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8-K - FORM 8-K - Breitburn Energy Partners LPd796723d8k.htm
EX-99.2 - EX-99.2 - Breitburn Energy Partners LPd796723dex992.htm
EX-12.1 - EX-12.1 - Breitburn Energy Partners LPd796723dex121.htm
EX-99.1 - EX-99.1 - Breitburn Energy Partners LPd796723dex991.htm
EX-23.3 - EX-23.3 - Breitburn Energy Partners LPd796723dex233.htm
EX-23.2 - EX-23.2 - Breitburn Energy Partners LPd796723dex232.htm
EX-23.1 - EX-23.1 - Breitburn Energy Partners LPd796723dex231.htm

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for the merger of Merger Sub, a subsidiary of Breitburn, with and into QRE, with QRE surviving the merger as a wholly-owned subsidiary of Breitburn.

The pro forma financial statements have been prepared using the acquisition method of accounting for business combinations under U.S. GAAP.

The historical financial information included in the columns entitled “Breitburn” was derived from the unaudited financial statements included in Breitburn’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and its Annual Report on Form 10-K for the year ended December 31, 2013. The historical financial information included in the columns entitled “QRE” was derived from financial information included in QRE’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, and Annual Report on Form 10-K for the year ended December 31, 2013, which are attached as Exhibit 99.2, respectively, to this Current Report on Form 8-K.

On December 30, 2013, Breitburn completed acquisitions of oil and natural gas properties located in the Permian Basin in Texas from CrownRock, L.P. for approximately $282 million in cash, and in December 2013, Breitburn completed the acquisition of additional interests in certain of the acquired assets in the Permian Basin from other sellers for an additional $20 million (collectively, the “Permian Basin Acquisitions”).

On July 15, 2013, Breitburn completed the acquisition of certain oil and natural gas and midstream assets located in Oklahoma, New Mexico and Texas, certain CO2 supply contracts, certain crude oil swaps and interests in certain entities from Whiting Oil and Gas Corporation (“Whiting”) for approximately $845 million in cash (the “Whiting Acquisition”), including post-closing adjustments.

The unaudited pro forma combined balance sheet at June 30, 2014 has been presented to show the effect as if the merger and the pro forma adjustments had occurred on June 30, 2014. The Whiting Acquisition and the Permian Basin Acquisitions were included in Breitburn’s historical balance sheet at June 30, 2014, and, as such, there are no pro forma adjustments related to the Permian Basin Acquisitions and the Whiting Acquisition.

The unaudited pro forma combined statement of operations for the six months ended June 30, 2014 and for the year ended December 31, 2013 have been presented based on Breitburn’s individual statement of operations, and reflect the pro forma operating results attributable to the merger agreement, the Permian Basin Acquisitions and the Whiting Acquisition as if the merger and acquisitions and the related transactions had occurred on January 1, 2013. Breitburn’s historical statements of operations include operating results from the Permian Basin Acquisitions for the six months ended June 30, 2014 and, as such, there are no pro forma adjustments related to the Permian Basin Acquisitions for this period. Breitburn’s historical statements of operations include operating results from the Whiting Acquisition for the period from July 15, 2013 to June 30, 2014 and, as such, the pro forma adjustments related to the Whiting Acquisition for the period January 1, 2013 to July 15, 2013 are included for the year ended December 31, 2013.

Pro forma data is based on currently available information and certain estimates and assumptions as explained in the notes to the unaudited pro forma combined financial statements. Pro forma data is not necessarily indicative of the financial results that would have been attained had the merger agreement and Permian Basin and Whiting acquisitions occurred on January 1, 2013. As actual adjustments may differ from the pro forma adjustments, the pro forma amounts presented should not be viewed as indicative of operations in future periods.

The unaudited pro forma combined financial information is based on assumptions that Breitburn believes are reasonable under the circumstances and are intended for informational purposes only. Actual results may differ from the estimates and assumptions used. The unaudited pro forma combined financial information is not necessarily indicative of the financial results that would have occurred if these transactions had taken place on the dates indicated, nor is it indicative of future consolidated results.

