Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - RSP Permian, Inc. | d309075dex992.htm |
| EX-99.1 - EX-99.1 - RSP Permian, Inc. | d309075dex991.htm |
| 8-K/A - 8-K/A - RSP Permian, Inc. | d309075d8ka.htm |
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
RSP Permian, Inc.
Pro Forma Combined Balance Sheet as of September 30, 2016
(in thousands)
| Historical RSPP |
SHEP I Seller | SHEP II | Pro Forma Adjustments |
Total | ||||||||||||||||
| ASSETS |
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| Current Assets: |
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| Cash and cash equivalents |
$ | 22,376 | $ | 2,552 | $ | 2,104 | $ | 72,177 | (a)(b)(d) | $ | 99,209 | |||||||||
| Accounts receivable: |
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| Oil and natural gas sales |
36,325 | 6,034 | 9,740 | (15,774 | ) (b) | 36,325 | ||||||||||||||
| Joint interest owners and other |
12,180 | — | — | — | 12,180 | |||||||||||||||
| Derivatives – settled, but uncollected |
8,965 | — | — | — | 8,965 | |||||||||||||||
| Short-term derivative instruments |
4,879 | — | — | — | 4,879 | |||||||||||||||
| Prepaid expenses and other current assets |
35 | 192 | 62 | (254 | ) (b) | 35 | ||||||||||||||
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| Total Current Assets |
84,760 | 8,778 | 11,906 | 56,149 | 161,593 | |||||||||||||||
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| Property, plant & equipment, at cost: |
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| Oil and natural gas properties, successful efforts method |
3,341,592 | 227,591 | 376,868 | 1,891,599 | (b) | 5,837,650 | ||||||||||||||
| Accumulated depreciation, depletion and impairment |
(501,930 | ) | (48,503 | ) | (12,639 | ) | 61,142 | (b)(c) | (501,930 | ) | ||||||||||
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| Oil and natural gas properties, net |
2,839,662 | 179,088 | 364,229 | 1,952,741 | 5,335,720 | |||||||||||||||
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| Other property and equipment |
38,308 | — | — | — | 38,308 | |||||||||||||||
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| Total Property, plant & equipment, at cost |
2,877,970 | 179,088 | 364,229 | 1,952,741 | 5,374,028 | |||||||||||||||
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| Restricted cash |
152 | — | — | — | 152 | |||||||||||||||
| Other long-term assets |
11,938 | 210 | — | (210 | ) (b) | 11,938 | ||||||||||||||
| Debt issuance costs |
— | 412 | 617 | (1,029 | ) (b) | — | ||||||||||||||
| Investment in Midstream Joint Venture |
— | 65,225 | — | (65,225 | ) (b) | — | ||||||||||||||
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| Total Assets |
$ | 2,974,820 | 253,713 | 376,752 | 1,942,426 | $ | 5,547,711 | |||||||||||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY/MEMBERS’ CAPITAL |
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| Current Liabilities: |
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| Accounts payable |
$ | 7,687 | 15,719 | 22,905 | (35,001 | ) (b) | 11,310 | |||||||||||||
| Accrued expenses |
33,737 | 60 | 128 | (188 | ) (b) | 33,737 | ||||||||||||||
| Interest payable |
23,722 | — | — | — | 23,722 | |||||||||||||||
| Deferred taxes |
— | 190 | — | (190 | ) (b) | — | ||||||||||||||
| Short-term derivative instruments |
7,309 | 569 | 3,459 | (4,028 | ) (b) | 7,309 | ||||||||||||||
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| Total Current Liabilities |
72,455 | 16,538 | 26,492 | (39,407 | ) | 76,078 | ||||||||||||||
| Long-term debt |
722,724 | 52,000 | 81,000 | 217,000 | (a)(b) | 1,072,724 | ||||||||||||||
| Other long-term liabilities |
11,455 | 1,422 | 1,425 | — | 14,302 | |||||||||||||||
| Long-term derivative instruments |
— | 255 | 3,836 | (4,091 | ) (b) | — | ||||||||||||||
| Deferred tax liabilities |
328,000 | — | — | — | 328,000 | |||||||||||||||
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| Total Liabilities |
1,134,634 | 70,215 | 112,753 | 173,502 | 1,491,104 | |||||||||||||||
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| Members’ capital |
— | 183,498 | 263,999 | (447,497 | ) (b) | — | ||||||||||||||
| Common stock |
1,016 | — | — | 563 | (a)(b) | 1,579 | ||||||||||||||
| Additional paid-in capital |
1,881,160 | — | — | 2,216,270 | (a)(b) | 4,097,430 | ||||||||||||||
| Retained deficit |
(41,990 | ) | — | — | (412 | ) (a)(b) | (42,202 | ) | ||||||||||||
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| Total Equity |
1,840,186 | 183,498 | 263,999 | 1,768,924 | 4,056,607 | |||||||||||||||
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| Total Liabilities & Equity |
$ | 2,974,820 | 253,713 | 376,752 | 1,942,426 | $ | 5,547,711 | |||||||||||||
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RSP Permian, Inc.
