ENERGEN CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 20, 2016

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Exhibit 99.1
ENERGEN CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements reflect the historical financial statements of Energen Corporation (Energen or the Company) adjusted to give effect to the sale of certain non-core Permian Basin assets in the Delaware Basin in Texas and in the San Juan Basin in New Mexico for an aggregate purchase price of $372 million. Not reflected in the unaudited pro forma condensed consolidated financial statements is the effect of a pending sale of certain non-core Permian Basin assets in the Delaware Basin in Texas that is expected to close in the third quarter of 2016.

The unaudited pro forma condensed consolidated balance sheet as of March 31, 2016 has been prepared to reflect the sale as if it occurred on March 31, 2016. The unaudited pro forma condensed consolidated statements of income for the three months ended March 31, 2016 and 2015 and the year ended December 31, 2015 gives effect to the sales as if they occurred on January 1, 2015. The sales proceeds reflected in the accompanying unaudited pro forma condensed consolidated financial statements have been reduced by transaction costs of approximately $3 million to arrive at net pre-tax sales proceeds of approximately $369 million.

The actual pre-tax sales proceeds received by Energen when the transactions closed were approximately $361 million, before consideration of transaction costs of approximately $3 million. The change in the pre-tax sales proceeds subsequent to March 31, 2016 was caused by approximately $10.7 million in purchase price adjustments related to the operations of the properties subsequent to the effective dates and other one-time adjustments including transfer payments and certain amounts due the buyer. The purchase price is subject to further purchase price adjustments following closing.

The unaudited pro forma condensed consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and are for informational purposes only. The unaudited pro forma condensed consolidated financial statements do not purport to indicate the results that would actually have been obtained had the sale been completed on the assumed date or for the periods presented, or which may be realized in the future. The unaudited pro forma condensed consolidated financial statements, including the notes thereto, should be read in conjunction with the historical financial statements of the Company included in our 2015 Annual Report on Form 10-K and our quarterly report on Form 10-Q for the three months ended March 31, 2016. The unaudited pro forma condensed consolidated financial statements have been prepared using the estimates upon which the payments at closing were based.




1


Exhibit 99.1
 
ENERGEN CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2016
 
 
 
 
 
 
 
 
 
Pro Forma
 
 
(in thousands, except share data)
As Reported
 
Adjustments
 
Pro Forma
ASSETS
 
 
 
 
 
Current Assets
 
 


 


Cash and cash equivalents
$
35,806

 
$
368,872

a
$
404,678

Accounts receivable, net
61,434

 
—

 
61,434

Inventories
12,185

 
—

 
12,185

Assets held for sale
183,234

 
(183,234
)
b
—

Derivative instruments
18,810

 
—

 
18,810

Prepayments and other
21,772

 
—

 
21,772

Total current assets
333,241

 
185,638

 
518,879

Property, Plant and Equipment
 
 
 
 
 
Oil and natural gas properties, successful efforts method
 
 
 
 
 
Proved properties
7,491,304

 
(54,823
)
b
7,436,481

Unproved properties
117,988

 
(17,015
)
b
100,973

Less accumulated depreciation, depletion and amortization
3,611,302

 
(46,511
)
b
3,564,791

Oil and natural gas properties, net
3,997,990

 
(25,327
)
 
3,972,663

Other property and equipment, net
47,186

 
—

 
47,186

Total property, plant and equipment, net
4,045,176

 
(25,327
)
 
4,019,849

Other postretirement assets
4,366

 
—

 
4,366

Noncurrent derivative instruments
148

 
—

 
148

Other assets
10,087

 
—

 
10,087

TOTAL ASSETS
$
4,393,018

 
$
160,311


$
4,553,329

 
 
 


 


LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities
 
 
 
 
 
Accounts payable
$
47,550

 
$
—

 
$
47,550

Accrued taxes
13,230

 
—

 
13,230

Accrued wages and benefits
9,127

 
—

 
9,127

Accrued capital costs
58,221

 
—

 
58,221

Revenue and royalty payable
56,949

 
—

 
56,949

Liabilities related to assets held for sale
14,102

 
(14,102
)
b
—

Derivative instruments
5,468

 
—

 
5,468

Other
13,215

 
—

 
13,215

Total current liabilities
217,862

 
(14,102
)
 
203,760

Long-term debt
551,147

 
—

 
551,147

Asset retirement obligations
90,223

 
(45
)
b
90,178

Deferred income taxes
446,335

 
62,805

d
509,140

Noncurrent derivative instruments
273

 
—

 
273

Other long-term liabilities
10,718

 
—

 
10,718

Total liabilities
1,316,558

 
48,658

 
1,365,216


2


Commitments and Contingencies
 
 
 
 
 
Shareholders’ Equity
 
 
 
 
 
Preferred stock, cumulative, $0.01 par value, 5,000,000 shares authorized
—

 
—

 
—

Common shareholders’ equity
 
 
 
 
 
