase or decrease the amount of goodwill recognized from the Crosstex Transaction by the same amount.

(2)

The estimated fair value of the Partnership’s common units is based on a price that approximates the trading price as of November 14, 2013, which may vary materially from the current estimate. The final purchase price will be based on the fair value of the Partnership’s common units as of the closing date of the Crosstex Transaction. A 10% or 20% change in the trading price of the Partnership’s common units would change the total purchase price by approximately $233 million or $466 million, respectively. The purchase price change would increase or decrease the amount of goodwill recognized from the Crosstex Transaction by the same amount.

(3)

Noncontrolling interests consist of the fair value of the Crosstex common stock discussed in (1) above, and the fair value of the Partnership’s approximately 91.3 million common units outstanding to public unitholders after the Crosstex Transaction (representing an approximate 39% interest in the Partnership), as discussed in (2) above.

 

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The preliminary allocation of the purchase price is as follows (in millions).

 

Midstream Holdings adjusted carryover basis		$	1,953
Crosstex fair values:
Current assets			240
Property, plant and equipment, net			2,106
Intangible assets			445
Other long-term assets			222
Goodwill			2,650
Current liabilities			(285	)
Long-term debt			(1,194	)
Deferred income taxes			(232	)
Other long-term liabilities			(108	)
Total consideration and fair value of noncontrolling interests		$	5,797

 

(j)

Adjustments to reflect Crosstex’s assets and liabilities at their estimated fair values. The adjustment to cash is the result of offsetting $100 million adjustments for the cash contributed by Devon, which is then distributed to Crosstex’s common shareholders. We estimated the fair values of property, plant and equipment and the related customer relationship values included in intangible assets based upon forecasted discounted future cash flows and estimated replacement costs. We estimated the fair values of an equity investment included in other long-term assets, as well as long-term debt, based on third-party market quotations. The increases in other current and long-term liabilities primarily relate to the recognition of a $100 million liability associated with an onerous performance obligation, the fair value of which was based on forecasted discounted cash obligations under the related contract.

 

(k)

An adjustment to reverse Crosstex’s $154 million of historical goodwill and an adjustment to reflect the $2,650 million of goodwill resulting from the Crosstex Transaction.

 

(l)

An adjustment of $108 million to increase deferred tax liabilities for the tax effects of the purchase accounting adjustments. Additionally, in conjunction with the Crosstex Transaction, Midstream Holdings will be created as a partnership, and its operating subsidiaries will be nontaxable entities, except for certain state taxes. Accordingly, the 50% interest in Midstream Holdings, including its subsidiaries, owned by the Partnership will not be subject to corporate federal income taxes. As such, included in this adjustment are offsetting adjustments that reflect the reversal of $189 million of deferred tax liabilities at the Partnership resulting from the change in Midstream Holdings’ tax status and the recognition of those same deferred tax liabilities by us.

 

(m)

Reflects a duly authorized contract change that pertains to the assets owned by Midstream Holdings and takes effect upon completion of the Crosstex Transaction to convert the natural gas processing percent-of-proceeds contracts to fixed-fee contracts and to effect changes to the related natural gas gathering contracts. This contract change impacts operating revenues and expenses as presented in the table below. The entry into commercial agreements reflecting this change is a condition to the Partnership’s obligation to consummate certain transactions, which must be completed substantially concurrently with the Crosstex Transaction.

 

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Additionally, Crosstex received revenues from us during the periods presented. These intercompany transactions are reversed out of marketing and midstream revenues and lease operating expenses as presented in the following table.

 

		Nine Months Ended September 30, 2013				Year Ended December 31, 2012
		(in millions)
Oil, gas, and NGL sales — contract changes		$	75			$	74
Marketing and midstream revenues:
Contract changes		$	(136	)		$	(171	)
Elimination of intercompany transactions			(55	)			(73	)
Total marketing and midstream revenues adjustments		$	(191	)		$	(244	)
Lease operating expenses:
Contract changes		$	89			$	154
Elimination of intercompany transactions			(55	)			(73	)
Total lease operating expense adjustments		$	34			$	81
Marketing and midstream operating costs and expenses — contract changes		$	(172	)		$	(277	)
Taxes other than income taxes — contract changes		$	3			$	3

 

(n)

Reflects the elimination of the Partnership’s monthly product purchases associated with the onerous performance obligation described in adjustment (j) above. For pro forma purposes, the monthly product purchases associated with this performance obligation are now assumed to reduce the liability rather than be recognized as expense. The following summarizes the pro forma adjustments to product purchases.