Pro Forma Combined Statement of Operations for the Nine Months Ended September 30, 2016
(in thousands, except per share amounts)
| Historical RSPP |
SHEP I Seller |
SHEP II from January 12, 2016 to September 30, 2016 |
Concho Properties Working Interest from Jan 1, 2016 to February 25, 2016 |
Pro Forma Adjustments |
Total | |||||||||||||||||||
| REVENUES |
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| Oil sales |
$ | 211,212 | $ | — | $ | — | $ | 3,862 | $ | 64,617 | (f) | $ | 279,691 | |||||||||||
| Natural gas sales |
8,841 | — | — | 186 | 5,117 | (f) | 14,144 | |||||||||||||||||
| NGL sales |
10,869 | — | — | — | 118 | (f) | 10,987 | |||||||||||||||||
| Crude oil, natural gas, and natural gas liquids |
— | 37,872 | 31,980 | — | (69,852 | ) (f) | — | |||||||||||||||||
| Unrealized gain (loss) on derivatives |
— | (3,343 | ) | (7,296 | ) | — | 10,639 | (f) | — | |||||||||||||||
| Realized gain (loss) on derivatives |
— | 896 | (972 | ) | — | 76 | (f) | — | ||||||||||||||||
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| Total revenues |
$ | 230,922 | $ | 35,425 | $ | 23,712 | $ | 4,048 | $ | 10,715 | $ | 304,822 | ||||||||||||
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| OPERATING EXPENSES |
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| Lease operating expenses |
41,359 | 11,932 | 11,404 | 1,993 | (203 | ) (f) | 66,485 | |||||||||||||||||
| Production and ad valorem taxes |
14,985 | 1,626 | 1,377 | — | 203 | (f) | 18,191 | |||||||||||||||||
| Depreciation, depletion, and amortization |
141,877 | 10,728 | 12,483 | — | 2,452 | (c) | 167,540 | |||||||||||||||||
| Asset retirement obligation accretion |
354 | — | — | — | — | 354 | ||||||||||||||||||
| Impairments |
4,322 | 2,398 | 155 | — | — | 6,875 | ||||||||||||||||||
| Exploration |
828 | 1,817 | — | — | — | 2,645 | ||||||||||||||||||
| General and administrative expenses |
25,997 | 1,535 | 2,187 | — | — | 29,719 | ||||||||||||||||||
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| Total operating costs and expenses |
$ | 229,722 | $ | 30,036 | $ | 27,606 | $ | 1,993 | $ | 2,452 | $ | 291,809 | ||||||||||||
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| Operating income (loss) |
1,200 | 5,389 | (3,894 | ) | 2,055 | 8,263 | 13,013 | |||||||||||||||||
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| OTHER INCOME (EXPENSE) |
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| Other income |
587 | — | — | — | — | (f) | 587 | |||||||||||||||||
| Loss on derivative instruments |
(6,222 | ) | — | — | — | (10,715 | ) (f) | (16,937 | ) | |||||||||||||||
| Interest expense |
(39,041 | ) | (903 | ) | (1,107 | ) | — | (13,781 | ) (d) | (54,832 | ) | |||||||||||||
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| Total other expense |
$ | (44,676 | ) | $ | (903 | ) | $ | (1,107 | ) | $ | — | $ | (24,496 | ) | $ | (71,182 | ) | |||||||
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| INCOME (LOSS) BEFORE TAXES |
(43,476 | ) | 4,486 | (5,001 | ) | 2,055 | (16,233 | ) | (58,169 | ) | ||||||||||||||
| Income and Franchise Tax Expense |
17,242 | — | — | — | 5,209 | (e) | 22,451 | |||||||||||||||||
| Equity Gain in Midstream Joint Venture |
— | 814 | — | — | (814 | ) (g) | — | |||||||||||||||||
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| NET INCOME (LOSS) |
