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8-K - 8-K - RANGE RESOURCES CORPd439438d8k.htm

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial statements give effect to the business combination of Range Resources Corporation, a Delaware corporation (“Range”), and Memorial Resource Development Corp., a Delaware corporation (“Memorial”). That business combination was effected by the consummation of the transactions contemplated by the merger agreement, dated as of May 15, 2016 (the “merger agreement”), entered into by and among Range, Memorial, and Medina Merger Sub, Inc., a Delaware corporation (“Merger Sub”), contemplating the merger of Merger Sub with and into Memorial (the “merger”). The merger will be accounted for using the acquisition method of accounting with Range identified as the acquirer. Under the acquisition method of accounting, Range will record all assets acquired and liabilities assumed at their respective acquisition date fair values at the effective time of the merger.

The following unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of Range and Memorial, adjusted to reflect the acquisition of Memorial by Range and the related financing transactions. Range’s historical consolidated financial statements have also been adjusted to give effect to the disposal in December 2015 of its Virginia/West Virginia natural gas assets as presented in Note 4 to the unaudited pro forma combined financial information as if it had occurred on January 1, 2015.

The unaudited pro forma combined balance sheet gives effect to the merger and the related financing transactions, as if they had occurred on June 30, 2016. The unaudited pro forma combined statements of operations combine the results of operations of Range and Memorial for the year ended December 31, 2015 and the six months ended June 30, 2016. The unaudited pro forma combined statements of operations give effect to the following events as if they had occurred on January 1, 2015. The unaudited pro forma combined financial statements reflect the following merger-related pro forma adjustments, based on available information and certain assumptions Range believes are reasonable:

 

    The merger, including the issuance of Range common stock, will be accounted for using the acquisition method of accounting, with Range identified as the acquirer;

 

    A total of $392.2 million in principal amount of Memorial’s 5.875% Senior Notes due 2022 (the “Existing Memorial Notes”) are exchanged at closing for new senior notes of Range with the same maturities and interest rates and approximately $270 million principal amount of Memorial’s existing outstanding senior notes are tendered in the offer to purchase for cash;

 

    Substantially all of Range’s existing senior subordinated notes (the “Existing Range Notes”) are exchanged for new senior notes with the same maturities and interest rates;

 

    Adjustments to conform the classification of expenses in Memorial’s historical statements of operations to Range’s classification of similar expenses;

 

    Estimated tax impact of pro forma adjustments; and

 

    Assumption of liabilities for transaction-related expenses.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not intended to represent or be indicative of the results of operations or financial position of the combined company that would have been recorded had the merger been completed as of the dates presented and should not be taken as representative of future results of operations or financial position of the combined company. The unaudited pro forma condensed combined financial statements do not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings or economies of scale that the combined company may achieve with respect to the combined operations. The incentive unit compensation included in Memorial’s historical statements of operations consists of incentive units issued by MRD Holdco LLC. Because MRD Holdco LLC will not own any equity interest in Memorial following the consummation of the merger, all costs related to these incentive units will be discontinued. Additionally, the pro forma statements of operations do not include non-recurring charges or credits and the related tax effects which result directly from the merger.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in Range’s and Memorial’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Memorial’s Current Report on Form 8-K filed on July 28, 2016, which are incorporated herein by reference.

 

1


Unaudited Pro Forma Condensed Combined

Balance Sheet as of June 30, 2016

 

    Range
Historical
    Memorial
Historical
    Pro Forma
Reclassification
Adjustment
(Note 2)
    Pro Forma Adjustments     Range
Pro Forma
Combined
 
        Acquisition
Adjustments
(Note 2)
    Financing and
Transaction

Adjustments
(Note 2)
   
    (In thousands, except per share amounts)  

Assets

           

Current assets:

           

Cash and cash equivalents

  $ 382      $ 10      $ —        $ —        $ —        $ 392   

Accounts receivable, less allowance for doubtful accounts

    81,418        62,174        —          —          —          143,592   

Derivative assets

    43,250        98,594        —          —          —          141,844   

Other financial instruments

    —          27,253        —          —          —          27,253   

Inventory and other

    20,662        3,381        —          (606 )(f)      —          23,437   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    145,712        191,412        —          (606     —          336,518   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivative assets

    813        36,514        —          —          —          37,327   

Goodwill

    —          —          —          1,487,403 (f)      —          1,487,403   

Natural gas and oil properties, successful efforts method

    9,005,011        2,409,611        —          890,389 (f)      —          12,305,011   

