Attached files
file | filename |
---|---|
EX-99.7 - UNAUDITED PRO FORMA - Yuma Energy, Inc. | yuma_ex997.htm |
8-K/A - CURRENT REPORT AMENDMENT NO. 2 - Yuma Energy, Inc. | yuma_8ka.htm |
Exhibit 99.3
DAVIS
PETROLEUM ACQUISITION CORP.
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER
30, 2016
Table
of Contents
Consolidated
Balance Sheets
|
1
|
|
|
Consolidated
Income Statements
|
2
|
|
|
Consolidated
Statements of Cash Flows
|
3
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
4
|
|
|
Notes
to the Consolidated Financial Statements
|
5
|
DAVIS
PETROLEUM ACQUISITION CORP.
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
September
30,
|
December
31,
|
|
2016
|
2015
|
($
in thousands)
|
|
|
ASSETS
|
|
|
Current:
|
|
|
Cash
|
$3,169
|
$4,064
|
Accounts
receivable
|
1,515
|
5,112
|
Joint
interest advances paid
|
25
|
175
|
Derivative
asset
|
230
|
1,711
|
Other
current assets
|
804
|
877
|
Total
current assets
|
5,743
|
11,939
|
Property,
plant, and equipment:
|
|
|
Oil
and gas properties - full cost method
|
|
|
Proved
properties
|
436,960
|
425,767
|
Unevaluated
properties
|
179
|
179
|
Other
|
9,035
|
9,034
|
Less:
Accumulated depreciation, depletion, amortization and
impairment
|
(412,264)
|
(389,345)
|
Total
property, plant and equipment, net
|
33,910
|
45,635
|
Other
assets
|
53
|
405
|
Deferred
income taxes
|
1,419
|
1,426
|
TOTAL ASSETS
|
$41,125
|
$59,405
|
LIABILITIES
|
|
|
Current:
|
|
|
Accounts
payable and accrued expenses
|
$2,111
|
$3,936
|
Current
portion of long-term debt
|
9,000
|
-
|
Oil
and gas revenues and royalties payable
|
210
|
439
|
Joint
interest advances received
|
143
|
475
|
Current
portion of asset retirement obligations
|
696
|
185
|
Total
current liabilities
|
12,160
|
5,035
|
Asset
retirement obligations
|
4,873
|
5,147
|
Other
long-term liabilities
|
-
|
95
|
TOTAL LIABILITIES
|
17,033
|
10,277
|
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
Common
stock, par value $0.01 per share (authorized 400,100,000 shares;
issued 224,084,069 and 223,584,069 as of September 30, 2016 and
December 31, 2015, respectively)
|
2,241
|
2,236
|
Preferred
stock, par value $0.01 per share (authorized 50,000,000 shares;
issued 35,151,454 and 33,367,187 as of September 30, 2016 and
December 31, 2015, respectively)
|
352
|
334
|
Treasury
Stock, at cost; 73,983,561 at June 30, 2016 and 72,111,216
at
December
31, 2015
|
(41,759)
|
(41,350)
|
Paid-in
capital
|
211,624
|
207,284
|
Accumulated
deficit
|
(148,366)
|
(119,376)
|
Total Stockholders' Equity
|
24,092
|
49,128
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$41,125
|
$59,405
|
See
accompanying Notes to the Consolidated Financial
Statements
1
DAVIS
PETROLEUM ACQUISITION CORP.