$ | (26,234 | ) | $ | 5,300 | $ | (5,001 | ) | $ | 2,055 | $ | (11,838 | ) | $ | (35,718 | ) | ||||||||
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| Per share amounts |
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| Basic: Net Loss |
$ | (0.26 | ) | (h) | $ | (0.23 | ) | |||||||||||||||||
| Diluted: Net Loss |
$ | (0.26 | ) | (h) | $ | (0.23 | ) | |||||||||||||||||
| Weighted Average Shares Outstanding |
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| Basic |
100,161 | 156,461 | ||||||||||||||||||||||
| Diluted |
100,161 | 156,461 | ||||||||||||||||||||||
RSP Permian, Inc.
Pro Forma Combined Statements of Operations for the Year Ended December 31, 2015
(in thousands, except per share amounts)
| Historical RSPP |
SHEP I | Concho Properties Working Interest |
Pro Forma Adjustments |
Total | ||||||||||||||||
| REVENUES |
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| Oil sales |
$ | 263,286 | $ | — | $ | 23,713 | $ | 14,194 | (f) | $ | 301,193 | |||||||||
| Natural gas sales |
10,517 | — | 1,061 | 868 | (f) | 12,446 | ||||||||||||||
| NGL sales |
10,189 | — | — | 14 | (f) | 10,203 | ||||||||||||||
| Crude oil, natural gas, and natural gas liquids |
— | 15,381 | — | (15,381 | ) (f) | — | ||||||||||||||
| Unrealized gain on derivatives |
— | 2,519 | — | (2,519 | ) (f) | — | ||||||||||||||
| Realized gain on derivatives |
— | 394 | — | (394 | ) (f) | — | ||||||||||||||
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| Total revenues |
$ | 283,992 | $ | 18,294 | $ | 24,774 | $ | (3,218 | ) | $ | 323,842 | |||||||||
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| OPERATING EXPENSES |
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| Lease operating expenses |
53,124 | 5,306 | 9,438 | (1,256 | ) (f) | 66,612 | ||||||||||||||
| Production and ad valorem taxes |
19,995 | 664 | — | 1,256 | (f) | 21,915 | ||||||||||||||
| Depreciation, depletion, and amortization |
154,039 | 8,835 | — | 31,574 | (c) | 194,448 | ||||||||||||||
| Asset retirement obligation accretion |
336 | — | — | — | 336 | |||||||||||||||
| Impairments |
34,269 | 8,074 | — | — | 42,343 | |||||||||||||||
| Exploration |
2,380 | — | — | — | 2,380 | |||||||||||||||
| General and administrative expenses |
27,317 | 4,368 | — | — | 31,685 | |||||||||||||||
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| Total operating costs and expenses |
$ | 291,460 | $ | 27,247 | $ | 9,438 | $ | 31,574 | $ | 359,719 | ||||||||||
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| Gain on sale of assets |
306 | — | — | — | 306 | |||||||||||||||
| Operating income (loss) |
(7,774 | ) | (8,953 | ) | 15,336 | (34,792 | ) | (36,183 | ) | |||||||||||
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| OTHER INCOME (EXPENSE) |
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| Other income |
469 | — | — | (107 | ) (f) | 362 | ||||||||||||||
| Gain (Loss) on derivative instruments |
20,906 | — | — | 2,913 | (f) | 23,819 | ||||||||||||||
| Interest expense |
(43,538 | ) | (278 | ) | — | (18,375 | ) (d) | (62,191 | ) | |||||||||||
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| Total other income (expense) |
$ | (22,163 | ) | $ | (278 | ) | $ | — | $ | (15,569 | ) | $ | (38,010 | ) | ||||||
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| INCOME (LOSS) BEFORE TAXES |
