WARREN RESOURCES INC - FORM 8-K - EX-99.2 - July 25, 2014

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Exhibit 99.2


INTRODUCTION

        The following unaudited pro forma condensed combined financial statements of Warren Resources, Inc. as of March 31, 2014, for the year ended December 31, 2013 and for the three months ended March 31, 2014 and 2013 are derived from the historical financial statements of Warren Resources, Inc., Citrus Energy Corporation ("Citrus") and TLK Partners LLC ("TLK"), set forth elsewhere in this offering memorandum, and in each case are qualified in their entirety by reference to such historical financial statements and related notes contained therein. These unaudited pro forma condensed combined financial statements have been prepared to reflect our acquisition of assets in the Marcellus Shale from Citrus, TLK and one other working interest owner, which is described below.

Acquisition of Marcellus Assets

        On July 7, 2014, Warren Resources, Inc. agreed to acquire essentially all of the Marcellus Shale assets of Citrus, TLK and one other working interest owner in exchange for approximately 6.7 million shares of common stock valued at $40 million and cash consideration of $312.5 million, subject to certain post-closing adjustments upon closing of the acquisition (the "Citrus Acquisition").

        The unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statements of operations were derived by adjusting the historical audited and unaudited financial statements of Warren Resources, Inc. The adjustments are based upon information available as of July 21, 2014, and certain estimates and assumptions. Actual effects of the transaction may differ from the pro forma adjustments. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects of the transaction as contemplated and that the pro forma adjustments are factually supportable and give appropriate effect to those assumptions and are properly applied in the unaudited pro forma financial data.

        The summary unaudited pro forma condensed combined financial data assumes that the Citrus Acquisition, this offering, the issuance of approximately 6.7 million shares of our common stock as part of the consideration for the Citrus Acquisition and the closing of our amended and restated credit facility, including borrowings thereunder to fund a portion of the consideration for the Citrus Acquisition, had taken place on March 31, 2014, in the case of the unaudited pro forma combined balance sheet data, and on January 1, 2013, in the case of the unaudited pro forma combined statement of operations data for the year ended December 31, 2013, and the three months ended March 31, 2013 and 2014. These data are subject and give effect to the assumptions and adjustments described in the notes accompanying the unaudited pro forma financial statements included elsewhere in this offering memorandum. The summary unaudited pro forma consolidated financial data are presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Citrus Acquisition and this offering been consummated on the dates indicated, and do not purport to be indicative of statements of financial position or results of operations as of any future date or for any future period.

        The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the notes accompanying such unaudited pro forma financial statements and with the historical audited financial statements and related notes included in this offering memorandum, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this offering memorandum.

        The unaudited pro forma condensed combined financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements", included elsewhere in this offering memorandum.

F-3


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2014

 
   Warren
Resources, Inc.
Historical 		  Citrus
Energy Corp.
Historical 		  TLK
PARTNERS LLC
Historical 		  Pro Forma
Adjustments 		  Warren
Resources, Inc.
Pro Forma 		 

ASSETS

                                

Current Assets

                                

Cash and cash equivalents

   $ 1,833,650   $ 1,955,700   $ 377,227   $ (2,332,927) (a) $ 1,833,650  

Accounts receivable—trade

     13,460,229     16,382,424     1,228,136     (17,610,560) (b)   13,460,229  

Restricted investments in U.S. Treasury Bonds—available for sale, at fair value

     134,906                 —     134,906  

Deferred financing costs

     —     986,965           16,413,035 (c)   17,400,000  

Deferred gathering fees

     —     1,946,159           —     1,946,159  

Other current assets

     4,086,493     1,475,409     139,597     (1,615,006) (d)   4,086,493  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     19,515,278     22,746,657     1,744,960     (5,145,458 )   38,861,437  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other Assets

                                