CONSOLIDATED
INCOME STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2016
|
2015
|
($
in thousands)
|
|
|
REVENUES
|
$8,611
|
$16,664
|
EXPENSES
|
|
|
Lease
operating and production costs
|
2,682
|
4,822
|
Production
taxes
|
588
|
970
|
Depreciation,
depletion and amortization
|
5,356
|
14,386
|
Impairment
of oil and gas properties
|
17,561
|
3,661
|
General
and administrative
|
9,960
|
6,526
|
Accretion
expense
|
159
|
132
|
Other
operating expense (income)
|
(35)
|
299
|
(Gain)
loss on derivative instruments
|
161
|
(2,515)
|
Total
expenses
|
36,432
|
28,281
|
LOSS FROM OPERATIONS
|
(27,821)
|
(11,617)
|
Other
(income) and expense:
|
|
|
Interest
and other income
|
(15)
|
(16)
|
Interest
expense
|
195
|
478
|
Loss
before income taxes
|
(28,001)
|
(12,079)
|
Income
tax expense - current
|
-
|
-
|
Income
tax expense (benefit) - deferred
|
7
|
(4,206)
|
NET LOSS
|
$(28,008)
|
$(7,873)
|
|
|
|
|
|
|
Earnings
(Loss) Per Share
|
|
|
Basic
|
$(0.19)
|
$(0.05)
|
Diluted
|
$(0.19)
|
$(0.05)
|
|
|
|
Weighted
Average Shares Outstanding (in thousands)
|
|
|
Basic
|
150,103
|
148,993
|
Diluted
|
150,103
|
148,993
|
See
accompanying Notes to the Consolidated Financial
Statements
2
DAVIS
PETROLEUM ACQUISITION CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)
|
2016
|
2015
|
($
in thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
loss
|
$(28,008)
|
$(7,873)
|
Adjustments
to reconcile net income to net cash provided
|
|
|
operating
activities:
|
|
|
Depreciation,
depletion and amortization
|
5,356
|
14,386
|
Impairment
of oil and gas properties
|
17,561
|
3,661
|
Net
deferred income tax expense (benefit)
|
7
|
(4,206)
|
Stock-based
compensation expense
|
1,665
|
746
|
Accretion
expense
|
159
|
132
|
Derivative
instruments (gain) loss
|
161
|
(2,515)
|
Working
capital changes:
|
|
|
Decrease
in accounts receivable
|
3,044
|
3,013
|
Decrease
in other current and long-term assets
|
426
|
6,594
|
Decrease
in accounts payable, accrued expenses and
|
|
|
other
non-current liabilities
|
(870)
|
(5,579)
|
Decrease
in oil and gas revenues payable
|
(229)
|
(296)
|
Increase
(decrease) in joint interest advances
|
(180)
|
2,297
|
Net
cash provided by (used in) operating activities
|
(908)
|
10,360
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Acquisitions
|
-
|
(1,401)
|
Capital
expenditures
|
(9,898)
|
(23,042)
|
Proceeds
from the sale of properties
|
-
|
1,710
|
Derivative
settlements
|
1,320
|
7,302
|
Net
cash used in investing activities
|
(8,578)
|
(15,431)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Repayments
on Senior Credit Facility
|
-
|
(11,000)
|
Borrowings
on Senior Credit Facility
|
9,000
|
10,000
|
Treasury
stock repurchases
|
(409)
|
(210)
|
Net
cash provided by (used in) financing activities
|
8,591
|
(1,210)
|
Net
decrease in cash
|
(895)
|
(6,281)
|
Cash
- beginning of the period
|
4,064
|
10,477
|
Cash
- end of the period
|
$3,169
|
$4,196
|
See
accompanying Notes to the Consolidated Financial
Statements
3
DAVIS
PETROLEUM ACQUISITION CORP.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
Common Stock
|
Preferred
Stock
|
Treasury
Stock
|
Paid-in
Capital
|
Accumulated
Deficit
|
Stockholders'
Equity
|
|
($
in thousands)
|
Shares
|
Value
|
|
|
|
|
|
December 31, 2015
|
223,584
|
$2,236
|
$334
|
$(41,350)
|
$207,284
|
$(119,376)
|
$49,128
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(28,008)
|
(28,008)
|
Payment
of dividends in kind
|
-
|
-
|
18
|
-
|
964
|
(982)
|
-
|
Restricted
stock grants, net of cancelations
|
500
|
5
|
-
|
-
|
3,155
|
-
|
3,160
|
Treasury
stock - employee tax payment
|
-
|
-
|
-
|
(409)
|
-
|
-
|
(409)
|
Amortization
of stock-based compensation
|
-
|
-
|
-
|
-
|
221
|
-
|
221
|
September 30, 2016
|
224,084
|
$2,241
|
$352
|
$(41,759)
|
$211,624
|
$(148,366)
|
$24,092
|
See
accompanying Notes to the Consolidated Financial
Statements
4
DAVIS
PETROLEUM ACQUISITION CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Organization and Nature of Operations
Davis
Petroleum Acquisition Corp. (“DPAC”) is a Delaware
corporation formed on January 18, 2006, for the purpose of
acquiring the common stock of Davis Petroleum Corp., Davis
Offshore L.P. and Davis Petroleum Pipeline LLC. In August
2014, the Company sold its interest in Davis Offshore L.P.
