Attached files
file | filename |
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8-K/A - FORM 8-K/A - New Source Energy Partners L.P. | nslp20131218_8ka.htm |
EX-99 - EXHIBIT 99.1 - New Source Energy Partners L.P. | ex99-1.htm |
EX-23 - EXHIBIT 23.1 - New Source Energy Partners L.P. | ex23-1.htm |
Exhibit 99.2
NEW SOURCE ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On October 4, 2013, the Partnership acquired oil and natural gas properties (the “Acquisition Properties”) pursuant to a contribution agreement dated October 4, 2013 (the “Contribution Agreement”) with Scintilla, LLC, an Oklahoma limited liability company (“Scintilla”). As consideration for the Acquisition Properties, the Partnership paid $5.0 million in cash and issued 414,045 common units representing limited partner interests in the Partnership (“Common Units”) to Scintilla (the “October Acquisition”). The Partnership also agreed to provide additional consideration to Scintilla in November 2014 if the production attributable to the Acquisition Properties for the nine-month period ending September 30, 2014 exceeds 383.5 barrels of oil equivalent per day (the "Current Production Average," as defined in the Contribution Agreement). As detailed in the Contribution Agreement, the amount of any such additional consideration will be calculated as the acquisition value of the production increase (applying the same valuation methodology as was used to determine the initial consideration with respect to the Current Production Average) less (i) the capital expenditures incurred attributable to the production growth (including an allowance for the cost of capital for such capital expenditures) and (ii) revenue attributable to any wells that were not producing in paying quantities as of the effective date of the October Acquisition. The Partnership may satisfy any such additional consideration in cash, common units, or a combination thereof at its discretion.
The October Acquisition will be accounted for as a purchase, with the assets acquired and liabilities assumed recorded at fair values, and the results of the Acquisition Properties operations included in the Partnership's financial statements from the date of acquisition.
Previously, on March 29, 2013, the Partnership acquired oil and natural gas properties (the “March Acquisition” and, together with the October Acquisition, the “Acquisitions”) pursuant to contribution agreements dated March 29, 2013 involving New Source Energy Corporation, a Delaware corporation (“NSEC”), Scintilla and W.K. Chernicky, LLC, an Oklahoma limited liability company (“WKC” and, collectively with NSEC and Scintilla, the “Contributors”), previously reported by the Partnership and reflected in the pro forma financial statements included in the Partnership’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission (the "SEC") on June 14, 2013. As consideration for the March Acquisition, the Partnership issued an aggregate of 1,378,500 Common Units to the Contributors.
The accompanying pro forma financial statements illustrate the effect of the Acquisitions on the Partnership's financial position and result of operations. The balance sheet as of September 30, 2013 is based on the historical balance sheets of the Partnership as of that date and assumes the October Acquisition was completed on that date. The statements of operations for the year ended December 31, 2012 and nine months ended September 30, 2013 are based on the historical statements of operations of the Partnership and the Acquisitions for each respective period. The pro forma statements of operations assume the Acquisitions were completed on January 1, 2012.
The unaudited pro forma financial information is not indicative of the financial position or results of operations of the Partnership which would have actually occurred if the transactions had occurred at the dates presented or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, reductions in prices paid for oil and natural gas, future acquisitions or dispositions and other factors.