Accumulated depletion and depreciation

    (2,864,358     (559,930     5,941 (a)      553,989 (g)      —          (2,864,358
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    6,140,653        1,849,681        5,941        1,444,378        —          9,440,653   

Other property and equipment

    111,095        12,256        (5,941 )(a)      —          —          117,410   

Accumulated depreciation and amortization

    (94,606     —          —          —          —          (94,606
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    16,489        12,256        (5,941     —          —          22,804   

Other assets

    76,512        10,833          (10,833 )(f)      —          76,512   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 6,380,179      $ 2,100,696      $ —        $ 2,920,342      $ —        $ 11,401,217   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

           

Current liabilities:

           

Accounts payable

  $ 92,081      $ 25,697      $ 8,062 (b)    $ 40,158 (h)    $ —        $ 165,998   

Accounts payable-affiliate

    —          8,062        (8,062 )(b)      —          —          —     

Asset retirement obligations

    15,071        —          —          —          —          15,071   

Revenues payable

    —          34,117        (34,117 )(c)      —          —          —     

Accrued liabilities

    179,812        72,064        34,117 (c)      —          —          268,333   
        (17,660 )(d)       

Accrued interest

    32,000        —          17,660 (d)      —          —          49,660   

Derivative liabilities

    20,649        —          —          —          —          20,649   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    339,613        139,940        —          40,158        —          519,711   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Bank debt

    —          514,000        —          —          15,250 (k)      799,250   
            270,000 (k)   

Senior notes

    738,616        589,902        —          10,098 (f)      1,779,931 (k)      2,842,447   
            (270,000 )(k)   
            (6,100 )(k)   

Senior subordinated notes

    1,828,345        —          —          —          (1,779,931 )(k)      48,414   

Deferred tax liabilities

    606,482        149,355        —          570,708 (f)      —          1,326,545   

Derivative liabilities

    19,243        —          —          —          —          19,243   

Deferred compensation liabilities

    127,090        —          —          —          —          127,090   

Asset retirement obligations

    —          10,779        (10,779 )(e)      —          —          —     

Asset retirement obligations and other liabilities

    255,863        3,083        10,779 (e)      —          —          269,725   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    3,915,252        1,407,059        —          620,964        9,150        5,952,425   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

           

Stockholders’ Equity

           

Preferred stock, $1 par, 10,000,000 shares authorized, none issued and outstanding

    —          —          —          —          —          —     

Common stock, $0.01 par, 475,000,000 shares authorized, 170,081,406 issued at June 30, 2016

    1,701        2,060        —          (2,060 )(j)      —          2,471   
          770 (i)      —       

Common stock held in treasury, 45,511 shares at June 30, 2016

    (1,733     —          —              (1,733

Additional paid-in capital

    2,470,814        1,627,780        —          (1,627,780 )(j)      —          5,503,217   
          3,032,403 (i)     

Retained earnings (deficit)

    (5,855     (936,203     —          936,203 (j)      (9,150 )(k)      (55,163
        —          (40,158 )(h)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    2,464,927        693,637        —          2,299,378        (9,150     5,448,792   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 6,380,179      $ 2,100,696      $ —        $ 2,920,342      $ —        $ 11,401,217   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

2


Unaudited Pro Forma Condensed Combined

Statement of Operations for the Six Months Ended June 30, 2016

 

     Range
Historical
    Memorial
Historical
    Pro Forma
Reclassification
Adjustments
(Note 3)
    Pro Forma
Adjustments

(Note 3)
    Range
Pro Forma
Combined
 
     (In thousands, except per share amounts)  

Revenues and other income:

          

Natural gas, NGLs and oil sales

   $ 434,093      $ —        $ 180,064 (a)    $ —        $ 614,157   

Derivative fair value loss

     (75,890     —          (54,175 )(b)      —          (130,065

Brokered natural gas, marketing and other

     75,007        —          7 (c)      —          75,014   

Oil and natural gas sales

     —          180,064        (180,064 )(a)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues and other income

     433,210        180,064        (54,168     —          559,106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Direct operating

     44,725        —          14,903 (d)      —          59,628   

Transportation, gathering and compression

     262,107        —          45,294 (e)      —          335,044   
         27,643 (e)     

Production and ad valorem taxes

     11,936        —          5,855 (f)      —          17,791   

Brokered natural gas and marketing

     77,483        —          —          —          77,483   

Exploration

     11,698        7,058        (236 )(g)      —          18,520   

Abandonment and impairment of unproved properties

     17,687        —          236 (g)      —          17,923   

General and administrative

     86,721        35,154        115 (c)      —          117,709   
         (4,281 )(h)     