Hereinafter, DPAC and its wholly-owned subsidiaries are
collectively referred to as “Davis” or the
“Company.”
Davis
is an independent private oil and gas exploration, development,
acquisitions and production company. The Company is focused
primarily on opportunities in the onshore Gulf Coast region of
Louisiana and Texas, where it has developed significant technical,
operational and commercial expertise. Davis also regularly
evaluates opportunities to expand its activities to other areas
that may offer attractive exploration and development
potential.
On
February 10, 2016 and as amended on September 2, 2016, the Company
entered into a definitive merger agreement (the “Merger
Agreement”) with Yuma Energy, Inc., a California corporation
(“Yuma”), and Yuma Energy, Inc., a Delaware corporation
(“Yuma Delaware”). Under the terms of the definitive
agreement, Yuma reincorporated in Delaware, implemented a
one-for-twenty reverse split of its common stock, and converted
each share of its existing Series A preferred stock into 35 shares
of common stock prior to giving effect for the reverse split (1.75
shares post reverse split). Following these actions, Yuma
issued additional shares of common stock in an amount sufficient to
result in approximately 61.1% of the common stock being owned by
the current common stockholders of Davis. In addition, Yuma
issued approximately 1.75 million shares of a new Series D
preferred stock to existing Davis preferred stockholders, which has
a conversion price of approximately $11.074 per share, after giving
effect for the reverse split. The Series D preferred stock had
a liquidation preference of approximately $19.4 million at closing,
and will be paid dividends in the form of additional Series D
preferred stock at a rate of 7% per annum. The merger was completed
on October 26, 2016.
Principles of Consolidation and Reporting
The
interim consolidated financial statements of the Company are
unaudited and include the accounts of DPAC and its wholly-owned
subsidiaries. The year-end condensed balance sheet was derived from
audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United
States of America. The Company proportionately consolidates its
interests in oil and gas joint ventures. All significant
intercompany transactions have been eliminated in consolidation. In
the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair statement, have been
included. Management has made certain estimates and assumptions
that affect reported amounts in the condensed consolidated
financial statements and disclosures of contingencies. Actual
results may differ from those estimates. The results for interim
periods are not necessarily indicative of annual
results.
Accounting Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. The most significant estimates pertain to proved natural
gas and crude oil reserves and related cash flow estimates used in
impairment tests of oil and gas properties and other long-lived
assets, estimates of future development costs, income taxes,
valuation of derivative instruments, dismantlement and abandonment
costs, valuation of assets acquired and liabilities incurred in
business combinations, estimates relating to certain natural gas
and crude oil revenues and expenses, as well as estimates of
expenses related to stock-based compensation, legal, environmental,
and other contingencies. Actual results could differ from those
estimates.
5
New Accounting Requirements
In
March 2016, the Financial Accounting Standards Board (FASB) issued
guidance regarding the simplification of share-based payment
transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on
the statement of cash flows. The guidance is effective for annual
periods beginning after December 15, 2017, and interim periods
beginning after December 15, 2018 with early adoption permitted for
private entities. The guidance is effective for annual and interim
periods beginning after December 31, 2016 with early adoption
permitted for public entities. We are currently evaluating the
impact of this guidance on our financial statements.