(29,937 | ) | (9,231 | ) | 15,336 | (50,361 | ) | (74,193 | ) | |||||||||||
| Income and Franchise Tax Expense |
11,683 | (199 | ) | — | 15,899 | (e) | 27,383 | |||||||||||||
| Equity Losses in Midstream Joint Venture |
— | (474 | ) | — | 474 | (g) | — | |||||||||||||
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| NET INCOME (LOSS) |
$ | (18,254 | ) | $ | (9,904 | ) | $ | 15,336 | $ | (33,988 | ) | $ | (46,810 | ) | ||||||
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| Per share amounts |
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| Basic: Net Loss |
$ | (0.21 | ) | (h) | $ | (0.33 | ) | |||||||||||||
| Diluted: Net Loss |
$ | (0.21 | ) | (h) | $ | (0.33 | ) | |||||||||||||
| Weighted Average Shares Outstanding |
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| Basic |
86,770 | 143,070 | ||||||||||||||||||
| Diluted |
86,770 | 143,070 | ||||||||||||||||||
RSP Permian, Inc.
Unaudited Pro Forma Combined Financial Statements
Introduction
The Company is a Delaware corporation formed as a successor to RSP LLC in September 2013 to engage in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The following unaudited pro forma combined financial statements of the Company reflect the combined historical results of RSP LLC, SHEP I and SHEP II, on a pro forma basis to give effect to the following transactions, which are described in further detail below, as if they had occurred on September 30, 2016 for pro forma balance sheet purposes, and on January 1, 2015 for pro forma statements of operations purposes:
The Silver Hill Energy Partners Acquisition. On October 13, 2016, RSP agreed to acquire all of the outstanding membership interests of SHEP I and SHEP II (collectively, “Silver Hill”). Silver Hill is engaged in the acquisition and development of working and leasehold interests in oil and natural gas properties located in the Permian Basin.
The Equity Offering. For purposes of the unaudited pro forma combined financial statements, the “Equity Offering” is defined as the issuance and sale to the public of 25.3 million shares of RSPP common stock in October 2016, resulting in $977 million of proceeds, net of underwriting discounts, commissions and offering-related expenses.
The unaudited pro forma combined statements of operations of the Company for the year ended December 31, 2015 are based on the audited historical statements of operations of the Company for the year ended December 31, 2015, adjusted to give effect to the SHEP acquisitions and the aforementioned Equity Offering as if they occurred on January 1, 2015.
The unaudited pro forma combined statements of operations of the Company for the nine months ended September 30, 2016 are based on the unaudited historical statements of operations of the Company for the nine months ended September 30, 2016, adjusted to give effect to the SHEP Acquisitions and the aforementioned Equity Offering as if they occurred on January 1, 2015. The unaudited pro forma combined consolidated balance sheet of the Company as of September 30, 2106 is based on the unaudited historical consolidated balance sheet of the Company as of September 30, 2016, adjusted to give effect to the SHEP Acquisitions and the aforementioned Equity Offering as if they occurred on September 30, 2016.