Memorial merger expenses

     2,621        —          4,281 (h)      —          6,902   

Termination costs

     167        —          —          —          167   

Deferred compensation plan

     41,802        —          —          —          41,802   

Interest

     75,497        —          24,124 (i)      (3,771 )(k)      97,217   
           (777 )(l)   
           2,144 (m)   

Depletion, depreciation and amortization

     242,951        125,357        295 (j)      (34,108 )(n)      334,495   

Impairment of proved properties and other assets

     43,040        —          —          —          43,040   

Loss on the sale of assets

     4,947        50        —          —          4,997   

Lease operating

     —          14,903        (14,903 )(d)      —          —     

Gathering, processing and transportation

     —          45,294        (45,294 )(e)      —          —     

Gathering, processing and transportation-affiliate

     —          27,643        (27,643 )(e)      —          —     

Taxes other than income

     —          5,855        (5,855 )(f)      —          —     

Incentive unit compensation

     —          52,569        —          —          52,569   

Accretion

     —          295        (295 )(j)      —          —     

Loss on commodity derivative instruments

     —          54,175        (54,175 )(b)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     923,382        368,353        (29,936     (36,512     1,225,287   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) before income taxes and interest

     (490,172     (188,289     (24,232     36,512        (666,181

Other income (expense):

          

Interest expense, net

     —          (24,124     24,124 (i)      —          —     

Other

     —          (108     108 (c)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     —          (24,232     24,232        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) before income taxes

     (490,172     (212,521     —          36,512        (666,181

Income tax (benefit) expense:

          

Current

     —          21,896        —          —          21,896   

Deferred

     (173,526     (44,301     —          (44,831 )(o)      (262,658
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (173,526     (22,405     —          (44,831     (240,762
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

   $ (316,646   $ (190,116   $ —        $ 81,343      $ (425,419
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share:

          

Basic

   $ (1.90         $ (1.74
  

 

 

         

 

 

 

Diluted

   $ (1.90         $ (1.74
  

 

 

         

 

 

 

Dividends paid per common share

   $ 0.04            $ 0.04   
  

 

 

         

 

 

 

Weighted average common shares outstanding:

          

Basic

     166,964            77,043 (p)      244,007   

Diluted

     166,964            77,043 (p)      244,007   

 

3


Unaudited Pro Forma Condensed Combined

Statement of Operations for the Year Ended December 31, 2015

 

     Range
Pro Forma
(Note 4)
    Memorial
Historical
    Pro Forma
Reclassification
Adjustments
(Note 3)
    Pro Forma
Adjustments
(Note 3)
    Range
Pro Forma
Combined
 
     (In thousands, except per share amounts)  

Revenues and other income:

          

Natural gas, NGLs and oil sales

   $ 973,875      $ —        $ 374,042 (a)    $ —        $ 1,347,917   

Derivative fair value income

     416,364        —          281,249 (b)      —          697,613   

Brokered natural gas, marketing and other

     79,774        —          9 (c)      —          79,783   

Oil and natural gas sales

     —          374,042        (374,042 )(a)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues and other income

     1,470,013        374,042        281,258        —          2,125,313   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Direct operating

     116,370        —          24,903 (d)      —          141,273   

Transportation, gathering and compression

     388,877        —          72,554 (e)      —          486,834   
         25,403 (e)     

Production and ad valorem taxes

     26,838        —          14,896 (f)      —          41,734   

Brokered natural gas and marketing

     85,902        —          —          —          85,902   

Exploration

     20,363        8,969        (85 )(g)      —          29,247   

Abandonment and impairment of unproved properties

     47,773        —          85 (g)      —          47,858   

General and administrative

     184,006        46,288        1,031 (c)      —          231,325   

Termination costs

     9,392        —          —          —          9,392   

Deferred compensation plan

     (77,627     —          —          —          (77,627

Interest

     134,539        —          39,396 (h)      2,387 (k)      180,419   
           (1,261 )(l)   
           5,358 (m)   