In
February 2016, the FASB issued guidance regarding the accounting
for leases. The guidance requires recognition of most lease assets
and liabilities by lessees for those leases classified as operating
leases. The guidance requires lessees and lessors to recognize and
measure leases at the beginning of the earliest period presented
using a modified retrospective approach. The guidance is effective
for interim and annual periods beginning after December 15, 2019
for private entities and after December 15, 2018 for public
entities. We are currently evaluating the impact of this guidance
on our financial statements.
In
January 2016, the FASB issued guidance regarding several broad
topics related to the recognition and measurement of financial
assets and liabilities. The guidance is effective for annual
periods beginning after December 31, 2018 and interim periods
beginning after December 15, 2019 for private entities. The
guidance is effective for interim and annual periods beginning
after December 15, 2017 for public entities. We are currently
evaluating the impact of this guidance on our financial
statements.
In
August 2014, the FASB issued guidance regarding disclosures of
uncertainties about an entity's ability to continue as a going
concern. The guidance applies prospectively to all entities,
requiring management to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt
about the entity's ability to continue as a going concern and to
disclose certain information when substantial doubt is raised. The
guidance is effective for interim and annual periods ending on or
after December 15, 2016. We will adopt this guidance in the fourth
quarter of 2016. We are currently evaluating the impact of this
guidance on our financial statements.
In May
2014, the FASB issued guidance regarding the accounting for revenue
from contracts with customers. The guidance may be applied
retrospectively or using a modified retrospective approach to
adjust retained earnings (deficit). In July 2015, the FASB approved
a one-year deferral of the effective date for this guidance, which
is now effective for annual periods after December 15, 2018 and
interim periods after December 15, 2019 for private entities and
effective for interim and annual periods beginning on or after
December 15, 2017 for public entities. We are currently evaluating
the impact of this guidance on our financial
statements.
6
2. Accounts
Receivable
Accounts receivable
consisted of the following:
|
September 30,
|
December 31,
|
|
2016
|
2015
|
($
in thousands)
|
|
|
Natural
gas and crude oil sales
|
$1,074
|
$4,286
|
Joint
interest billings
|
441
|
826
|
Less:
allowance for doubtful accounts
|
-
|
-
|
Accounts
receivable
|
$1,515
|
$5,112
|
3. Other Current Assets
Other
current assets consisted of the following:
|
September 30,
|
December 31,
|
|
2016
|
2015
|
($
in thousands)
|
|
|
Prepaid
insurance
|
$15
|
$153
|
Other
|
789
|
724
|
Total
other current assets
|
$804
|
$877
|
4. Property,
Plant, and Equipment, net
Oil and Gas Properties
The
following table sets forth the capitalized costs and associated
accumulated depreciation, depletion and amortization (including
impairments), relating to the Company’s oil and gas
production, exploration, and development activities
at:
($
in thousands)
|
September 30, 2016
|
December 31, 2015
|
Proved properties
|
$436,960
|
$425,767
|
Less:
accumulated depreciation, depletion, amortization and
impairment
|
(404,553)
|
(381,988)
|
Proved
properties, net
|
32,407
|
43,779
|
|
|
|
Unproved properties
|
|
|
Unevaluated
properties
|
179
|
179
|
Total
unproved properties
|
179
|
179
|
Oil and gas properties, net
|
$32,586
|
$43,958
|
Under the full cost method, the Company is subject
to quarterly calculations of a “ceiling” or limitation
on the amount of costs associated with its oil and gas properties.
This ceiling limits such capitalized costs to the present value
using a 10% discount rate of estimated future cash flows from
proved oil and natural gas reserves reduced by future operating
expenses, development expenditures, abandonment costs (net of
salvage values) and estimated future income taxes thereon. The
ceiling calculation requires the Company to price its future
oil and gas production at the twelve-month average of the
first-day-of-the-month reference prices as adjusted for location
and quality differentials. The Company recorded a ceiling test
write-down of $17.6 million and $3.7 million for the nine months
ended September 30, 2016 and 2015, respectively.