The pro forma data presented reflect events directly attributable to the described transactions and certain assumptions that the Company believes are reasonable. The pro forma data are not necessarily indicative of financial results that would have been attained had the described transactions occurred on the dates indicated above because they necessarily exclude various operating expenses, such as incremental general and administrative expenses that may be necessary to run the combined companies. The adjustments are based on currently available information and certain estimates and assumptions. Management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma financial statements.
The unaudited pro forma financial statements and related notes are presented for illustrative purposes only. If the Equity Offering and the SHEP Acquisitions had occurred in the past, the Company’s operating results might have been materially different from those presented in the unaudited pro forma financial statements. The unaudited pro forma combined financial statements should not be relied upon as an indication of operating results that the Company would have achieved if the transactions contemplated herein had taken place on the specified date. In addition, future results may vary significantly from the results reflected in the unaudited pro forma financial statements of operations and should not be relied on as an indication of the future results the Company will have after the completion of the transactions noted in these unaudited pro forma combined financial statements.
The following notes discuss the columns presented and the entries made to the unaudited combined financial statements.
Historical RSPP. This column represents the unaudited historical statements of operations and consolidated balance sheet for the Company for the applicable period.
SHEP I. This column represents the unaudited historical statements of operations for SHEP I for the applicable period.
SHEP I Seller. This column represents the unaudited historical statements of operations and consolidated balance sheet for the SHEP I Seller for the applicable period. The SHEP I Seller has no material assets, liabilities or operations other than those that arise from its ownership of SHEP I.
SHEP II. This column represents the unaudited historical statements of operations and consolidated balance sheet for SHEP II for the applicable period.
Concho Properties Working Interest. This column represents the unaudited historical statement of operations for an acquiree of SHEP II. These assets were comprised solely of working interests in producing oil and gas properties.
Note 1—Pro Forma Adjustments
Pro Forma Adjustments. We made the following adjustments in the preparation of the unaudited pro forma statements of operations.
| (a) | Adjustments to reflect the Equity Offering, additional borrowings under the Company’s credit facility, and related proceeds. |
| (b) | Adjustments to reflect the purchase of SHEP I and SHEP II, elimination of assets owned by SHEP I and SHEP II but retained by the selling shareholders of Silver Hill, and elimination of SHEP I and SHEP II equity balances. |
The purchase price of the SHEP Acquisitions is estimated at $2.5 billion and is comprised of the fair value of 31 million shares of RSP common stock issued to the selling shareholders of Silver Hill, with estimated value of $1.24 billion, along with $1.20 billion of cash paid to those same selling shareholders, and liabilities assumed.
| (c) | Adjustments to historical depreciation, depletion, and amortization of SHEP I and SHEP II for the step up of oil and natural gas properties to estimated fair value. The initial allocation of value was approximately $2.0 billion to unproved property and $0.5 billion to proved property. |
| (d) | Adjustments to reflect the increase in interest expense on approximately $350.0 million of borrowings by RSP LLC to fund the SHEP I and SHEP II acquisitions, using an estimated interest rate of 5.25%. |
| (e) | Reflects the estimated incremental income tax provision associated with the Company’s historical results of operations, the SHEP I and SHEP II results of operations, and pro forma adjustments, assuming these earnings had been subject to federal income tax as a subchapter C corporation using an effective tax rate of approximately 35.5%, which is inclusive of federal and state income taxes. |
| (f) | Adjustments to reclassify certain revenues and expenses of SHEP I and SHEP II to conform with the Company’s presentation of these revenues and expenses. |
| (g) | Adjustments to eliminate equity gains and losses from a joint venture owned by SHEP I that will not be purchased by RSP LLC. |
| (h) | Basic and diluted earnings per share is based on the sale of 25.3 million shares of RSPP common stock in the Equity Offering and then the issuance of 31 million shares of RSPP common stock as consideration in the SHEP Acquisitions. |
Note 2—Pro Forma Supplemental Oil and Natural Gas Reserve Information
The following tables set forth certain unaudited pro forma information concerning the Company’s proved crude oil, natural gas and natural gas liquids (“NGLs”) reserves for the year December 31, 2015, giving effect to the acquisition of SHEP I and SHEP II as if it had occurred on January 1, 2015. There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development costs. The estimates of reserves, and the standardized measure of future net cash flow, shown below, reflects SHEP I and SHEP II’s development plan for their properties, rather than the Company’s development plan for the properties. The following reserve data represent estimates only and should not be construed as being precise. SHEP I and SHEP II natural gas reserves include NGLs.