Loss on early extinguishment of debt

     22,495        —          —          —          22,495   

Depletion, depreciation and amortization

     527,842        188,742        417 (i)      (43,531 )(n)      673,470   

Impairment of proved properties and other assets

     590,174        —          —          —          590,174   

(Gain) on the sale of assets

     (842     (47     —          —          (889

Lease operating

     —          24,903        (24,903 )(d)      —          —     

Gathering, processing, transportation

     —          72,554        (72,554 )(e)      —          —     

Gathering, processing, transportation affiliate

     —          25,403        (25,403 )(e)      —          —     

Taxes other than income

     —          14,896        (14,896 )(f)      —          —     

Incentive Unit Compensation Expense

     —          35,142        —          —          35,142   

Accretion

     —          417        (417 )(i)      —          —     

(Gain) loss on commodity derivative instruments

     —          (281,249     281,249 (b)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     2,076,102        136,018        321,676        (37,047     2,496,749   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes and interest

     (606,089     238,024        (40,418     37,047        (371,436

Other income (expense):

          

Interest expense, net

     —          (39,396     39,396 (h)      —          —     

Other, net

     —          (1,022     1,022 (c)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     —          (40,418     40,418        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (606,089     197,606        —          37,047        (371,436

Income tax (benefit) expense:

          

Current

     29        10,070        —          —          10,099   

Deferred

     (164,660     89,935        —          (7,973     (82,698
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (164,631     100,005        —          (7,973     (72,599
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

   $ (441,458   $ 97,601      $ —        $ 45,020      $ (298,837
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share:

          

Basic

   $ (2.65         $ (1.23

Diluted

   $ (2.65         $ (1.23

Dividends paid per common share

   $ 0.16            $ 0.16   

Weighted average common shares outstanding:

          

Basic

     166,389            77,043 (p)      243,432   

Diluted

     166,389            77,043 (p)      243,432   

 

4


NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Note 1 — Basis of Presentations

On May 15, 2016, Range, Merger Sub, and Memorial entered into the merger agreement contemplating the merger. The merger closed on September 16, 2016. As a result, Memorial became a wholly owned subsidiary of Range at the effective time of the merger. Under the merger agreement, Memorial stockholders received 0.375 of a share of Range common stock for each share of Memorial common stock that they held immediately prior to the effective time of the merger.

The unaudited pro forma combined financial information has been derived from the historical consolidated financial statements of Range and Memorial. Certain of Memorial’s historical amounts have been reclassified to conform to Range’s financial statement presentation. The unaudited pro forma condensed combined balance sheets as of June 30, 2016 give effect to the merger and the related financing transactions as if they had occurred on June 30, 2016. The unaudited pro forma combined statements of operations for the six months ended June 30, 2016 and the year ended December 31, 2015 give effect to the merger and the related financing transactions as if they had occurred on January 1, 2015.

The unaudited pro forma condensed combined financial statements reflect pro forma adjustments that are described in the accompanying notes and are based on available and certain assumptions that Range believes are reasonable. However, actual results may differ from those reflected in these statements. In Range’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The following unaudited pro forma combined statements do not purport to represent what the financial position or results of operations would have been if the transaction had actually occurred on the dates indicated above, nor are they indicative of Range’s future financial position or results of operations. These unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements and related notes of Range and Memorial for the periods presented.

Note 2 — Unaudited Pro Forma Condensed Combined Balance Sheet

The merger will be accounted for using the acquisition method of accounting for business combinations. The allocation of the preliminary estimated purchase price is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of June 30, 2016, using currently available information. Because the unaudited pro forma combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included in this Exhibit. Range expects to finalize its allocation of the purchase consideration as soon as practicable.

The preliminary purchase price allocation is subject to change as a result of several factors, including but not limited to:

 

    changes in the estimated fair value of the shares of Range common stock issued as merger consideration to the Memorial stockholders, based on Range’s share price at the effective time of the merger;

 

    changes in the estimated fair value of Memorial’s assets acquired and liabilities assumed as of the date of the transaction, which could result from changes in future natural gas, NGLs and crude oil commodity prices, reserve estimates, interest rates, and other factors; and

 

    the tax basis of Memorial’s assets and liabilities as of the effective time of the merger.

 

5


The preliminary merger consideration to be transferred, fair value of assets acquired and liabilities assumed and resulting goodwill were calculated as follows (in thousands):

 

     Preliminary
Purchase Price
Allocation
(in thousands)
 

Consideration:

  

Fair value of Range common stock to be issued(1)

   $ 3,033,173   
  

 

 

 

Total consideration

     3,033,173   

Fair value of liabilities assumed:

  

Accounts payable and accrued liabilities

     139,940   

Long-term debt

     1,114,000   

Deferred tax liabilities

     720,063   

Long-term liabilities

     13,862   
  

 

 

 

Amount attributable to liabilities assumed

     1,987,865   

Fair value of assets acquired

  

Cash and cash equivalents

     10   

Current derivative assets

     125,847   

Other current assets

     64,949   

Oil and natural gas properties

     3,300,000   

Other plant, property and equipment

     6,315   

Long-term derivative assets

     36,514   
  

 

 

 

Amount attributable to assets acquired

     3,533,635   
  

 

 

 

Goodwill as of June 30, 2016

   $ 1,487,403   
  

 

 

 

 

(1) Based on 77,042,749 shares of Range common stock at $39.37 per share (closing price as of September 15, 2016).