7
Other
Other
property and equipment consists of the following:
|
Useful
|
September 30,
|
December 31,
|
|
life (years)
|
2016
|
2015
|
($
in thousands)
|
|
|
|
Plants
and pipeline systems
|
10
|
$4,599
|
$4,599
|
Buildings
|
10
|
179
|
179
|
Furniture
and fixtures
|
1-7
|
667
|
667
|
Automobiles
|
3
|
158
|
158
|
Software
and IT equipment
|
3-5
|
2,006
|
2,006
|
Leasehold
improvements
|
5
|
1,425
|
1,425
|
|
|
9,034
|
9,034
|
Less:
accumulated depreciation and amortization
|
|
(7,710)
|
(7,357)
|
Other
property and equipment, net
|
|
$1,324
|
$1,677
|
5. Commodity
Hedging Contracts
The
Company is exposed to various market risks, including volatility in
oil and gas commodity prices and interest rates. The level of derivative activity we engage in
depends on our view of market conditions, available derivative
prices and operating strategy. A variety of derivative instruments,
such as swaps, collars, puts, calls and various combinations of
these instruments, may be utilized to manage exposure to the
volatility of oil and gas commodity prices. Currently, the Company
does not use derivatives to manage its exposure to fluctuations in
interest rates.
All
derivative instruments are recorded on the balance sheet at fair
value. If a derivative does not qualify as a hedge or is not
designated as a hedge, the changes in fair value, both realized and
unrealized, are recognized in our income statement as (gains) loss
on derivative instruments. Cash flows are only impacted to the
extent the actual settlements under the contracts result in the
Company making a payment to or receiving a payment from the
counterparty. The Company’s derivative instruments in place
are not classified as hedges for accounting purposes.
Period
|
Instrument Type
|
Average Daily Volumes
|
Average Fixed Price
|
October
2016 - December 2016
|
Natural
Gas Swap
|
3,000
MMBtu
|
$4.05
|
October
2016 - December 2016
|
Crude
Oil Three-Way-Collar
|
400
Bbl
|
$30 - 40 - 50
|
Balance Sheet
At
September 30, 2016 and December 31, 2015, the Company had the
following outstanding commodity derivative contracts recorded in
its consolidated balance sheets ($ in thousands):
|
|
Estimated Fair Value
|
|
|
|
September 30,
|
December 31,
|
Instrument Type
|
Balance Sheet Classification
|
2016
|
2015
|
Natural
Gas/Crude Oil Swaps/Collars
|
Derivative asset - short-term
|
$230
|
$1,711
|
Total
derivative instruments
|
|
$230
|
$1,711
|
8
6. Fair
Value Measurements of Assets and Liabilities
Authoritative
guidance on fair value measurements defines fair value, establishes
a framework for measuring fair value and stipulates the related
disclosure requirements. The Company follows a three-level
hierarchy, prioritizing and defining the types of inputs used to
measure fair value.
The
three levels of the fair value hierarchy are as
follows:
Level 1 —
Quoted prices are available in active markets for identical assets
or liabilities as of the reporting date. Active markets are those
in which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial
instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level 2 —
Pricing inputs are other than quoted prices in active markets
included in Level 1, which are either directly or indirectly
observable as of the reported date. Level 2 includes those
financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in
the marketplace throughout the full term of the instrument, can be
derived from observable data, or are supported by observable levels
at which transactions are executed in the marketplace. Instruments
in this category generally include non-exchange-traded derivatives
such as commodity swaps, basis swaps, options, and
collars.
Level 3 —
Pricing inputs include significant inputs that are generally less
observable from objective sources. These inputs may be used with
internally developed methodologies that result in
management’s best estimate of fair value.