Oil and gas properties—net, based on full cost method of accounting

     332,241,576                 347,146,118 (e)   679,387,694  

Oil and gas properties—net, based on successful efforts of accounting

           197,249,008     24,022,917     (221,271,925) (e)   —  

Property and equipment—at cost, net

     18,714,416     661,675           (661,675) (f)   18,714,416  

Restricted investments in U.S. Treasury Bonds—available for sale, at fair value

     1,214,159                 —     1,214,159  

Deferred financing costs and other assets

     —     3,034,714           (3,034,714) (g)   —  

Deferred gathering fees

     —     10,512,938           —     10,512,938  

Advances to stockholders and employees

     —     349,227           (349,227) (h)   —  

Deferred bond offering costs,

     729,004                 —     729,004  

Other assets

     3,184,550                 —     3,184,550  

Derivative financial instruments

     88,270                 —     88,270  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total other assets

     356,171,974     211,807,562     24,022,917     121,828,577     713,831,030  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 375,687,252   $ 234,554,219   $ 25,767,877   $ 116,683,119   $ 752,692,467  

LIABILITIES AND STOCKHOLDERS' EQUITY

    
 		    
 		    
 		    
 		    
 		  

Current Liabilities

                                

Current maturities of debentures and long term liabilities

   $ 163,600   $ —         $ —   $ 163,600  

Current maturities of other long-term liabilities

     1,980,962     —     —     —     1,980,962  

Accounts payable and accruals

     25,511,580     24,307,632     24,324,727     (48,632,359) (i)   25,511,580  

Accrued Interest and other expenses

     —     3,243,805           (3,243,805) (j)   —  

Current portion of term loan credit facility

     —     3,412,500           (3,412,500) (k)   —  

Deferred gathering fees payable

     —     2,330,044           —     2,330,044  

Advances from joint interest owners

     —     319,504           (319,504) (l)   —  

Derivative financial instruments

     2,754,790     2,585,842           (2,585,842) (m)   2,754,790  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     30,410,932     36,199,327     24,324,727     (58,194,010 )   32,740,976  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Long-Term Liabilities

                                

Revolving loan credit facility

           20,000,000           (20,000,000) (n)   —  

Term loan credit facility, net of current portion

           184,982,381           (184,982,381) (o)   —  

Debentures, less current portion

     1,472,400                 —     1,472,400  

Other long-term liabilities, less current portion

     28,389,353           881,554     (881,553) (p)   28,389,354  

Deferred gathering fees payable

     —     4,775,171           —     4,775,171  

Overpayment of joint interest billings

     —     1,145,706           (1,145,706) (q)   —  

Accrued project incentive awards

     —     12,331,281           (12,331,281) (r)   —  

High Yield Debt

                       300,000,000 (s)   300,000,000  

Line of credit

     80,500,000                 29,900,000 (s)   110,400,000  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    110,361,753     223,234,539     881,554     110,559,079     445,036,925  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

F-4


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEET (Continued)

AS OF MARCH 31, 2014

 
   Warren
Resources, Inc.
Historical 		  Citrus
Energy Corp.
Historical 		  TLK
PARTNERS LLC
Historical 		  Pro Forma
Adjustments 		  Warren
Resources, Inc.
Pro Forma 		 

Commitments and Contingencies

                                

Stockholders' Equity

                                

8% convertible preferred stock, par value $.0001; authorized 10,000,000 shares, issued and outstanding, 10,703 shares in 2014 and 2013, respectively

                                

(aggregate liquidation preference $128,436 in 2014 and 2013)

     128,437                 —     128,437  

Common Stock—$.0001 par value; authorized, 100,000,000 shares;

     7,354     25,950           (25,283) (t)   8,021  

Member equity

                 561,596     (561,596) (v)   —  

Additional paid-in capital

     471,041,111                 39,999,333 (t)   511,040,444  

Accumulated deficit

     (236,462,804 )   (25,135,112 )         25,135,112 (x)   (236,462,804 )

Non-controlling interests

     —     229,515           (229,515) (v)   —  

Accumulated other comprehensive income, net of applicable income taxes

     200,468                 —     200,468  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total stockholders' equity

     234,914,567     (24,879,647 )   561,596     64,318,051     274,914,566  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 375,687,253   $ 234,554,219   $ 25,767,877   $ 116,683,120   $ 752,692,467  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                       
(a)
Reflects $2.3 million of cash not transferred in the Citrus Acquisition.

(b)
Reflects $1.0 million of receivables not transferred in the Citrus Acquisition.