Pursuant to the merger agreement, Range issued 0.375 of a share of Range common stock for each share of Memorial common stock outstanding at the effective time of the merger, including Memorial’s outstanding restricted stock, which resulted in the issuance by Range of approximately $3.0 billion of shares of Range common stock (based on the closing price as of September 15, 2016). Goodwill recognized is attributable to the asset recorded to offset net deferred tax liabilities arising from differences between the purchase price allocated to Memorial’s assets and liabilities based on fair value and the tax basis of these assets and liabilities. In addition, the total consideration for the merger included a control premium, which resulted in a higher value compared to the fair value of the net assets acquired. The goodwill is also attributable to Range’s qualitative assumptions of long-term factors that the merger creates for Range stockholders including additional potential for exploration and development opportunities, additional scale and efficiencies in other basins in which Range currently operates and substantial operating and administrative synergies. Because the merger is intended to be treated for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code, Memorial’s tax basis in its assets and liabilities will carry over to Range.

From May 13, 2016, the last trading date prior to the transaction’s initial announcement, to September 15, 2016, the preliminary value of Range’s purchase consideration to be transferred had decreased by approximately $207 million, as a result of the decrease in the share price for Range common stock from $42.01 to $39.37.

 

6


The following adjustments have been made to the accompanying unaudited pro forma combined balance sheet as of June 30, 2016:

 

  (a) Represents reclassification of Memorial’s accumulated depreciation related to other assets to conform to Range’s presentation and to reflect these assets at fair value.

 

  (b) Reflects the reclassification of Memorial’s accounts payable-affiliate to conform to Range’s presentation.

 

  (c) Represents the reclassification of Memorial’s revenue payable to conform to Range’s presentation.

 

  (d) Reflects the reclassification of Memorial’s accrued interest to conform to Range’s presentation.

 

  (e) Reflects the reclassification of Memorial’s asset retirement obligation to conform to Range’s presentation.

 

  (f) The allocation of the estimated fair value of merger consideration transferred (based on the closing price of Range common stock as of September 15, 2016) to the estimated fair value of the assets acquired and liabilities assumed resulted in the following purchase price allocation adjustments:

 

    a $606,000 decrease in inventory valuation to reflect inventory at fair value;

 

    $1.5 billion in goodwill associated with the transaction;

 

    a $890.4 million increase in Memorial’s gross book basis of natural gas and oil properties to reflect them at fair value;

 

    a $10.8 million decrease to Memorial other assets to reflect their fair value, including expensing of Memorial’s credit facility deferred financing costs;

 

    a $10.1 million increase to reflect the expensing of Memorial’s senior note deferred financing costs; and

 

    a net $570.7 million increase in deferred tax liabilities associated with the transaction.

 

  (g) Reflects the elimination of Memorial’s historical accumulated depreciation, depletion and amortization (“DD&A”) balances.

 

  (h) Reflects the impact of estimated transaction costs of $40.2 million expected to be incurred by Range and Memorial in connection with the merger, including estimated underwriting, banking, legal and accounting fees that are not capitalized as part of the transaction. These costs are not reflected in the historical June 30, 2016 balance sheets of Range and Memorial, but are reflected in the unaudited pro forma balance sheet as an increase to liabilities and a reduction of equity as they will be expensed by Range and Memorial as incurred. These amounts and their corresponding tax effect have not been reflected in the pro forma statements of operations due to their nonrecurring nature.

 

  (i) Reflects the estimated increase in Range’s common stock and additional paid-in capital resulting from the issuance of shares of Range common stock to Memorial stockholders to effect the transaction as follows (in thousands, except per share and per share amounts):

 

Shares of Range common stock to be issued

     77,042,749   

Closing price per share of Range common stock on September 15, 2016

   $ 39.37   

Total fair value of shares of Range common stock to be issued

   $ 3,033,173   

Increase in Range common stock ($0.01 par value per share) as of June 30, 2016

   $ 770   
  

 

 

 

Increase in Range additional paid-in capital as of June 30, 2016

   $ 3,032,403   
  

 

 

 

 

  (j) Reflects the elimination of Memorial’s historical equity balances in accordance with the acquisition method of accounting.