The accompanying pro forma financial statements should be read in connection with our Annual Report on from 10-K for the year ended December 31, 2012 and on our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
NEW SOURCE ENERGY PARTNERS L.P.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2013
(unaudited, in thousands, except unit amounts)
NSLP Historical |
October Acquisition |
Pro Forma |
|||||||||||
ASSETS |
|||||||||||||
Current assets: |
|||||||||||||
Cash |
$ | 258 | $ | - | $ | 258 | |||||||
Oil and natural gas sales receivable |
7,308 | - | 7,308 | ||||||||||
Oil and natural gas sales receivable-related parties |
1,145 | - | 1,145 | ||||||||||
Derivative assets |
443 | - | 443 | ||||||||||
Other current assets |
160 | - | 160 | ||||||||||
Total current assets |
9,314 | - | 9,314 | ||||||||||
Property and equipment: |
|||||||||||||
Oil and natural gas properties, at cost, using full cost method: |
|||||||||||||
Proved oil and natural gas properties |
262,745 | 15,188 |
(a) |
277,933 | |||||||||
Accumulated depreciation, depletion, and amortization |
(124,057 | ) | - | (124,057 | ) | ||||||||
Total property and equipment, net |
138,688 | 15,188 | 153,876 | ||||||||||
Prepaid drilling and completion costs |
4,266 | - | 4,266 | ||||||||||
Loan fees, net |
1,476 | - | 1,476 | ||||||||||
Derivative assets |
837 | - | 837 | ||||||||||
Total assets |
$ | 154,581 | $ | 15,188 | $ | 169,769 | |||||||
LIABILITIES, PARENT NET INVESTMENT AND PARTNERS' CAPITAL: |
|||||||||||||
Current liabilities: |
|||||||||||||
Accounts payable |
$ | 291 | $ | - | $ | 291 | |||||||
Accounts payable-related parties |
4,510 | 1,600 |
(b) |
6,110 | |||||||||
Accrued liabilities |
209 | - | 209 | ||||||||||
Derivative obligations |
1,556 | - | 1,556 | ||||||||||
Total current liabilities |
6,566 | 1,600 | 8,166 | ||||||||||
Long-term related party payables |
283 | - | 283 | ||||||||||
Credit facility |
67,500 | 5,000 |
(b) |
72,500 | |||||||||
Derivative obligations |
238 | - | 238 | ||||||||||
Asset retirement obligation |
3,059 | 166 |
(a) |
3,225 | |||||||||
Total liabilities |
77,646 | 6,766 | 84,412 | ||||||||||
Commitments and contingencies |
|||||||||||||
Partners' capital: |
|||||||||||||
Common units (6,773,500 units outstanding at September 30, 2013) |
98,934 | 8,422 |
(b) |
107,356 | |||||||||
Subordinated units (2,205,000 units outstanding at September 30, 2013) |
(20,595 | ) | - | (20,595 | ) | ||||||||
General partner's capital (155,102 units outstanding at September 30, 2013) |
(1,404 | ) | - | (1,404 | ) | ||||||||
Total partners' capital |
76,935 | 8,422 | 85,357 | ||||||||||
Total liabilities, parent net investment and partners' capital |
$ | 154,581 | $ | 15,188 | $ | 169,769 |
See Note 2 for footnotes describing the pro forma accounts.
The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
NEW SOURCE ENERGY PARTNER L.P.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2012
(In thousands)
NSLP Historical |
March Acquisition |
October Acquisition |
Pro Forma Adjustments |
Pro Forma |
|||||||||||||||||
REVENUES |
|||||||||||||||||||||
Oil sales |
$ | 5,570 | $ | 3,802 | $ | 5,660 | $ | - | $ | 15,032 | |||||||||||
Natural gas liquids (NGL) sales |
23,996 | 6,057 | 1,177 | - | 31,544 | ||||||||||||||||
Natural gas sales |
6,030 | 2,089 | 1,491 | - | 9,296 | ||||||||||||||||
Total revenues |
35,596 | 11,948 | 8,328 | - | 55,872 | ||||||||||||||||
OPERATING COSTS AND EXPENSES |
|||||||||||||||||||||
Oil and natural gas production expenses |
6,217 | 5,128 | 3,700 | - | 15,045 | ||||||||||||||||
Oil and natural gas production taxes |
1,144 | 504 | 417 | - | 2,065 | ||||||||||||||||
General and administrative |
12,660 | - | - | - | 12,660 | ||||||||||||||||
Depreciation, depletion, and amortization |
14,409 | - | - | 7,111 |
(c) |
21,520 | |||||||||||||||
Accretion expense |
116 | - | - | - | 116 | ||||||||||||||||
Total operating costs and expenses |
34,546 | 5,632 | 4,117 | 7,111 | 51,406 | ||||||||||||||||
Operating income |
1,050 | 6,316 | 4,211 | (7,111 | ) | 4,466 | |||||||||||||||
OTHER INCOME (EXPENSE) |
|||||||||||||||||||||
Interest expense |
(3,202 | ) | - | - | (279 | ) |
(d) |
(3,481 | ) | ||||||||||||
Gains from derivatives |
7,057 | - | - | - | 7,057 | ||||||||||||||||
Income before income taxes |
4,905 | 6,316 | 4,211 | (7,390 | ) | 8,042 | |||||||||||||||
Income tax expense |
1,796 | - | - | - | 1,796 | ||||||||||||||||
Net income |
$ | 3,109 | $ | 6,316 | $ | 4,211 | $ | (7,390 | ) | $ | 6,246 |
See Note 2 for footnotes describing the pro forma amounts.