(c)
Reflects $1 million of Citrus financing costs not transferred in transaction but assumes an additional $17.4 million in offering costs relating to the offering.

(d)
Reflects $1.6 million of other current assets not transferred in the Citrus Acquisition.

(e)
Reflects adjustments to oil and gas properties to incorporate the assets acquired in the Citrus Acquisition and convert from successful efforts accounting method to full cost method.

(f)
Reflects $0.7 million of other property & equipment not transferred in the Citrus Acquisition.

(g)
Reflects $3.0 million of financing costs not transferred in the Citrus Acquisition.

(h)
Reflects $0.3 million of advances not transferred in the Citrus Acquisition.

(i)
Reflects $48.7 million of payables not transferred in the Citrus Acquisition.

(j)
Reflects $3.2 million of accrued interest not transferred in the Citrus Acquisition.

(k)
Reflects $3.4 million of Citrus term loan not transferred in the Citrus Acquisition.

(l)
Reflects $0.3 million of advances not transferred in the Citrus Acquisition.

(m)
Reflects $2.6 million of derivatives not transferred in the Citrus Acquisition.

(n)
Reflects $20 million of revolving loan credit facility not transferred in the Citrus Acquisition.

(o)
Reflects $185 million of Citrus term loan not transferred in the Citrus Acquisition.

(p)
Reflects $0.9 million of liabilities not transferred in the Citrus Acquisition.

(q)
Reflects $1.1 million of overpayments not transferred in the Citrus Acquisition.

(r)
Reflects $12.3 million of incentive awards not transferred in the Citrus Acquisition.

(s)
Reflects $300 million of notes issued to fund the Citrus Acquisition.

(t)
Reflects 6,666,667 shares issued for the Citrus Acquisition.

(v)
Reflects $0.8 million of Citrus equity not transferred in the Citrus Acquisition.

(x)
Reflects $25.1 million of accumulated deficit not transferred in the Citrus Acquisition.

F-5


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2013

 
   Warren
Resources,
Inc.
Historical 		  Citrus
Energy
Corp.
Historical 		  TLK
PARTNERS
LLC
Historical 		  Pro Forma
Adjustments 		  Warren
Resources,
Inc.
Pro Forma 		 

Operating revenues

                                

Oil and gas sales

   $ 30,819,335   $ 11,956,999   $ 1,333,758   $ —   $ 44,110,092  

Transportation revenue

     —     —     —     —     —  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total revenues

     30,819,335     11,956,999     1,333,758     —     44,110,092  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses

                                

Lease operating expense and taxes

     9,796,255     1,742,851     174,881     —     11,713,987  

Depreciation, depletion and amortization

     11,570,452     5,365,369     421,275     (922,436 )(a)   16,434,660  

Expiration and impairment of unproved properties

     —     470,000           (470,000 )(b)   —  

Transportation expenses

     —     322,639     —     —     322,639  

Deferred compensation

           1,441,534           (1,441,534 )(c)   —  

General and administrative

     4,317,531     944,488     402,374     (402,374 )(d)   5,262,019  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total operating expenses

     25,684,238     10,286,881     998,530     (3,236,344 )   33,733,305  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from operations

     5,135,097     1,670,118     335,228     3,236,344     10,376,787  

Other income (expense)

                                

Interest and other income

     15,308     70,524           (70,524 )(e)   15,308  

Gain on sales of natural gas properties and equipment

                 190,052     (190,052 )   —  

Interest expense

     (750,020 )   (2,328,385 )   (382,301 )   (3,093,714 )(e)   (6,554,420 )

Gain (loss) on derivative financial instruments

     (1,565,193 )   (360,577 )   241,450     119,127 (f)   (1,565,193 )

Total other income (expense)

     (2,299,905 )   (2,618,438 )   49,201     (3,235,163 )   (8,104,305 )
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income before income taxes

     2,835,192     (948,320 )   384,429     1,181     2,272,482  

Deferred income tax expense (benefit)

     7,000     —     —     —     7,000  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     2,828,192     (948,320 )   384,429     1,181     2,265,482  

Net income attributable to non-controlling interests

           394,521           (394,521 )(g)   —  

Less dividends and accretion on preferred shares

     2,569     —     —     —     2,569  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income applicable to common stockholders

   $ 2,825,623   $ (1,342,841 ) $ 384,429   $ 395,702   $ 2,262,913  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                       
(a)
Reflects incremental depreciation, depletion and amortization expense of approximately $0.5 million for the period from January 1, 2013 through March 31, 2013, under full cost using the units-of-production method, related to Citrus' gas properties to be acquired pursuant to the Citrus Acquisition.