 

		Nine Months Ended September 30, 2013				Year Ended December 31, 2012
		(in millions)
Contract changes in adjustment (m) above		$	(172	)		$	(277	)
Performance obligation adjustment			(14	)			(18	)
Marketing and midstream operating costs and expenses total pro forma adjustment		$	(186	)		$	(295	)

 

(o)

Reflects adjustments to depreciation and amortization resulting from the effects of the purchase accounting adjustments in (i) above and the effects of increasing the estimated useful lives used to calculate depreciation and amortization. The longer estimated useful lives correspond to the expected lives used to determine the fair values of property, plant and equipment and related identifiable intangible assets.

 

(p)

The reversal of intangible asset impairments that would not have been recognized based on the estimated fair values used for purchase accounting.

 

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(q)

Represents adjustments to reverse the Partnership’s historical amortization expense associated with capitalized debt issuance costs eliminated in adjustment (j), as well as adjustments to amortize the fair value of the debt purchase price adjustment using the effective interest rate method.

 

(r)

Reflects adjustments to income tax expense attributable to the increase in income before taxes due to the pro forma adjustments.

 

(s)

Income attributable to noncontrolling interests, which represents the publicly owned interests in New Public Rangers and the Partnership.

4. Supplemental Pro Forma Information on Oil and Gas Operations

Supplemental pro forma information regarding Devon’s oil and gas activities is presented in this note. The information is provided separately by country.

Proved Reserves

The following tables present the estimated proved reserves by product for Devon, GeoSouthern and the combined company on a pro forma basis.

 

		Oil (MMBbls)
		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
Proved developed and undeveloped reserves:
December 31, 2011			168				54				222				80				302
Revisions due to prices			(1	)			—				(1	)			(5	)			(6	)
Revisions other than price			(6	)			19				13				(2	)			11
Extensions and discoveries			65				97				162				7				169
Purchases of reserves			—				—				—				—				—
Production			(21	)			(7	)			(28	)			(15	)			(43	)
Sale of reserves			—				—				—				—				—
December 31, 2012			205				163				368				65				433
Proved developed reserves as of:
December 31, 2012			166				29				195				62				257
Proved developed-producing reserves as of:
December 31, 2012			155				26				181				56				237
Proved undeveloped reserves as of:
December 31, 2012			39				134				173				3				176

 

 

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		Bitumen (MMBbls)
		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
Proved developed and undeveloped reserves:
December 31, 2011			—				—				—				457				457
Revisions due to prices			—				—				—				14				14
Revisions other than price			—				—				—				7				7
Extensions and discoveries			—				—				—				67				67
Purchases of reserves			—				—				—				—				—
Production			—				—				—				(17	)			(17	)
Sale of reserves			—				—				—				—				—
December 31, 2012			—				—				—				528				528
Proved developed reserves as of:
December 31, 2012			—				—				—				99				99
Proved developed-producing reserves as of:
December 31, 2012			—				—				—				99				99
Proved undeveloped reserves as of:
December 31, 2012			—				—				—				429				429

 

		Gas (Bcf)
		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
Proved developed and undeveloped reserves:
December 31, 2011			9,507				210				9,717				979				10,696
Revisions due to prices			(831	)			—				(831	)			(99	)			(930	)
Revisions other than price			(287	)			(2	)			(289	)			(33	)			(322	)
Extensions and discoveries			1,124				294				1,418				34				1,452
Purchases of reserves			2				—				2				—				2
Production			(752	)			(22	)			(774	)			(186	)			(960	)
Sale of reserves			(1	)			—				(1	)			(11	)			(12	)
December 31, 2012			8,762				480				9,242				684				9,926
Proved developed reserves as of:
December 31, 2012			7,391				77				7,468				679				8,147
Proved developed-producing reserves as of:
December 31, 2012			7,091				71				7,162				624				7,786
Proved undeveloped reserves as of:
December 31, 2012			1,371				403				1,774				5				1,779

 

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		Natural Gas Liquids (MMBbls)
		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
Proved developed and undeveloped reserves:
December 31, 2011			525				—				525				27				552
Revisions due to prices			(19	)			—				(19	)			(5	)			(24	)
Revisions other than price			(13	)			27				14				—				14
Extensions and discoveries			114				41				155				2				157
Purchases of reserves			—				—				—				—				—
Production			(36	)			(1	)			(37	)			(4	)			(41	)
Sale of reserves			—				—				—				—				—
December 31, 2012			571				67				638				20				658
Proved developed reserves as of:
December 31, 2012			431				11				442				20				462
Proved developed-producing reserves as of:
December 31, 2012			406				10				416				19				435
Proved undeveloped reserves as of:
December 31, 2012			140				56				196				—				196

 