Common stock, $0.01 par value; 150,000,000 shares authorized; 100,126,767 shares issued
1,001

 
—

 
1,001

Premium on capital stock
1,363,178

 
—

 
1,363,178

Retained earnings
1,842,900

 
111,653

c
1,954,553

Accumulated other comprehensive income (loss), net of tax
 
 
 
 
 
Pension and postretirement plans
2,066

 
—

 
2,066

Deferred compensation plan
2,246

 
—

 
2,246

Treasury stock, at cost; 3,122,759 shares
(134,931
)
 
—

 
(134,931
)
Total shareholders’ equity
3,076,460

 
111,653

 
3,188,113

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
4,393,018

 
$
160,311

 
$
4,553,329

 
 
 
 
 
 


3


Exhibit 99.1
 
ENERGEN CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016
 
 
 
 
 
 
 
 
 
Pro Forma
 
 
(in thousands, except share data)
As Reported
 
Adjustments
 
Pro Forma
Revenues
 
 
 
 
 
Oil, natural gas liquids and natural gas sales
122,764

 
(10,863
)
e
111,901

Gain (loss) on derivative instruments, net
5,455

 
—

 
5,455

   Total revenues
128,219

 
(10,863
)
 
117,356

Operating Costs and Expenses
 
 
 
 
 
Oil, natural gas liquids and natural gas production
47,727

 
(6,232
)
e
41,495

Production and ad valorem taxes
11,170

 
(1,355
)
e
9,815

Depreciation, depletion and amortization
119,362

 
(5,033
)
e
114,329

Asset impairment
220,025

 
(7,576
)
e
212,449

Exploration
242

 
(59
)
e
183

General and administrative
29,525

 
(569
)
e
28,956

Accretion of discount on asset retirement obligations
1,757

 
(249
)
e
1,508

(Gain) loss on sale of assets and other, net
222

 
(142
)
e
80

   Total operating costs and expenses
430,030

 
(21,215
)
 
408,815

Operating Income (Loss)
(301,811
)
 
10,352

 
(291,459
)
Other Income (Expense)
 
 
 
 
 
Interest expense
(9,833
)
 
—

 
(9,833
)
Other income
95

 
(39
)
e
56

   Total other expense
(9,738
)
 
(39
)
 
(9,777
)
Income (Loss) Before Income Taxes
(311,549
)
 
10,313

 
(301,236
)
Income tax expense (benefit)
(108,433
)
 
3,767

f
(104,666
)
Net Income (Loss)
$
(203,116
)
 
$
6,546

 
$
(196,570
)
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Earnings per Average Common Share
$
(2.34
)
 
$
0.07

g
$
(2.27
)
Basic Earnings per Average Common Share
$
(2.34
)
 
$
0.07

g
$
(2.27
)
 
 
 
 
 
 
Diluted Average Common Shares Outstanding
86,632,378

 
 
 
86,632,378

Common Average Common Shares Outstanding
86,632,378

 
 
 
86,632,378



4


Exhibit 99.1
 
ENERGEN CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2015
 
 
 
 
 
 
 
 
 
Pro Forma
 
 
(in thousands, except share data)
As Reported
 
Adjustments
 
Pro Forma
Revenues
 
 
 
 
 
Oil, natural gas liquids and natural gas sales
187,822

 
(13,518
)
e
174,304

Gain (loss) on derivative instruments, net
34,036

 
—

 
34,036

   Total revenues
221,858

 
(13,518
)
 
208,340

Operating Costs and Expenses
 
 
 
 
 
Oil, natural gas liquids and natural gas production
67,754

 
(4,724
)
e
63,030

Production and ad valorem taxes
19,065

 
(1,770
)
e
17,295

Depreciation, depletion and amortization
134,381

 
(9,158
)
e
125,223

Asset impairment
6,583

 
(248
)
e
6,335

Exploration
763

 
(44
)
e
719

General and administrative
32,055

 
(224
)
e
31,831

Accretion of discount on asset retirement obligations
2,010

 
(171
)
e
1,839

(Gain) loss on sale of assets and other, net
(28,344
)
 
(135
)
e
(28,479
)
   Total operating costs and expenses
234,267

 
(16,474
)
 
217,793

Operating Income (Loss)
(12,409
)
 
2,956

 
(9,453
)
Other Income (Expense)
 
 
 
 
 
Interest expense
(11,758
)
 
—

 
(11,758
)
Other income
46

 
(13
)
e
33

   Total other expense
(11,712
)
 
(13
)
 
(11,725
)
Income (Loss) From Continuing Operations Before Income Taxes
(24,121
)
 
2,943

 
(21,178
)
Income tax expense (benefit)
(8,701
)
 
1,059

f
(7,642
)
Income (Loss) from Continuing Operations
$
(15,420
)
 
$
1,884

 
$
(13,536
)
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Earnings per Average Common Share
$
(0.21
)
 
$
0.02

g
$
(0.19
)
Basic Earnings per Average Common Share
$
(0.21
)
 