 

7


  (k) Reflects the exchange of the Existing Memorial Notes and the Existing Range Notes for new Range senior notes with the same maturities and interest rates. The exchange resulted in the following adjustments:

 

    $270.0 million increase in the amount drawn on Range’s credit facility to purchase the Existing Memorial Notes tendered in the cash offers;

 

    $15.2 million increase in the amount drawn on Range’s credit facility for payment of estimated costs for the debt exchange. This includes an estimated $6.1 million of deferred financing costs associated with the Memorial exchange, an estimated $5.8 million of fees to be recorded as interest expense for the exchange of Existing Range Notes for Range senior notes and an estimated $3.3 million of fees to be recorded as early extinguishment of debt related to the early tender premium with respect to the cash offers for the Existing Memorial Notes; and

 

    $1.8 billion reduction in Range senior subordinated notes and increase of $1.8 billion in senior notes to reflect the debt modification.

Note 3 — Unaudited Pro forma Condensed Combined Statements of Operations

Adjustments (a) – (j) to the Statement of Operations for the six months ended June 30, 2016 and the year ended December 31, 2015 include reclassifications required to conform Memorial’s revenue and expense items to Range’s presentation as follows:

 

  (a) Represents the reclassification of Memorial’s oil and natural gas product sales to conform to Range’s presentation.

 

  (b) Represents the reclassification of Memorial’s commodity derivative instruments to conform to Range’s presentation.

 

  (c) Represents the reclassification of Memorial’s other income to conform to Range’s presentation.

 

  (d) Represents the reclassification of Memorial’s lease operating expense to conform to Range’s presentation.

 

  (e) Represents the reclassification of Memorial’s gathering, processing and transportation expense to conform to Range’s presentation, including the reclassification of affiliate costs.

 

  (f) Represents the reclassification of Memorial’s taxes other than income to conform to Range’s presentation.

 

  (g) Represents the reclassification of Memorial’s abandonment and impairment of unproved properties to conform to Range’s presentation.

 

  (h) Represents the reclassification of Memorial’s expenses associated with the Range and Memorial merger to conform to Range’s presentation.

 

  (i) Represents the reclassification of Memorial’s interest expense to conform to Range’s presentation.

 

  (j) Represents the reclassification of accretion expense on Memorial asset retirement obligations to conform to Range’s presentation.

Adjustments (k)-(p) to the Statements of Operations for the six months ended June 30, 2016 and the year ended December 31, 2015 include the following pro forma adjustments to reflect the merger:

 

  (k) Represents the adjustments to historical interest expense on Memorial’s credit facility to be retired with availability under the existing Range credit facility.

 

  (l) Represents adjustments to interest expense for amortization of deferred financing costs resulting from the exchange of Memorial’s 5.875% senior unsecured notes due 2022 for Range senior notes and the repayment and cancellation of Memorial’s credit facility.

 

  (m) Represents adjustment to interest expense for Memorial’s capitalized interest to conform to Range’s capitalized interest accounting policy.

 

8


  (n) Represents the change in depreciation, depletion and amortization primarily resulting from the pro forma calculation of the combined company’s depletion expense under the successful efforts method of accounting for oil and natural gas properties.

 

  (o) Represents the income tax effect of pro forma adjustments (k) – (n) and Memorial’s historical results at Range’s estimated combined statutory tax rate of 38.2% for the six months ended June 30, 2016 and 39.2% for the year ended December 31, 2015. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-merger activities.

 

  (p) Reflects the number of shares of Range common stock estimated to be issued to Memorial stockholders pursuant to the merger.