(b)
Reflects adjustment of approximately $0.5 million as the result of conversion to full cost method of accounting.

(c)
Reflects adjustment of approximately $1.4 million of nonrecurring G&A relating to change of control provisions.

(d)
Reflects adjustment of approximately $0.4 million of nonrecurring G&A for Citrus and TLK for certain employees salaries and bonuses that will not be assumed by us in connection with the Citrus Acquisition.

F-6


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(e)
Reflects the elimination of Citrus and TLK's interest income and expense of approximately $2.6 million and $5.8 million of additional interest expense attributable to the debt financing relating to the Citrus Acquisition at an assumed rate of 7.5% per annum.

(f)
Reflects adjustment of approximately $0.1 million relating to derivative activity as no derivatives will be assumed by us in connection with the Citrus Acquisition.

(g)
Reflects adjustment of approximately $0.4 million of minority interest that is not being assumed by us in connection with the Citrus Acquisition.

F-7


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013

 
   Warren
Resources,
Inc. Historical 		  Citrus
Energy
Corp.
Historical 		  TLK
PARTNERS
LLC
Historical 		  Pro Forma
Adjustments 		  Warren
Resources,
Inc.
Pro Forma 		 

Operating revenues

                                

Oil and gas sales

   $ 127,924,839   $ 52,717,739   $ 5,321,272   $ —   $ 185,963,850  

Transportation revenue

     919,512     —     —     —     919,512  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total revenues

     128,844,351     52,717,739     5,321,272     —     186,883,362  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses

                                

Lease operating expense and taxes

     36,778,926     8,385,303     584,805     —     45,749,034  

Depreciation, depletion and amortization

     44,805,611     18,632,653     1,570,413     (2,680,894 )(a)   62,327,783  

Expiration and impairment of unproved properties

     —     6,846,268     —     (6,846,268 )(b)   —  

Deferred compensation

     —     5,766,137     —     (5,766,137 )(c)   —  

Transportation expenses

     311,273     1,057,496     —     —     1,368,769  

General and administrative

     15,389,439     4,303,053     1,980,439     (3,794,293 )(d)   17,878,638  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total operating expenses

     97,285,250     44,990,910     4,135,657     (19,087,592 )   127,324,224  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from operations

     31,559,102     7,726,829     1,185,615     19,087,592     59,559,138  

Other income (expense)

                                

Interest and other income

     5,362,132     1,856,528     1,008,238     (2,864,766 )(e)   5,362,132  

Interest expense

     (2,994,724 )   (14,975,880 )   (1,447,166 )   (8,969,554 )(e)   (28,387,324 )

Gain (loss) on derivative financial instruments

     (3,476,982 )   940,250     —     (940,250 )(f)   (3,476,982 )
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total other income (expense)

     (1,109,574 )   (12,179,102 )   (438,928 )   (12,774,570 )   (26,502,174 )
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income before income taxes

     30,449,527     (4,452,273 )   746,687     6,313,022     33,056,964  

Deferred income tax expense (benefit)

     64,000     —     —     —     64,000  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     30,385,527     (4,452,273 )   746,687     6,313,022     32,992,964  

Net income attributable to non-controlling interests

           907,275           (907,275 )(g)   —  

Less dividends and accretion on preferred shares

     10,275     —     —     —     10,275  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income applicable to common stockholders

   $ 30,375,252   $ (5,359,548 ) $ 746,687   $ 7,220,297   $ 32,982,689  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                       
(a)
Reflects incremental depreciation, depletion and amortization expense of approximately $2.7 million for the period from January 1, 2013 through December 31, 2013, under full cost using the units-of-production method, related to Citrus' and TLK's gas properties to be acquired pursuant to the Citrus Acquisition.