 

F-1


Breitburn Energy Partners LP and Subsidiaries

Unaudited Pro Forma Combined Balance Sheet

As of June 30, 2014

 

Thousands of dollars

  Breitburn
Historical
    QRE
Historical
(Note 1)
    Pro Forma
Adjustments
(Note 2)
    Breitburn
Pro Forma
Combined
 

ASSETS

       

Current assets

       

Cash

  $ 9,015      $ 6,415      $ 743,174 (b)(c)(d)(e)    $ 15,430   
        (743,174 )(b)(c)(d)(e)   

Accounts and other receivables, net

    97,630        56,116        —          153,746   

Derivative instruments

    2,240        15,065        —          17,305   

Related party receivables

    1,282        4,380        —          5,662   

Inventory

    9,237        —          —          9,237   

Prepaid expenses

    393        4,122        —          4,515   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    119,797        86,098        —          205,895   

Equity investments

    6,360        —          —          6,360   

Property, plant and equipment

       

Oil and gas properties

    4,988,859        2,031,538        298,042 (a)      7,318,439   

Non-oil and gas assets

    30,932        15,033        (277 )(a)      45,688   
 

 

 

   

 

 

   

 

 

   

 

 

 

Property, plant and equipment

    5,019,791        2,046,571        297,765        7,364,127   

Accumulated depletion and depreciation

    (1,049,498     (379,083     379,083 (a)      (1,049,498
 

 

 

   

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

    3,970,293        1,667,488        676,848        6,314,629   

Other long-term assets

       

Intangibles

    10,282        —          —          10,282   

Goodwill

    —          —          778,815 (a)      778,815   

Derivative instruments

    3,631        14,265        —          17,896   

Other long-term assets

    75,489        57,894        (9,016 )(a)(b)      143,941   
        19,574 (c)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 4,185,852      $ 1,825,745      $ 1,466,221      $ 7,477,818   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

F-2


Thousands of dollars

  Breitburn
Historical
    QRE
Historical
(Note 1)
    Pro Forma
Adjustments
(Note 2)
    Breitburn
Pro Forma

Combined
 

LIABILITIES AND EQUITY

       

Current liabilities

       

Accounts payable

  $ 64,329      $ 42,192      $ —        $ 106,521   

Current portion of asset retirement obligation

    —          4,356        —          4,356   

Derivative instruments

    48,827        26,009        —          74,836   

Distributions payable

    1,833        14,221        —          16,054   

Revenue and royalties payable

    36,308        —          —          36,308   

Wages and salaries payable

    10,817        —          —          10,817   

Accrued interest payable

    19,515        11,563        —          31,078   

Accrued liabilities

    33,743        10,643        —          44,386   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    215,372        108,984        —          324,356   

Credit facility

    655,500        715,000        333,600 (a)(b)      2,113,674   
        350,000 (d)   
        40,000 (e)   
        19,574 (c)   

Senior notes, net

    1,156,618        296,852        (296,852 )(b)      1,156,618   

Deferred Class B unit obligation

    —          153,749        (153,749 )(f)      —     

Deferred income taxes

    2,468        2,352        —          4,820   

Asset retirement obligation

    129,394        156,447        —          285,841   

Derivative instruments

    41,951        19,471        —          61,422   

Other long-term liabilities

    4,922        11,857        —          16,779   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    2,206,225        1,464,712        292,573        3,963,510   

Commitments and contingencies

       

Equity

       

Series A preferred units, 8.0 million units issued and outstanding at June 30, 2014 and 0 at December 31, 2013

    193,226        —          —          193,226   

Common units, 120.2 million units issued and outstanding at June 30, 2014 and 119.2 million at December 31, 2013

    1,786,401        —          1,562,437 (f)      3,308,838   
        (40,000 )(e)   

Class C convertible preferred unitholders (16,666,667 units issued and outstanding as of June 30, 2014 and December 31, 2013)

    —          396,639        (396,639 )(d)      —     

Public common unitholders (51,618,330 and 51,483,263 units issued and outstanding as of June 30, 2014 and December 31, 2013)

    —          63,438        (63,438 )(f)      —     

Affiliated common unitholders (7,145,866 units issued and outstanding as of June 30, 2014 and December 31, 2013)