 

9


Note 4 — Range’s Unaudited Pro forma Condensed Consolidated Statements of Operations

Range’s unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2015 included in the unaudited pro forma condensed combined statement of operations gives effect to the sale in December 2015 of Range’s producing properties and gathering assets in Virginia and West Virginia for cash proceeds of $876.0 million, before closing adjustments. Range’s unaudited pro forma condensed consolidated statement of operations gives effect of that sale as if it occurred in January 1, 2015:

Unaudited Pro Forma Condensed Consolidated

Statement of Operations for the Year Ended December 31, 2015

 

     Range
Historical
    Pro Forma
Adjustments
    Range
Pro Forma
 
     (In thousands, except per share amounts)  

Revenues and other income:

      

Natural gas, NGLs and oil sales

   $ 1,089,644      $ (115,769   $ 973,875   

Derivative fair value income

     416,364        —          416,364   

Brokered natural gas, marketing and other

     92,060        (12,286     79,774   
  

 

 

   

 

 

   

 

 

 

Total revenues and other income

     1,598,068        (128,055     1,470,013   
  

 

 

   

 

 

   

 

 

 

Costs and expenses:

      

Direct operating

     136,363        (19,993     116,370   

Transportation, gathering and compression

     396,739        (7,862     388,877   

Production and ad valorem taxes

     33,860        (7,022     26,838   

Brokered natural gas and marketing

     115,866        (29,964     85,902   

Exploration

     21,406        (1,043     20,363   

Abandonment and impairment of unproved properties

     47,619        154        47,773   

General and administrative

     194,015        (10,009     184,006   

Termination costs

     15,070        (5,678     9,392   

Deferred compensation plan

     (77,627     —          (77,627

Interest

     166,439        (31,900     134,539   

Loss on early extinguishment of debt

     22,495        —          22,495   

Depletion, depreciation and amortization

     581,155        (53,313     527,842   

Impairment of proved properties and other assets

     590,174        —          590,174   

Loss (gain) on the sale of assets

     406,856        (407,698     (842
  

 

 

   

 

 

   

 

 

 

Total costs and expenses

     2,650,430        (574,328     2,076,102   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (1,052,362     446,273        (606,089

Income tax (benefit) expense:

      

Current

     29        —          29   

Deferred

     (338,706     174,046        (164,660
  

 

 

   

 

 

   

 

 

 
     (338,677     174,046        (164,631
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (713,685   $ 272,227      $ (441,458
  

 

 

   

 

 

   

 

 

 

Net loss per common share:

      

Basic

   $ (4.29     $ (2.65
  

 

 

     

 

 

 

Diluted

   $ (4.29     $ (2.65
  

 

 

     

 

 

 

Dividends paid per common share

   $ 0.16        $ 0.16   
  

 

 

     

 

 

 

Weighted average common shares outstanding:

      

Basic

     166,389          166,389   

Diluted

     166,389          166,389   

 

10


Note 5 — Supplemental Pro Forma Natural Gas, NGLs and Crude Oil Reserves Information

The following tables present the estimated pro forma combined net proved developed and undeveloped, natural gas, NGLs and crude oil reserves as of December 31, 2015, along with a summary of changes in quantities of net remaining proved reserves during the year ended December 31, 2015. The pro forma reserve information set forth below gives effect to the merger as if the transaction had occurred on January 1, 2015. The Range pro forma reserve information excludes the 2015 sale of the Virginia and West Virginia properties.

 

     Natural Gas (Mmcf)  
     Range
Historical
    Range
Pro Forma
    Memorial
Historical(a)
    Range
Pro Forma
Combined
Total
 

Balance—December 31, 2014

     6,922,836        5,940,310        1,013,340        6,953,650   

Revisions of previous estimates

     (340,286     (340,232     30,164        (310,068

Extensions, discoveries and other additions

     1,017,956        1,012,931        50,343        1,063,274   

Purchase of minerals in place

     —          —          17,508        17,508   

Property sales

     (960,122     (11,845     (39,272     (51,117

Production

     (362,687     (323,467     (98,269     (421,736
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance—December 31, 2015

     6,277,697        6,277,697        973,814        7,251,511   
  

 

 

   

 

 

   

 

 

   

 

 

 

Proved developed reserves as of

        

December 31, 2014

     3,583,051        2,802,334        355,331        3,157,665   
  

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2015

     3,376,165        3,376,165        443,983        3,820,148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Proved undeveloped reserves as of

        

December 31, 2014

     3,339,785        3,137,976        658,009        3,795,985   
  

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2015

     2,901,533        2,901,533        529,831        3,431,364   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     NGLs (Mbbls)  
     Range
Historical
     Memorial
Historical(a)
     Range
Pro Forma
Combined
Total
 

Balance, December 31, 2014

     515,907         53,033         568,940   

Revisions of previous estimates

     17,717         1,024         18,741   

Extensions, discoveries and other additions

     36,308         2,741         39,049   

Purchases of minerals in place

     —           969         969   

Property sales

     (441      (358      (799

Production

     (20,356      (3,249      (23,605
  

 

 

    

 

 

    

 

 

 