$
0.02

g
$
(0.19
)
 
 
 
 
 
 
Diluted Average Common Shares Outstanding
72,830,439

 
 
 
72,830,439

Common Average Common Shares Outstanding
72,830,439

 
 
 
72,830,439



5


Exhibit 99.1
 
ENERGEN CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
 
 
 
 
 
 
 
 
 
Pro Forma
 
 
(in thousands, except share data)
As Reported
 
Adjustments
 
Pro Forma
Revenues
 
 
 
 
 
Oil, natural gas liquids and natural gas sales
$
763,261

 
$
(57,918
)
e
$
705,343

Gain (loss) on derivative instruments, net
115,293

 
—

 
115,293

   Total revenues
878,554

 
(57,918
)
 
820,636

Operating Costs and Expenses
 
 
 
 
 
Oil, natural gas liquids and natural gas production
228,380

 
(22,478
)
e
205,902

Production and ad valorem taxes
57,380

 
(6,523
)
e
50,857

Depreciation, depletion and amortization
593,789

 
(41,573
)
e
552,216

Asset impairment
1,292,308

 
(186,132
)
e
1,106,176

Exploration
14,878

 
(5,215
)
e
9,663

General and administrative
149,132

 
(3,520
)
e
145,612

Accretion of discount on asset retirement obligations
7,108

 
(888
)
e
6,220

(Gain) loss on sale of assets and other, net
(26,570
)
 
(358
)
e
(26,928
)
   Total operating costs and expenses
2,316,405

 
(266,687
)
 
2,049,718

Operating Income (Loss)
(1,437,851
)
 
208,769

 
(1,229,082
)
Other Income (Expense)
 
 
 
 
 
Interest expense
(43,108
)
 
—

 
(43,108
)
Other income
223

 
(96
)
e
127

   Total other expense
(42,885
)
 
(96
)
 
(42,981
)
Income (Loss) From Continuing Operations Before Income Taxes
(1,480,736
)
 
208,673

 
(1,272,063
)
Income tax expense (benefit)
(535,005
)
 
76,653

f
(458,352
)
Income (Loss) From Continuing Operations
$
(945,731
)
 
$
132,020

 
$
(813,711
)
 
 
 
 
 
 
Diluted Earnings per Average Common Share
 
 
 
 
 
Continuing Operations
$
(12.43
)
 
$
1.73

g
$
(10.70
)
Basic Earnings per Average Common Share
 
 
 
 
 
Continuing Operations
$
(12.43
)
 
$
1.73

g
$
(10.70
)
 
 
 
 
 
 
Diluted Average Common Shares Outstanding
76,078,371

 
 
 
76,078,371

Common Average Common Shares Outstanding
76,078,371

 
 
 
76,078,371



6


Exhibit 99.1
ENERGEN CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.
Unaudited Pro Forma Condensed Consolidated Balance Sheet Adjustments

The unaudited pro forma condensed balance sheet adjustments at March 31, 2016 related to the sales are as follows:

a)
The estimated sales proceeds of $372 million used in the unaudited pro forma condensed consolidated balance sheet were reduced by estimated transaction costs of $3 million. These proceeds do not consider approximately $10.7 million of purchase price adjustments related to the operations of the properties subsequent to the effective dates and other one-time adjustments including transfer payments and certain amounts due the buyer.

b)
Reflects the removal of the net assets sold the majority of which had been previously identified as held for sale.

c)
The estimated after-tax net gain on the sale is reflected as an adjustment to retained earnings. The sales proceeds excluding $3 million of transaction costs were offset by $194 million in net assets sold. The estimated tax expense on the gain is approximately $63 million. As the gain is directly attributable to the transactions and is not expected to have a continuing impact on Energen's operations, the estimated gain is only reflected in retained earnings on the unaudited pro forma condensed consolidated balance sheet.

d)
Deferred income taxes changed due to the anticipated additional net operating loss utilization of approximately $54.4 million and the $8.4 million reversal of deferred tax assets associated with the properties sold.


2.
Unaudited Pro Forma Condensed Consolidated Statement of Income Adjustments

The unaudited pro forma condensed consolidated statement of income adjustments for the three months ended March 31, 2016, the three months ended March 31, 2015 and the year ended December 31, 2015 related to the sales are as follows:

e)
Reflects the elimination of the operating results of certain non-core Permian Basin assets in the Delaware Basin and the San Juan Basin assets.

f)
Income tax expense has been calculated utilizing a blended federal and state statutory tax rate of approximately 36 percent. Income tax expense also includes an additional benefit of $0.1 million for the three months ended March 31, 2016 and an additional benefit of $1.5 million for the year ended December 31, 2015 as a result of re-measuring the Company’s state deferred tax liabilities. This re-measurement reflected the state apportionment changes primarily related to the sale of the San Juan Basin properties.

g)
The calculations of pro forma basic and diluted earnings per share for the period presented reflect the effect of the above-mentioned revenue and expense items.



7

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