The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
NEW SOURCE ENERGY PARTNERS L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2013
(In thousands)
NSLP Historical |
March Acquisition |
October Acquisition |
Pro Forma Adjustments |
Pro Forma |
|||||||||||||||||
REVENUES |
|||||||||||||||||||||
Oil sales |
$ | 4,879 | $ | 669 | $ | 3,044 | $ | - | $ | 8,592 | |||||||||||
Natural gas liquieds (NGL) sales |
20,530 | 1,394 | 586 | - | 22,510 | ||||||||||||||||
Natural gas sales |
7,031 | 576 | 1,056 | - | 8,663 | ||||||||||||||||
Total revenues |
32,440 | 2,639 | 4,686 | - | 39,765 | ||||||||||||||||
OPERATING COSTS AND EXPENSES |
|||||||||||||||||||||
Oil and natural gas production expenses |
8,702 | 1,275 | 3,496 | - | 13,473 | ||||||||||||||||
Oil and natural gas production taxes |
1,996 | 131 | 298 | - | 2,425 | ||||||||||||||||
General and administrative |
11,452 | - | - | - | 11,452 | ||||||||||||||||
Depreciation, depletion and amortization |
11,686 | - | - | 3,348 |
(c) |
15,034 | |||||||||||||||
Accretion expense |
145 | - | - | - | 145 | ||||||||||||||||
Total operating costs and expenses |
33,981 | 1,406 | 3,794 | 3,348 | 42,529 | ||||||||||||||||
Operating income (loss) |
(1,541 | ) | 1,233 | 892 | (3,348 | ) | (2,764 | ) | |||||||||||||
OTHER INCOME (EXPENSE) |
|||||||||||||||||||||
Interest expense |
(3,220 | ) | - | - | (209 | ) |
(d) |
(3,429 | ) | ||||||||||||
Realized and unrealized gain (loss) from derivatives, net |
(2,597 | ) | - | - | - | (2,597 | ) | ||||||||||||||
Income (loss) before income taxes |
(7,358 | ) | 1,233 | 892 | (3,557 | ) | (8,790 | ) | |||||||||||||
Income tax benefit (expense) |
12,126 | - | - | - | 12,126 | ||||||||||||||||
Net income |
$ | 4,768 | $ | 1,233 | $ | 892 | $ | (3,557 | ) | $ | 3,336 | ||||||||||
ALLOCATION OF NET INCOME FOR NINE MONTHS ENDED SEPTEMBER 30, 2013: |
|||||||||||||||||||||
Net income (loss) |
$ | 4,768 | $ | 1,233 | $ | 892 | $ | (3,557 | ) | $ | 3,336 | ||||||||||
Net income (loss) prior to purchase of properties from New Source Energy on February 13, 2013 |
5,303 | 602 | 140 | (560 | ) | 5,486 | |||||||||||||||
Net income (loss) subsequent to purchase of properties from New Source Energy on February 13, 2013 |
(535 | ) | 631 | 752 | (2,997 | ) | (2,150 | ) | |||||||||||||
Net loss allocable to general partner from February 13, 2013 to September 30, 2013 |
(29 | ) | (117 | ) | |||||||||||||||||
Net loss allocable to subordinated units from February 13, 2013 to September 30, 2013 |
(430 | ) | (1,728 | ) | |||||||||||||||||
Net loss allocable to common units from February 13, 2013 to September 30, 2013 |
(76 | ) | (305 | ) | |||||||||||||||||
Weighted average units outstanding |
6,480,439 | 263,713 | 414,045 | 7,158,197 | |||||||||||||||||
Net loss per common unit from February 13, 2013 to September 30, 2013 |
(0.01 | ) | $ | (0.04 | ) |
See Note 2 for footnotes describing the pro forma amounts. | |||||||||
The accompanying notes are an integral part of these financial unaudited pro forma combined statements. |
1. Basis of Presentation:
The financial statements included in this report present an unaudited pro forma combined balance sheet and unaudited pro forma combined results of operations reflecting the pro forma effect of certain transactions, discussed in detail below, entered into by New Source Energy Partners L.P. ("the Partnership").
The unaudited pro forma combined balance sheet as of September 30, 2013 included in this report gives effect to the Partnership's October 4, 2013 acquisition (the “October Acquisition”) of certain oil and natural gas properties (the “Acquisition Properties”) assuming the acquisition occurred on September 30, 2013 and is derived from the historical consolidated financial statements of the Partnership and reflects the current estimate (which is subject to change) of the purchase price allocation of the Acquisition Properties. The Acquisition Properties are primarily located in the Southern Dome Field. The effective date of the acquisition of the Acquisition Properties was August 1, 2013.
