Attached files
file | filename |
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8-K - FORM 8-K - Breitburn Energy Partners LP | d796723d8k.htm |
EX-99.2 - EX-99.2 - Breitburn Energy Partners LP | d796723dex992.htm |
EX-12.1 - EX-12.1 - Breitburn Energy Partners LP | d796723dex121.htm |
EX-99.1 - EX-99.1 - Breitburn Energy Partners LP | d796723dex991.htm |
EX-23.3 - EX-23.3 - Breitburn Energy Partners LP | d796723dex233.htm |
EX-23.2 - EX-23.2 - Breitburn Energy Partners LP | d796723dex232.htm |
EX-23.1 - EX-23.1 - Breitburn Energy Partners LP | d796723dex231.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 Breitburns 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 QREs 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 Breitburns 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 Breitburns 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. Breitburns 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. Breitburns 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 | |||||||||||
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|
|
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|
|
|
|||||||||
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 | ) | ||||||||
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|
|
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|
|
|
|||||||||
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) | |||||||||||||||
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|
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|
|||||||||
Total assets |
$ | 4,185,852 | $ | 1,825,745 | $ | 1,466,221 | $ | 7,477,818 | ||||||||
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|
|
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 | ||||||||||||
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|
|||||||||
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 | ||||||||||||
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|
|||||||||
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 | |||||||||||
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Total equity |
1,979,627 | 361,033 | 1,173,648 | 3,514,308 | ||||||||||||
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Total liabilities and equity |
$ | 4,185,852 | $ | 1,825,745 | $ | 1,466,221 | $ | 7,477,818 | ||||||||
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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 | ||||||||||||
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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 | ||||||||||||
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Total operating costs and expenses |
332,572 | 193,551 | 3,758 | 529,881 | ||||||||||||
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|
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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 | ) | |||||||||
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Total other expense |
60,093 | 38,400 | (24,314 | ) | 74,179 | |||||||||||
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|
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Income (loss) before taxes |
(114,631 | ) | (64,944 | ) | 20,556 | (159,019 | ) | |||||||||
Income tax expense (benefit) |
(148 | ) | 352 | | 204 | |||||||||||
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|
|||||||||
Net income (loss) |
(114,483 | ) | (65,296 | ) | 20,556 | (159,223 | ) | |||||||||
Less: Net income attributable to noncontrolling interest |
| 668 | | 668 | ||||||||||||
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Net income (loss) attributable to the partnership |
(114,483 | ) | (65,964 | ) | 20,556 | (159,891 | ) | |||||||||
Less: Distributions to preferred unitholders |
1,833 | | | 1,833 | ||||||||||||
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Net income (loss) attributable to common unitholders |
$ | (116,316 | ) | $ | (65,964 | ) | $ | 20,556 | $ | (161,724 | ) | |||||
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Basic net loss per unit |
$ | (0.97 | ) | $ | (0.84 | ) | ||||||||||
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Diluted net loss per unit |
$ | (0.97 | ) | $ | (0.84 | ) | ||||||||||
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Weighted average number of units used to calculate (d) |
||||||||||||||||
Basic net loss per unit |
119,466 | 72,002 | (m) | 191,468 | ||||||||||||
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Diluted net loss per unit |
119,466 | 72,002 | (m) | 191,468 | ||||||||||||
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|
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|
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 | |||||||||||||||
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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 | ) | |||||||||||||
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Total operating costs and expenses |
590,382 | 346,726 | 43,648 | 46,915 | 1,027,671 | |||||||||||||||
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|
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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 | ) | ||||||||||||
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Total other expense |
87,042 | 46,411 | | (18,952 | ) | 114,501 | ||||||||||||||
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Income (loss) before taxes |
(42,766 | ) | 61,275 | 148,000 | (27,963 | ) | 138,546 | |||||||||||||
Income tax expense (benefit) |
905 | (353 | ) | | | 552 | ||||||||||||||
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Net income (loss) |
(43,671 | ) | 61,628 | 148,000 | (27,963 | ) | 137,994 | |||||||||||||
Less: Net loss attributable to noncontrolling interest |
| (663 | ) | | | (663 | ) | |||||||||||||
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Net income (loss) attributable to the partnership |
$ | (43,671 | ) | $ | 60,965 | $ | 148,000 | $ | (27,963 | ) | $ | 137,331 | ||||||||
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Basic net income (loss) per unit |
$ | (0.43 | ) | $ | 0.71 | |||||||||||||||
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Diluted net income (loss) per unit |
$ | (0.43 | ) | $ | 0.71 | |||||||||||||||
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Weighted average number of units used to calculate |
||||||||||||||||||||
Basic net income (loss) per unit |
101,604 | 90,724 | (m) | 192,328 | ||||||||||||||||
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Diluted net income (loss) per unit |
101,604 | 91,088 | (m) | 192,692 | ||||||||||||||||
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|
|
|
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 QREs 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 Breitburns 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 | ||||||
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|
|
|||||
Accrued and Other Liabilities |
$ | 78,619 | $ | | ||||
Accounts Payable |
| 42,192 | ||||||
Distributions payable |
| 14,221 | ||||||
Accrued interest payable |
| 11,563 | ||||||
Accrued liabilities |
| 10,643 | ||||||
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|
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|
|||||
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 | ) | |||||
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|
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Production expenses |
$ | 97,016 | $ | | ||||
Disposal and related expenses |
7,708 | | ||||||
Operating costs |
| 104,724 | ||||||
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|
|||||
Depreciation, depletion and amortization |
$ | 60,592 | $ | 64,905 | ||||
Accretion of asset retirement obligation |
4,313 | | ||||||
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|
|
|||||
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 | ) | |||||
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|
|
|
|||||
Production expenses |
$ | 174,101 | $ | | ||||
Disposal and related expenses |
6,597 | | ||||||
Operating costs |
| 180,698 | ||||||
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|
|
|
|||||
Depreciation, depletion and amortization |
$ | 115,184 | $ | 122,640 | ||||
Accretion of asset retirement obligation |
7,456 | | ||||||
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|
|
|||||
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 Breitburns common unit consideration is $1,562.4 million. The final value of Breitburns common unit consideration will be determined based on the actual number of Breitburn units issued and the market price of Breitburns common units as of the date of acquisition. A five percent increase or decrease in the closing price of Breitburns common units, compared to the September 18, 2014 closing price of $21.70, would increase or decrease the value of Breitburns 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 assetsETSWDC |
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 assumedat fair value |
(333,600 | ) | ||
Accumulated other comprehensive income |
(2,912 | ) | ||
Non-controlling interest |
(9,332 | ) | ||
|
|
|||
Total common unit and cash consideration |
$ | 1,912,437 | ||
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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) | QREs 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 QREs 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 QREs 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 QREs 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 QREs 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 QREs debt, assuming the retirement of QREs 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 QREs 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 Breitburns 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 Breitburns 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 |
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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) |
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Net proved reserves |
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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 | ) | ||||||||||||||||||||||||
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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 | ||||||||||||||||||||||||||||||||||||
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Proved developed reserves |
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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 |
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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 Breitburns 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 Breitburns 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 |
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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 | ) | ||||||
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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 | ) | ||||||
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Standardized measure of discounted future net cash flows |
$ | 3,225,848 | $ | 2,043,384 | $ | 5,269,232 | ||||||
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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 |
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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 | |||||||||
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Ending balance |
$ | 3,225,848 | $ | 2,043,384 | $ | 5,269,232 | ||||||
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F-11