| Natural gas |
Oil | NGLs | Total | |||||||||||||||||||||||||||||
| (MMCF) | (MBbls) | (MBbls) | (MBoe) | |||||||||||||||||||||||||||||
| RSPP Historical |
SHEP I Historical |
SHEP II Historical |
RSPP Historical |
SHEP I Historical |
SHEP II Historical |
RSPP Historical |
RSPP Pro Forma |
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| Proved developed and undeveloped reserves: |
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| As of December 31, 2014 |
92,422 | 3,038 | 4,313 | 69,273 | 1,452 | 2,699 | 21,739 | 111,792 | ||||||||||||||||||||||||
| Revisions of previous estimates |
(20,205 | ) | (2,515 | ) | (2,151 | ) | (12,886 | ) | (993 | ) | (1,056 | ) | (4,251 | ) | (23,331 | ) | ||||||||||||||||
| Extensions, discoveries, and other additions |
55,313 | 12,030 | 14,876 | 50,375 | 7,718 | 9,258 | 6,971 | 88,025 | ||||||||||||||||||||||||
| Purchases of minerals in place |
10,968 | — | — | 10,178 | — | — | 2,373 | 14,379 | ||||||||||||||||||||||||
| Production |
(4,991 | ) | (324 | ) | (359 | ) | (5,805 | ) | (335 | ) | (566 | ) | (1,045 | ) | (8,697 | ) | ||||||||||||||||
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| As of December 31, 2015 |
133,507 | 12,229 | 16,679 | 111,135 | 7,842 | 10,335 | 25,787 | 182,168 | ||||||||||||||||||||||||
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| Proved developed reserves: |
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| December 31, 2014 |
35,921 | 440 | 2,119 | 27,716 | 396 | 1,281 | 8,221 | 44,027 | ||||||||||||||||||||||||
| December 31, 2015 |
56,640 | 3,770 | 5,726 | 44,128 | 2,182 | 3,668 | 11,020 | 72,021 | ||||||||||||||||||||||||
| Proved undeveloped reserves: |
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| December 31, 2014 |
56,501 | 2,598 | 2,194 | 41,557 | 1,056 | 1,418 | 13,518 | 67,765 | ||||||||||||||||||||||||
| December 31, 2015 |
76,867 | 8,459 | 10,952 | 67,007 | 5,660 | 6,667 | 14,767 | 110,147 | ||||||||||||||||||||||||
Standardized Measure of Discounted Future Net Cash Flows
Summarized in the following table is information for the standardized measure of discounted cash flows relating to proved reserves as of December 31, 2015, giving effect to the acquisitions of SHEP I and SHEP II. The standardized measure of discounted future net cash flows does not purport to be, nor should it be interpreted to present, the fair value of the oil and natural gas reserves of the property. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.
The estimates of future cash flows and future production and development costs as of December 31, 2015 are based on the unweighted arithmetic average first-day-of-the-month price for the preceding 12-month period. Estimated future production of proved reserves and estimated future production and development costs of proved reserves are based on current costs and economic conditions. All wellhead prices are held flat over the forecast period for all reserve categories. The estimated future net cash flows are then discounted at a rate of 10%.