Balance, December 31, 2015

     549,135         54,160         603,295   
  

 

 

    

 

 

    

 

 

 

Proved developed reserves as of

        

December 31, 2014

     270,271         18,203         288,474   
  

 

 

    

 

 

    

 

 

 

December 31, 2015

     309,306         24,583         333,889   
  

 

 

    

 

 

    

 

 

 

Proved undeveloped reserves of

        

December 31, 2014

     245,636         34,830         280,466   
  

 

 

    

 

 

    

 

 

 

December 31, 2015

     239,828         29,577         269,405   
  

 

 

    

 

 

    

 

 

 

 

11


     Crude Oil and Condensate (Mbbls)  
     Range
Historical
     Memorial
Historical(a)
     Range
Pro Forma
Combined
Total
 

Balance, December 31, 2014

     48,658         11,915         60,573   

Revisions of previous estimates

     3,804         1,331         5,135   

Extensions, discoveries and other additions

     4,924         1,111         6,035   

Purchases of minerals in place

     —           535         535   

Property sales

     (109      (407      (516

Production

     (4,084      (1,331      (5,415
  

 

 

    

 

 

    

 

 

 

Balance, December 31, 2015

     53,193         13,154         66,347   
  

 

 

    

 

 

    

 

 

 

Proved developed reserves as of

        

December 31, 2014

     24,180         3,708         27,888   
  

 

 

    

 

 

    

 

 

 

December 31, 2015

     31,679         6,101         37,780   
  

 

 

    

 

 

    

 

 

 

Proved undeveloped reserves of

        

December 31, 2014

     24,478         8,207         32,685   
  

 

 

    

 

 

    

 

 

 

December 31, 2015

     21,514         7,053         28,567   
  

 

 

    

 

 

    

 

 

 

 

(a) Excludes amounts attributable to discontinued operations.

The pro forma standardized measure of discounted future net cash flows relating to proved natural gas, NGLs and crude oil reserves as of December 31, 2015 is as follows (in thousands):

 

     Range
Historical
    Memorial
Historical(a)
    Range
Pro Forma
Combined
Total
 

Balance, December 31, 2015

      

Future cash flows

   $ 21,290,873      $ 4,008,764      $ 25,299,637   

Future production costs

     (10,411,360     (1,438,531     (11,849,891

Future development costs

     (2,213,582     (784,003     (2,997,585

Future income tax expense

     (2,007,794     (88,723     (2,096,517
  

 

 

   

 

 

   

 

 

 

Future net cash flows

     6,658,137        1,697,507        8,355,644   

10% annual discount for estimated timing of cash flows

     (3,932,274     (877,647     (4,809,921
  

 

 

   

 

 

   

 

 

 

Standardized measure of discounted future net cash flows

   $ 2,725,863      $ 819,860      $ 3,545,723   
  

 

 

   

 

 

   

 

 

 

 

(a) Excludes amounts attributable to discontinued operations.

 

12


The changes in the pro forma standardized measure of discounted future net cash flows relating to proved oil, natural gas and NGL reserves for the year ended December 31, 2015 are as follows (in thousands):

 

     Range
Historical
    Range
Pro Forma
    Memorial
Historical(a)
    Range
Pro Forma
Combined
Total
 

Revisions of previous estimates:

        

Changes in prices and production costs

   $ (7,231,629   $ (7,181,713   $ (2,284,279   $ (9,465,992

Revisions in quantities

     (868,886     (868,886     51,455        (817,431

Changes in future development and abandonment costs

     359,540        261,881        190,403        452,284   

Net change in income taxes

     2,173,904        1,906,539        882,942        2,789,481   

Accretion of discount

     1,007,027        912,425        244,123        1,156,548   

Purchases of reserves in place

     —          —          53,597        53,597   

Additions to proved reserves from extensions, discoveries and improved recovery

     486,478        486,478        30,006        516,484   

Natural gas, NGLs and oil sales, net of production costs

     (522,682     (441,789     (240,244     (682,033

Development costs incurred during the period

     1,033,539        991,506        294,617        1,286,123   

Sales of reserves in place

     (1,050,237     (16,040     (41,543     (57,583

Timing and other

     (254,218     (238,910     (171,372     (410,282
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change for the year

     (4,867,164     (4,188,509     (990,295     (5,178,804

Beginning of year

     7,593,027        6,914,372        1,810,155        8,724,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 2,725,863      $ 2,725,863      $ 819,860      $ 3,545,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Excludes amounts attributable to discontinued operations.

 

13