		Total (MMBoe)(1)
		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
Proved developed and undeveloped reserves:
December 31, 2011			2,278				89				2,367				727				3,094
Revisions due to prices			(159	)			—				(159	)			(12	)			(171	)
Revisions other than price			(67	)			46				(21	)			(1	)			(22	)
Extensions and discoveries			367				186				553				82				635
Purchases of reserves			—				—				—				—				—
Production			(183	)			(11	)			(194	)			(67	)			(261	)
Sale of reserves			—				—				—				(2	)			(2	)
December 31, 2012			2,236				310				2,546				727				3,273
Proved developed reserves as of:
December 31, 2012			1,829				53				1,882				294				2,176
Proved developed-producing reserves as of:
December 31, 2012			1,743				48				1,791				278				2,069
Proved undeveloped reserves as of:
December 31, 2012			407				257				664				433				1,097

 

(1)

Gas reserves are converted to Boe at the rate of six Mcf per Bbl of oil, based upon the approximate relative energy content of gas and oil. This rate is not necessarily indicative of the relationship of natural gas and oil prices. Bitumen and natural gas liquids reserves are converted to Boe on a one-to-one basis with oil.

 

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Proved Undeveloped Reserves

The following table presents the changes in total proved undeveloped reserves during 2012 (in MMBoe) for Devon, GeoSouthern and the combined company on a pro forma basis.

 

		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
Proved undeveloped reserves as of December 31, 2011			403				65				468				379				847
Extensions and discoveries			134				163				297				68				365
Revisions due to prices			(47	)			—				(47	)			9				(38	)
Revisions other than price			(10	)			34				24				(6	)			18
Conversion to proved developed reserves			(73	)			(5	)			(78	)			(17	)			(95	)
Proved undeveloped reserves as of December 31, 2012			407				257				664				433				1,097

Standardized Measure

The following table presents the standardized measure of discounted future net cash flows relating to proved reserves for Devon, GeoSouthern and the combined company on a pro forma basis.

 

		U.S.												Canada				Total
		Devon Historical				GeoSouthern Historical				Combined				Devon Historical				Pro Forma
		(In millions)
Future cash inflows		$	55,297			$	19,656			$	74,953			$	33,570			$	108,523
Future costs:
Development			(6,556	)			(2,505	)			(9,061	)			(6,211	)			(15,272	)
Production			(24,265	)			(4,401	)			(28,666	)			(16,611	)			(45,277	)
Future income tax expense (1)			(6,542	)			(2,836	)			(9,378	)			(1,992	)			(11,370	)
Future net cash flows			17,934				9,914				27,848				8,756				36,604
10% discount to reflect timing of cash flows			(9,036	)			(4,625	)			(13,661	)			(4,433	)			(18,094	)
Standardized measure of discounted future net cash flows		$	8,898			$	5,289			$	14,187			$	4,323			$	18,510

 

(1)

On a historical basis, GeoSouthern was not subject to federal income taxes but was subject to Texas margin tax. However, for purposes of calculating GeoSouthern’s historical standardized measure, GeoSouthern was deemed to be part of Devon’s overall corporate tax structure and subject to federal income tax. Therefore, an estimated income tax provision based on statutory tax rates is included in GeoSouthern’s historical standardized measure.

 

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The principal changes in Devon’s, GeoSouthern’s and the combined company’s standardized measure of discounted future net cash flows are as follows:

 

		Year Ended December 31, 2012
		Devon Historical				GeoSouthern Historical				Pro Forma
		(In millions)
Beginning balance		$	17,844			$	2,046			$	19,890
Net changes in prices and production costs			(9,889	)			(405	)			(10,294	)
Oil, bitumen, gas and NGL sales, net of production costs			(4,388	)			(658	)			(5,046	)
Changes in estimated future development costs			(1,094	)			110				(984	)
Extensions and discoveries, net of future development costs			4,669				3,993				8,662
Purchase of reserves			18				—				18
Sales of reserves in place			(25	)			—				(25	)
Revisions of quantity estimates			162				651				813
Previously estimated development costs incurred during the period			1,321				103				1,424
Accretion discount			1,420				265				1,685
Other, primarily changes in timing and foreign exchange rates			113				67				180
Net change in income taxes (1)			3,070				(883	)			2,187
Ending balance		$	13,221			$	5,289			$	18,510

 

(1)

On a historical basis, GeoSouthern was not subject to federal income taxes but was subject to Texas margin tax. However, for purposes of calculating GeoSouthern’s historical standardized measure, GeoSouthern was deemed to be part of Devon’s overall corporate tax structure and subject to federal income tax. Therefore, an estimated income tax provision based on statutory tax rates is included in GeoSouthern’s historical standardized measure.

 

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