    —          (111,288     111,288 (f)      —     

Accumulated other comprehensive income

    —          2,912        —   (a)      2,912   

Noncontrolling interest

    —          9,332        —   (a)      9,332   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,979,627        361,033        1,173,648        3,514,308   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 4,185,852      $ 1,825,745      $ 1,466,221      $ 7,477,818   
 

 

 

   

 

 

   

 

 

   

 

 

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

F-3


Breitburn Energy Partners LP and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

For the Six Months Ended June 30, 2014

 

Thousands of dollars, except per unit amounts

   Breitburn
Historical
    QRE
Historical
(Note 1)
    Pro Forma
Adjustments
(Note 3)
    Breitburn
Pro Forma
Combined
 

Revenues and other income items

        

Oil, NGLs and natural gas sales

   $ 442,607      $ 246,786      $ —        $ 689,393   

Loss on commodity derivative instruments, net

     (167,228     (88,922     —          (256,150

Other revenue, net

     2,655        9,143        —          11,798   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues and other income items

     278,034        167,007        —          445,041   

Operating costs and expenses

        

Operating costs

     165,257        104,724        149 (g)      270,130   

Depletion, depreciation and amortization

     131,746        64,905        3,609 (h)      200,260   

General and administrative expenses

     35,149        23,922        —          59,071   

Loss on sale of assets

     420        —          —          420   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     332,572        193,551        3,758        529,881   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (54,538     (26,544     (3,758     (84,840

Interest expense, net of capitalized interest

     60,866        26,669        (12,342 )(k)      75,193   

Loss on Deferred Class B unit obligation

     —          11,972        (11,972 )(l)      —     

Other income, net

     (773     (241     —          (1,014
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     60,093        38,400        (24,314     74,179   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes

     (114,631     (64,944     20,556        (159,019

Income tax expense (benefit)

     (148     352        —          204   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (114,483     (65,296     20,556        (159,223

Less: Net income attributable to noncontrolling interest

     —          668        —          668   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the partnership

     (114,483     (65,964     20,556        (159,891

Less: Distributions to preferred unitholders

     1,833        —          —          1,833   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common unitholders

   $ (116,316   $ (65,964   $ 20,556      $ (161,724
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net loss per unit

   $ (0.97       $ (0.84
  

 

 

       

 

 

 

Diluted net loss per unit

   $ (0.97       $ (0.84
  

 

 

       

 

 

 

Weighted average number of units used to calculate (d)

        

Basic net loss per unit

     119,466          72,002 (m)      191,468   
  

 

 

     

 

 

   

 

 

 

Diluted net loss per unit

     119,466          72,002 (m)      191,468   
  

 

 

     

 

 

   

 

 

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

F-4


Breitburn Energy Partners LP and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2013

 

Thousands of dollars, except per unit amounts

   Breitburn
Historical
    QRE
Historical
(Note 1)
    Whiting and
Permian Basin
Acquisitions
Historical
     Pro Forma
Adjustments
(Note 3)
    Breitburn
Pro Forma
Combined
 

Revenues and other income items

           

Oil, NGLs, and natural gas sales

   $ 660,665      $ 446,801      $ 191,648       $ —        $ 1,299,114   

Loss on commodity derivative instruments, net

     (29,182     (1,217     —           —          (30,399

Other revenue, net

     3,175        8,828        —           —          12,003   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues and other income items

     634,658        454,412        191,648         —          1,280,718   

Operating costs and expenses

           

Operating costs

     262,822        180,698        43,648         614 (g)      487,782   

Depletion, depreciation and amortization

     216,495        122,640        —           3,166 (h)      388,833   
            46,532 (i)   

Impairments

     54,373        —          —           —          54,373   

General and administrative expenses

     58,707        43,388        —           (3,397 )(j)      98,698   

Gain on sale of assets

     (2,015     —          —           —          (2,015
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating costs and expenses

     590,382        346,726        43,648         46,915        1,027,671   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

     44,276        107,686        148,000         (46,915     253,047   

Interest expense, net of capitalized interest

     87,067        48,000        —           (18,952 )(k)      116,115   

Other income, net

     (25     (1,589     —           —          (1,614
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total other expense

     87,042        46,411        —           (18,952     114,501   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before taxes

     (42,766     61,275        148,000         (27,963     138,546   

Income tax expense (benefit)

     905        (353     —           —          552   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