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is as follows:
| December 31, 2015 | ||||||||||||||||
| RSPP Historical |
SHEP I Historical |
SHEP II Historical |
RSPP Pro Forma |
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| (in thousands) | ||||||||||||||||
| Future cash inflows |
$ | 5,964,332 | $ | 383,872 | $ | 541,964 | $ | 6,890,168 | ||||||||
| Future production costs |
(1,855,044 | ) | (130,061 | ) | (156,706 | ) | (2,141,811 | ) | ||||||||
| Future development costs |
(1,187,244 | ) | (78,366 | ) | (82,700 | ) | (1,348,310 | ) | ||||||||
| Future income tax expense (1) |
(699,070 | ) | (2,015 | ) | (2,845 | ) | (703,930 | ) | ||||||||
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| Future net cash flows |
2,222,974 | 173,430 | 299,713 | 2,696,117 | ||||||||||||
| 10% discount for estimated timing of cash flows |
(1,426,958 | ) | (103,413 | ) | (163,339 | ) | (1,693,710 | ) | ||||||||
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| Standardized measure of discounted future net cash flows |
$ | 796,016 | $ | 70,017 | $ | 136,374 | $ | 1,002,407 | ||||||||
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| (1) | Future net cash flows for SHEP I and SHEP II do not include the effects of income taxes on future revenues because those entities are limited liability companies not subject to entity-level income taxation. Accordingly, no provision for federal has been provided because taxable income was passed through to their equity holders. Had SHEP I and SHEP II been subject to entity-level income taxation for federal purposes, it is estimated the additional taxes would be $41.3 million and $62.6 million for SHEP I and SHEP II, respectively. |
In the foregoing determination of future cash inflows, sales prices used for gas and oil for December 31, 2015 were estimated using the average price during the 12-month period, determined as the unweighted arithmetic average of the first-day-of-the-month price for each month. Prices were adjusted by lease for quality, transportation fees and regional price differentials. Future costs of developing and producing the proved gas and oil reserves reported at the end of each year shown were based on costs determined at each such year-end, assuming the continuation of existing economic conditions.
It is not intended that the FASB’s standardized measure of discounted future net cash flows represent the fair market value of the Company’s proved reserves. The Company cautions that the disclosures shown are based on estimates of proved reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10% discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to probable or possible reserves.
Changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows:
| December 31, 2015 | ||||||||||||||||
| RSPP Historical | SHEP I Historical |
SHEP II Historical |
RSPP Pro Forma | |||||||||||||
| (in thousands) | ||||||||||||||||
| Standardized measure of discounted future net cash flows, beginning of year |
$ | 876,131 | $ | 26,624 | $ | 56,619 | $ | 959,374 | ||||||||
| Changes in the year resulting from: |
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| Sales, less production taxes |
(210,874 | ) | (9,411 | ) | (15,336 | ) | (235,621 | ) | ||||||||
| Revisions of previous quantity estimates |
(192,081 | ) | (16,709 | ) | (4,332 | ) | (213,122 | ) | ||||||||
| Extensions, discoveries, and other additions |
440,744 | 69,595 | 118,162 | 628,501 | ||||||||||||
| Net change in prices and production costs |
(537,613 | ) | (9,170 | ) | (29,308 | ) | (576,091 | ) | ||||||||
| Changes in estimated future development costs |
14,480 | — | — | 14,480 | ||||||||||||
| Previously estimated development costs incurred during the period |
107,829 | — | 700 | 108,529 | ||||||||||||
| Divestiture of reserves |
— | — | — | — | ||||||||||||
| Purchases of minerals in place |
95,207 | — | — | 95,207 | ||||||||||||
| Accretion of discount |
131,764 | 2,706 | 5,764 | 140,234 | ||||||||||||
| Net change in income taxes |
164,377 | (516 | ) | (389 | ) | 163,472 | ||||||||||
| Timing differences and other |
(93,948 | ) | 6,898 | 4,494 | (82,556 | ) | ||||||||||
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| Standardized measure of discounted future net cash flows, end of year |
$ | 796,016 | $ | 70,017 | $ | 136,374 | $ | 1,002,407 | ||||||||
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Estimates of economically recoverable oil and natural gas reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree subjective and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations and other matters. Actual quantities of oil and natural gas may differ materially from the amounts estimated.