The unaudited pro forma combined statements of operations for the year ended December 31, 2012 and nine months ended September 30, 2013, give effect to the acquisition of the Acquisition Properties and the Partnership’s March 29, 2013 acquisition of certain oil and gas properties (the “March Acquisition” and, together with the October Acquisition, the “Acquisitions”) assuming the Acquisitions occurred on January 1, 2012 and are derived from the historical financial statements of the Partnership, and the historical statements of revenues and direct operating expenses of the Acquisitions and reflect pro forma adjustments based on assumptions the Partnership has deemed appropriate. Pro forma adjustments for the nine months ended September 30, 2013 with respect to the March Acquisition only reflect the pro forma effects on the period prior to completion of the March Acquisition.
The related pro forma adjustments are described below. In the opinion of the Partnership's management, all adjustments have been made that are necessary to present, in accordance with the Securities and Exchange Commission’s (the “SEC”) Regulation S-X, the pro forma combined financial statements. No adjustments have been made to reflect pro forma income taxes as the income tax accounts shown are those of the Partnership’s predecessor, a taxable entity, and in February 2013, in connection with its initial public offering, the Partnership became a nontaxable entity. Therefore, such adjustments would not be meaningful.
The unaudited pro forma combined balance sheet and statements of operations are presented for illustrative purposes only, and do not purport to be indicative of the financial position or results of operations that would actually have occurred if the Acquisitions had occurred as presented in such statements or that may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to factors described in "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2012 and elsewhere in the Partnership's reports and filings with the SEC. The unaudited pro forma combined balance sheet and statements of operations should be read in conjunction with our historical consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 and on our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
The pro forma statements should also be read in conjunction with the historical financial statements and the notes thereto of the Acquisitions reflected therein as filed herewith by the Partnership with the SEC.
2. Pro Forma Adjustments
The unaudited pro forma combined financial statements reflect the following adjustments:
a. |
On October 4, 2013, the Partnership closed the acquisition of the Acquisition Properties in exchange for $5.0 million and 414,045 common units pursuant to a contribution agreement dated October 4, 2013 (the “Contribution Agreement”) with Scintilla, LLC, an Oklahoma limited liability company (“Scintilla”). The Partnership also agreed to provide additional consideration to Scintilla in November 2014 if the production attributable to the Acquisition Properties for the nine-month period ending September 30, 2014 exceeds 383.5 barrels of oil equivalent per day (the "Current Production Average," as defined in the Contribution Agreement). As detailed in the Contribution Agreement, the amount of any such additional consideration will be calculated as the acquisition value of the production increase (applying the same valuation methodology as was used to determine the initial consideration with respect to the Current Production Average) less (i) the capital expenditures incurred attributable to the production growth (including an allowance for the cost of capital for such capital expenditures) and (ii) revenue attributable to any wells that were not producing in paying quantities as of the effective date of the acquisition. The Partnership may satisfy any such additional consideration in cash, common units, or a combination thereof at its discretion. The allocation of purchase price to the fair value of the acquired assets and liabilities assumed was as follows: |
(In thousands) Proved oil and natural gas properties including related equipment Future abandonment costs Fair value of net assets acquired
$
15,188
(166
)
$
15,022
To record the acquisition of the Acquisition Properties.
b. To reflect cash paid and common units issued in November 2013 to fund the acquisition of the Acquisition Properties ($5.0 million plus 414,045 common units valued at $20.34 per unit or $8,421,675, plus $1.6 million of contingent consideration, or $15.0 million). The Company’s initial public offering of common units was not completed until after December 31, 2012. Accordingly, no pro forma earnings per common unit are presented for the year ended December 31, 2012.
c. To record the incremental depreciation, depletion and amortization using full cost method.
d. To record the incremental interest expense associated with the $5.0 million borrowing to fund the cash portion of the purchase price paid for the Acquisition Properties.