     (43,671     61,628        148,000         (27,963     137,994   

Less: Net loss attributable to noncontrolling interest

     —          (663     —           —          (663
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to the partnership

   $ (43,671   $ 60,965      $ 148,000       $ (27,963   $ 137,331   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Basic net income (loss) per unit

   $ (0.43          $ 0.71   
  

 

 

          

 

 

 

Diluted net income (loss) per unit

   $ (0.43          $ 0.71   
  

 

 

          

 

 

 

Weighted average number of units used to calculate

           

Basic net income (loss) per unit

     101,604             90,724 (m)      192,328   
  

 

 

        

 

 

   

 

 

 

Diluted net income (loss) per unit

     101,604             91,088 (m)      192,692   
  

 

 

        

 

 

   

 

 

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

F-5


Notes to the Unaudited Pro Forma Combined Financial Statements

 

1. The QRE Historical Financial Statements

The QRE historical financial statements reflect the balance sheet and results of operations derived from QRE’s audited financial statements as of and for the year ended December 31, 2013 and the unaudited financial statements for the six months ended June 30, 2014. The QRE historical financial statements as presented include the following reclassifications to conform to Breitburn’s financial statement presentation.

 

Thousands of dollars

   QRE Historical
As filed
    QRE Historical
As presented
 

Balance Sheet as of June 30, 2014

    

Other property, plant and equipment

   $ 15,033      $ —     

Non-oil and gas assets

     —          15,033   
  

 

 

   

 

 

 

Accrued and Other Liabilities

   $ 78,619      $ —     

Accounts Payable

     —          42,192   

Distributions payable

     —          14,221   

Accrued interest payable

     —          11,563   

Accrued liabilities

     —          10,643   
  

 

 

   

 

 

 

Long-term debt

   $ 1,011,852      $ —     

Credit facility

     —          715,000   

Senior notes, net

     —          296,852   

Income Statement for the Six Months ended June 30, 2014

    

Other income (expense)

    

Gain (loss) on commodity derivative contracts, net

   $ (88,922   $ —     

Revenues and other income items

    

Gain (loss) on commodity derivative instruments, net

     —          (88,922
  

 

 

   

 

 

 

Production expenses

   $ 97,016      $   

Disposal and related expenses

     7,708        —     

Operating costs

     —          104,724   
  

 

 

   

 

 

 

Depreciation, depletion and amortization

   $ 60,592      $ 64,905   

Accretion of asset retirement obligation

     4,313        —     
  

 

 

   

 

 

 

General and administrative expenses

   $ 19,616      $ 23,922   

Acquisition and transaction costs

     4,306        —     

Income Statement for the Year ended December 31, 2013

    

Other income (expense)

    

Gain (loss) on commodity derivative contracts, net

   $ (1,217   $ —     

Revenues and other income items

    

Gain (loss) on commodity derivative instruments, net

     —          (1,217
  

 

 

   

 

 

 

Production expenses

   $ 174,101      $ —     

Disposal and related expenses

     6,597        —     

Operating costs

     —          180,698   
  

 

 

   

 

 

 

Depreciation, depletion and amortization

   $ 115,184      $ 122,640   

Accretion of asset retirement obligation

     7,456        —     
  

 

 

   

 

 

 

General and administrative expenses

   $ 41,901      $ 43,388   

Acquisition and transaction costs

     1,487        —     

 

F-6


2. Pro Forma Adjustments to the Unaudited Combined Balance Sheet

The merger agreement provides that, at the effective date, each QRE common unit and Class B unit issued and outstanding, or deemed issued (including Contingent Class B units) and outstanding as of immediately prior to the effective time will be converted into the right to receive 0.9856 Breitburn common units. However, in no event will Breitburn be obligated to issue in excess of 72,001,686 common units as consideration for the merger. Using a closing Breitburn unit price at September 18, 2014 of $21.70, the estimated value of Breitburn’s common unit consideration is $1,562.4 million. The final value of Breitburn’s common unit consideration will be determined based on the actual number of Breitburn units issued and the market price of Breitburn’s common units as of the date of acquisition. A five percent increase or decrease in the closing price of Breitburn’s common units, compared to the September 18, 2014 closing price of $21.70, would increase or decrease the value of Breitburn’s common unit consideration by approximately $78 million.