(b)
Reflects adjustment of approximately $6.9 million as the result of conversion to full cost method of accounting.

(c)
Reflects adjustment of approximately $5.8 million of nonrecurring G&A relating to change of control provisions.

(d)
Reflects adjustment of approximately $3.8 million of nonrecurring G&A for Citrus and TLK for certain employees salaries and bonuses that will not be assumed by us with the Citrus Acquisition.

F-8


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2013

(e)
Reflects the elimination of Citrus and TLK's interest income and expense of approximately $13.6 million and $25.4 million of interest expense attributable to the debt financing relating to the Citrus Acquisition at an assumed rate of 7.5% per annum.

(f)
Reflects adjustment of approximately $0.9 million relating to derivative activity as no derivatives will be assumed by us in connection with the Citrus Acquisition.

(g)
Reflects adjustment of approximately $0.9 million of minority interest that is not being assumed by us in connection with the Citrus Acquisition.

F-9


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

 
   Warren
Resources, Inc.
Historical 		  Citrus
Energy Corp.
Historical 		  TLK
PARTNERS LLC
Historical 		  Pro Forma
Adjustments 		  Warren
Resources, Inc.
Pro Forma 		 

Operating revenues

                                

Oil and gas sales

   $ 32,879,114   $ 25,990,832   $ 2,365,719   $ —   $ 61,235,665  

Transportation revenue

     1,323,216     —     —     —     1,323,216  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total revenues

     34,202,330     25,990,832     2,365,719     —     62,558,881  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses

                                

Lease operating expense and taxes

     9,501,817     4,472,018     426,379     —     14,670,214  

Depreciation, depletion and amortization

     10,354,837     8,333,731     596,75     (2,857,627 )(a)   16,427,216  

Expiration and impairment of unproved properties

     —                 —     —  

Transportation expenses

     564,838     464,765     —     —     1,029,603  

Deferred compensation

           343,000           (343,000 )(b)   —  

General and administrative

     3,965,838     1,547,597     255,945     (792,857 )(c)   4,976,523  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total operating expenses

     24,387,330     15,431,111     1,278,599     (3,993,485 )   37,103,555  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income from operations

     9,815,000     10,559,721     1,087,120     3,993,485     25,455,326  

Other income (expense)

                                

Interest and other income

     133,929     93,700           (93,700 )(d)   133,929  

Interest expense

     (754,517 )   (5,489,385 )   (302,112 )   (556,653 )(d)   (7,102,667 )

Gain (loss) on derivative financial instruments

     (992,622 )   (3,709,263 )   251,072     3,458,191 (e)   (992,622 )
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total other income (expense)

     (1,613,209 )   (9,104,948 )   (51,040 )   2,807,838     (7,961,359 )
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income before income taxes

     8,201,791     1,454,773     1,036,080     6,801,323     17,493,966  

Deferred income tax expense (benefit)

     (8,000 )   —     —     —     (8,000 )
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income

     8,209,791     1,454,773     1,036,080     6,801,323     17,501,966  

Less dividends and accretion on preferred shares

     2,569     —     —     —     2,569  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income applicable to common stockholders

   $ 8,207,222   $ 1,454,773   $ 1,036,080   $ 6,801,323   $ 17,499,397  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                       
(a)
Reflects incremental depreciation, depletion and amortization expense of approximately $2.3 million for the period from January 1, 2014 through March 31, 2014, under full cost using the units-of-production method, related to Citrus' gas properties to be acquired.

(b)
Reflects adjustment of approximately $0.3 million of nonrecurring G&A relating to change of control provisions.

F-10


WARREN RESOURCES, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(c)
Reflects adjustment of approximately $0.8 million of nonrecurring G&A for Citrus and TLK for certain employees salaries and bonuses that will not be assumed by us in connection with the Citrus Acquisition.

(d)
Reflects the elimination of Citrus and TLK's interest income and expense of approximately $5.8 million and $6.3 million of interest expense attributable to the debt financing relating to the Citrus Acquisition at on assumed rate of 7.5% per annum.

(e)
Reflects adjustment of approximately $3.5 million relating to derivative activity as no derivatives will be assumed by us in connection with the Citrus Acquisition.

*****************************************

F-11



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