3. Oil, Natural Gas and NGL Reserve Disclosures
The following table sets forth certain unaudited pro forma information concerning our proved oil, natural gas and NGL reserves for the year ended December 31, 2012, giving effect to the acquisition of the Acquisitions . There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represent estimates only and should not be construed as being exact:
Oil (Bbls) NSLP Historical March Acquisition October Acquisition Pro Forma Total Total Proved Reserves: Balance, December 31, 2011 Revisions Extensions and discoveries Production Balance, December 31, 2012 Natural Gas (Mcf) NSLP Historical March Acquisition October Acquisition Pro Forma Total Total Proved Reserves: Balance, December 31, 2011 Revisions Extensions and discoveries Production Balance, December 31, 2012 NGL (Bbls) NSLP Historical March Acquisition October Acquisition Pro Forma Total Total Proved Reserves: Balance, December 31, 2011 Revisions Extensions and discoveries Production Balance, December 31, 2012 December 31, 2012 NSLP Historical March Acquisition October Acquisition Pro Forma Total Total Proved Developed Reserves: Oil (Bbls) Natural Gas (Mcf) NGL (Bbls)
953,430
220,823
446,590
1,620,843
(469,630
)
(2,670
)
(6,457
)
(478,757
)
106,400
29,580
-
135,980
(61,010
)
(42,093
)
(61,963
)
(165,066
)
529,190
205,640
378,170
1,113,000
21,605,810
4,350,439
4,516,500
30,472,749
1,295,502
(110,770
)
(263,118
)
921,614
3,512,130
1,332,730
-
4,844,860
(2,278,342
)
(867,759
)
(555,872
)
(3,701,973
)
24,135,100
4,704,640
3,697,510
32,537,250
9,307,940
1,775,981
208,790
11,292,711
57,825
(57,140
)
(4,008
)
(3,323
)
1,049,350
386,350
-
1,435,700
(711,195
)
(202,901
)
(28,522
)
(942,618
)
9,703,920
1,902,290
176,260
11,782,470
249,140
175,340
255,120
679,600
11,980,390
3,371,570
2,923,900
18,275,860
6,182,620
1,515,640
138,390
7,836,650
Summarized in the following tables is information for our standardized measure of discounted cash flows relating to proved reserves as of December 31, 2012, giving effect to the Acquisitions as if the transaction had occurred on January 1, 2012. Future cash flows are computed by applying the 12-month un-weighted first-day-of-the-month average price for the year ended December 31, 2012 to the year-end quantity of proved reserves. Future production, development, site restoration and abandonment costs are derived based on current costs assuming continuation of existing economic conditions. Federal income taxes have not been deducted from future production revenues in the calculation of standardized measure as each partner is separately taxed on their share of the Partnership's taxable income. The information should be viewed only as a form of standardized disclosure concerning possible future cash flows that would result under the assumptions used, but should not be viewed as indicative of fair value. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2012 as well as to the historical statements of revenues and direct operating expenses for the Acquisitions for a discussion of the assumptions used in preparing the information presented.
Year Ended December 31, 2012 NSLP Historical March Acquisition October Acquisition Pro Forma Total (In thousands) Future production revenues Future costs: Production Development Income tax expense 10% annual discount for estimated timing of cash flows Standardized measure of discounted net cash flows
$
435,670
$
95,198
$
50,461
$
581,329
(121,541
)
(31,112
)
(20,717
)
(173,370
)
(52,032
)
(5,997
)
(9,786
)
(67,815
)
(85,090
)
-
-
(85,090
)
(82,746
)
(24,425
)
(6,616
)
(113,787
)
$
94,261
$
33,664
$
13,342
$
141,267
The following table sets forth the principal sources of change in discounted future net cash flows:
Year Ended December 31, 2012 NSLP Historical March Acquisition October Acquisition Pro Forma Total (In thousands) Increase (decrease): Sales, net of production costs Net change in sales prices, net of production costs Changes in estimated future development costs Revisions of previous quantity estimates Previously estimated development costs incurred Extensions and discoveries Changes in income taxes Other Accretion of discount Net increase (decrease) Standardized measure of discounted future net cash flows: Beginning of year End of year
$
(28,235
)
$
(6,316
)
$
(4,211
)
$
(38,762
)
(93,618
)
(21,383
)
1,904
(113,097
)
8,350
-
-
8,350
(5,833
)
-
-
(5,833
)
11,382
-
-
11,382
8,688
3,627
-
12,315
33,532
-
-
33,532
(8,671
)
-
-
(8,671
)
15,333
5,249
1,423
22,005
(59,072
)
(18,823
)
(884
)
(78,779
)
153,333
52,487
14,226
220,046
$
94,261
$
33,664
$
13,342
$
141,267
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