In addition, under the terms of the merger agreement, the holders of QRE Class C units will receive an amount of cash equal to $350 million divided by the number of Class C units outstanding immediately prior to the effective time.

The preliminary estimated purchase price allocation is based on discounted cash flows, quoted market prices and estimates made by management, the most significant assumptions related to the estimated fair values assigned to oil and gas properties. To estimate the fair values of the properties, estimates of oil and gas reserves were prepared by management in consultation with independent engineers. We apply strip pricing to the estimated reserve quantities acquired, and estimate future operating and development costs to arrive at estimates of future net revenues. For estimated proved reserves, the future net revenues are discounted using a weighted average cost of capital of approximately 9%. Accordingly, the pro forma fair value adjustments are preliminary and have been made solely for the purpose of providing pro forma financial statements. The actual fair values of the assets acquired and liabilities assumed may differ materially from the amounts presented in the below purchase price allocation as further analysis is completed. Accordingly, the final allocation of the purchase price may result in different adjustments than those shown in the unaudited pro forma financial statements, and these differences may have a material impact on the accompanying pro forma financial statements and the combined future results of operations and financial position.

 

  (a) Pro forma adjustments to the Unaudited Combined Balance Sheet at June 30, 2014 reflect the merger and the preliminary estimated purchase price for the QRE merger. The preliminary allocation of the purchase price for the QRE merger is as follows:

 

Thousands of dollars

      

Oil and gas properties

   $ 2,329,580 (i) 

Non-oil and gas assets—ETSWDC

     14,756 (i) 

Goodwill

     778,815   

Other assets acquired net of liabilities assumed

     10,933   

Current portion of asset retirement obligation

     (4,356

Long-term portion of asset retirement obligation

     (156,447

Credit facility debt assumed

     (715,000

Senior Notes assumed—at fair value

     (333,600

Accumulated other comprehensive income

     (2,912

Non-controlling interest

     (9,332
  

 

 

 

Total common unit and cash consideration

   $ 1,912,437   
  

 

 

 

 

  i. The estimated fair value of the oil and gas properties is $2,329.6 million, resulting in a fair value pro forma adjustment of $298.0 million. QRE Historical accumulated depletion and depreciation was eliminated by a pro forma adjustment of $379.1 million to reflect property, plant and equipment at fair value.

 

F-7


QRE owns a 59% ownership interest in East Texas Salt Water Disposal Company (“ETSWDC”), a saltwater disposal company, and it consolidates the results for this company as it holds a majority interest. At June 30, 2014, the fair value was approximately $14.8 million, which is reflected in non-oil and gas assets. The non-controlling interest for ETSWDC at June 30, 2014 was $9.3 million.

 

  (b) QRE’s senior notes have a face value of $300 million, a net book value of $296.9 million and a fair value of $333.6 million. We assume the senior notes are retired and are refinanced with borrowings under our credit facility, and, as such, pro forma adjustments include a reduction to senior notes of $296.9 million, an increase to credit facility debt of $333.6 million and a reduction of other long-term assets by $9.0 million, to eliminate QRE’s debt issuance costs associated with its senior notes and existing credit facility, which will be refinanced under our new credit facility (see (c) below).

 

  (c) Other long-term assets and credit facility debt reflect $19.6 million in pro forma adjustments for borrowings to fund estimated debt issuance costs related to the expected increase in our borrowing base from $1.6 billion to $2.5 billion. The debt issuance costs are amortized over an assumed five-year term.

 

  (d) Reflects $350 million of pro forma borrowings under our credit facility to pay the holders of QRE Class C convertible preferred units and a pro forma adjustment of $396.6 million to eliminate the book value of QRE Class C convertible preferred units.

 

  (e) Reflects borrowings to pay $40 million in estimated transaction costs, consisting of investment banking fees, legal fees and other merger-related transaction costs. The transaction costs are excluded from the pro forma statements of operations, and instead included as an adjustment to common unit equity, as they reflect non-recurring charges not expected to have a continuing impact on the combined results.

 

  (f) Based on the terms of the merger agreement, holders of QRE common units and Class B units (including Contingent Class B units) will receive approximately 72 million Breitburn common units, or 0.9856 Breitburn common unit for each QRE common unit or Class B unit. As such, pro forma adjustments include $1,562.4 million for the issuance of Breitburn common units. In addition, pro forma adjustments to eliminate QRE’s historical equity accounts include $153.7 million for the Class B unit obligation, $63.4 million for QRE common units held by the public and $111.3 million for QRE common units held by affiliates.

 

3. Pro Forma Adjustments to the Unaudited Combined Statements of Operations

The unaudited pro forma combined statements of operations have been adjusted as follows:

 

  (g) For the six months ended June 30, 2014 and the year ended December 31, 2013:

Reflects an increase in operating costs of $0.1 million and $0.6 million, respectively, to account for geological, geophysical and delay rental expenditures using the successful efforts method rather than the full cost method used by QRE.

 

  (h) For the six months ended June 30, 2014:

Reflects $3.6 million of incremental depletion, depreciation and amortization (“DD&A”) calculated using the fair value of QRE’s oil and gas properties.

 

       For the year ended December 31, 2013:

Reflects $3.2 million of incremental DD&A calculated using the fair value of QRE’s oil and gas properties.

 

  (i) Reflects $46.5 million of incremental DD&A related to the oil and gas properties acquired in the Permian Basin and Whiting acquisitions.

 

F-8


  (j) Reflects $1.1 million in incremental general and administrative (“G&A”) expenses for the Permian Basin and Whiting acquisitions and an adjustment to remove acquisition transaction costs from G&A expenses related to the Whiting assets of $4.5 million.

 

  (k) For the six months ended June 30, 2014:

Reflects a $12.3 million decrease in interest expense associated with QRE’s debt, assuming the retirement of QRE’s senior notes and the refinancing of all debt under our new credit facility (as detailed in 2 (a) through 2 (e) above). The assumed variable rate was 2.279% for the six months ended June 30, 2014. If the variable interest rate increased or decreased by 0.125% from the assumed variable rate, the six month ended June 30, 2014 pro forma interest expense would have increased or decreased by $2.4 million.

 

       For the year ended December 31, 2013:

Reflects a $19.0 million decrease in interest expense attributable to the elimination of QRE’s historical interest expense of $48.0 million, partially offset by $29.0 million of interest expense associated with borrowings to fund the QRE merger and the Whiting and Permian Basin acquisitions. The assumed variable rate was 2.189% for the year ended December 31, 2013. If the variable interest rate increased or decreased by 0.125% from the assumed variable rate, the year ended December 31, 2013 pro forma interest expense would have increased or decreased by $2.2 million.

 

  (l) For the six months ended June 30, 2014:

Eliminate the $12.0 million loss on Deferred Class B unit obligation based on the terms of the merger agreement (see 4 (f) above for a discussion of the Class B units).

 

  (m) For the six months ended June 30, 2014:

Give effect, as of January 1, 2013, of the 72.0 million Breitburn common units issued as partial consideration for the merger to the denominator for calculating net income (loss) per unit.

 

       For the year ended December 31, 2013:

Give effect, as of January 1, 2013, of the 72.0 million Breitburn common units issued as partial consideration for the merger to the denominator for calculating net income (loss) per unit, and the Breitburn common units issued for the February 2013 and November 2013 equity offerings. Also, include weighted average participating securities and dilutive units (previously not included in the denominator of net income (loss) per unit) as the pro forma combined statement of operations is in an income position compared to a loss position for Breitburn’s historical statement of operations.

 

F-9


4. Supplemental Oil and Gas Information (Unaudited)

The following table sets forth certain unaudited pro forma information regarding estimates of Breitburn’s proved crude oil, natural gas and NGL reserves for the year ended December 31, 2013, giving effect to the merger as if it had occurred on January 1, 2013. Because reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures.

 

    Breitburn
Historical
    QRE
Historical
    Breitburn
Pro Forma
 
    Total
(MBoe)
    Crude
oil (in
MBbls)
    NGL
(in
MBbls)
    Natural
Gas
(in
MMcf)
    Total
(MBoe)
    Crude
oil (in
MBbls)
    NGL
(in
MBbls)
    Natural
Gas
(in
MMcf)
    Total
(MBoe)
    Crude
oil (in
MBbls)
    NGL
(in
MBbls)
    Natural
Gas
(in
MMcf)
 

Net proved reserves

                       

Beginning Balance

    149,398        73,593        5,381        422,545        99,110        56,838        10,552        190,320        248,508        130,431        15,933        612,865   

Revision of previous estimates

    13,696        (3,312     2,678        85,985        3,671        8,429        241        (29,997     17,367        5,117        2,919        55,988   

Purchase of previous reserves in-place

    60,933        47,655        8,223        30,331        7,393        7,229        163        3        68,326        54,884        8,386        30,334   

Sale of reserves in-place

    (91     (91     —          —          —          —          —          —          (91     (91     —          —     

Extensions, discoveries and other

    1,317        1,014        48        1,527        5,443        4,342        616        2,912        6,760        5,356        664        4,439   

Production

    (10,983     (5,651     (640     (28,156     (6,535     (3,823     (796     (11,497     (17,518     (9,474     (1,436     (39,653
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

    214,271        113,208        15,690        512,233        109,081        73,015        10,776        151,741        323,352        186,223        26,467        663,974   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proved developed reserves

                       

Beginning Balance

    119,721        56,688        2,469        363,378        74,562        44,487        8,125        131,700        194,283        101,175        10,594        495,078   

Ending Balance

    173,421        86,271        10,236        461,485        92,696        61,492        9,505        130,201        266,117        147,763        19,741        591,686   

Proved undeveloped reserves

                       

Beginning Balance

    29,677        16,905        2,912        59,167        24,549        12,351        2,427        58,620        54,226        29,256        5,339        117,787   

Ending Balance

    40,850        26,938        5,454        50,748        16,385        11,524        1,272        21,540        57,235        38,462        6,726        72,288   

Unweighted average first-day-of-the-month oil and natural gas prices used to determine our total estimated proved reserves as of December 31, 2013 were $96.94 per Bbl of oil and $3.67 per MMBtu of gas.

Summarized in the following table is information for Breitburn’s unaudited pro forma standardized measure of discounted cash flows relating to estimated proved reserves as of December 31, 2013, giving effect to the merger. The standardized measure of discounted future net cash flows was determined based on the economic conditions in effect at December 31, 2013. The disclosures below do not purport to present the fair market value of Breitburn’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and risks inherent in reserve estimates. The pro forma standardized measure of discounted future net cash flows is presented as follows:

 

Thousands of dollars

   Breitburn
Historical
    QRE
Historical
    Breitburn Pro
Forma
 

Future cash inflows

   $ 13,187,507      $ 8,264,552      $ 21,452,059   

Future production and development costs

     (6,666,514     (4,108,224     (10,774,738
  

 

 

   

 

 

   

 

 

 

Future net cash flows

     6,520,993        4,156,328        10,677,321   

Discounted at 10% per year

     (3,295,145     (2,112,944     (5,408,089
  

 

 

   

 

 

   

 

 

 

Standardized measure of discounted future net cash flows

   $ 3,225,848      $ 2,043,384      $ 5,269,232   
  

 

 

   

 

 

   

 

 

 

 

F-10


The following table sets forth unaudited pro forma information for the principal sources of changes in the standardized measure of discounted future net cash flows for the year ended December 31, 2013, giving effect to the merger:

 

Thousands of dollars

   Breitburn
Historical
    QRE
Historical
    Breitburn
Pro Forma
 

Beginning balance

   $ 1,989,895      $ 1,606,841      $ 3,596,736   

Sales, net of production expense

     (397,843     (272,700     (670,543

Net change in sales and transfer prices, net of production expense

     259,186        121,459        380,645   

Previously estimated development costs incurred during year

     176,253        12,146        188,399   

Changes in estimated future development costs

     (140,105     38,493        (101,612

Extensions, discoveries and improved recovery, net of costs

     28,445        171,240        199,685   

Purchase of reserves in place

     1,044,004        170,811        1,214,815   

Sale of reserves in-place

     (2,694     —          (2,694

Revision of quantity estimates and timing of estimated production

     69,718        34,410        104,128   

Accretion of discount

     198,989        160,684        359,673   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,225,848      $ 2,043,384      $ 5,269,232   
  

 

 

   

 

 

   

 

 

 

 

F-11