The
Company’s commodity derivative instruments are recorded at
fair value on a recurring basis in its consolidated balance sheets
with fair value changes recorded in the consolidated statements of
income. The following table presents, for each fair value hierarchy
level, the Company’s commodity derivative assets and
liabilities measured at fair value on a recurring basis as of
September 30, 2016 and December 31, 2015:
|
Recurring Fair Value Measures
|
||
|
As of September 30, 2016
|
||
($
in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Natural
Gas Swaps
|
$-
|
$290
|
$-
|
Crude
Oil Three-Way Collars
|
-
|
(60)
|
-
|
Total
|
$-
|
$230
|
$-
|
|
Recurring Fair Value Measures
|
||
|
As of December 31, 2015
|
||
($
in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Natural
Gas Swaps
|
$-
|
$1,711
|
$-
|
Crude
Oil Swaps
|
|
-
|
|
Total
|
$-
|
$1,711
|
$-
|
Derivatives listed
above are carried at fair value. The fair value amounts on the
consolidated balance sheets associated with the Company’s
derivatives resulted from Level 2 fair value methodologies,
which are based on observable market data for similar
instruments.
9
This
observable data includes the forward curve for commodity prices
based on quoted markets prices and prospective volatility factors
related to changes in commodity prices, as well as the credit
standing of the counterparty involved, the impact of credit
enhancements and the impact of the Company’s non-performance
risk on derivative liabilities, or the non-performance risk of the
Company’s counterparties on derivative assets, both of which
are derived using credit default swap values.
Authoritative
guidance also requires certain fair value disclosures for financial
instruments other than derivatives, including the Company’s
long-term debt. The borrowings were $9.0 million as of September
30, 2016 and there were no borrowings as of December 31, 2015. The
amounts outstanding under our revolving credit facility are stated
at cost, which approximates fair value.
Fair Value of Financial Instruments
The
carrying value of cash and cash equivalents, accounts receivable,
accounts payable, and other payables approximate their respective
fair market values due to their short maturities.
7. Accounts
Payable and Accrued Expenses
Accounts payable
and accrued expenses consisted of the following at:
|
September 30,
|
December 31,
|
|
2016
|
2015
|
($ in
thousands)
|
||
Trade
payables
|
$312
|
$669
|
Accrued
expenses
|
1,799
|
3,267
|
Total
accounts payable
|
$2,111
|
$3,936
|
The
following summarizes the Company’s income tax expense
(benefit) and effective tax rates (in thousands):
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2016
|
2015
|
|
|
|
Pre
tax book income (loss)
|
$(28,001)
|
$(12,079)
|
Income
tax expense (benefit)
|
7
|
(4,206)
|
Effective
tax rate
|
0.02%
|
34.82%
|
For the
nine months ended September 30, 2016, the effective tax rate of
0.02% is less than the statutory tax rate of 35% because the
Company has recorded a full valuation allowance against its Federal
and Louisiana net deferred tax assets. The income tax expense of $7
thousand is related to Texas deferred taxes against which the
Company has not recorded a valuation allowance.
9. Long-term
Debt
Senior Credit Facility
In
December 2008, the Company amended and restated its senior
credit agreement (the “Senior Credit Facility”) with a
financial institution. The Senior Credit Facility was amended to
increase the total capacity from $50 million to $125 million,
subject to borrowing base limitations, and extend the term an
additional four years. In April 2011, the
Senior Credit Facility was
amended to add an additional lender. In January 2013, the Company
completed the Second Amendment to Amended and Restated Credit
Agreement. This amendment extended the maturity date to
January 4, 2016. In July 2015 it was extended until July 6,
2016 and on July 1, 2016 it was amended and extended until
September 30, 2016. On September 26, 2016 the Company completed the
Sixth Amendment which extended the maturity date to November 15,
2016.
10
The
borrowing base is determined at least semiannually and at
December 31, 2015 was $24 million. On May 17, 2016, the
Company’s borrowing base was redetermined at $10.0 million
and subsequently on July 1, 2016 when the Credit Facility was
amended, the borrowing base was redetermined at $9.0 million.
Long-term debt as of September 30, 2016 was $9.0
million.
Revolving tranches
under the Senior Credit Facility bear interest, at the
Company’s election, at a prime rate or LIBOR rate, plus in
each case an applicable margin. In addition, a commitment fee
is payable on the unused portion of the lender’s
commitment. The applicable interest rate margin varies from
1.25% to 2.00% in the case of borrowings based on the prime rate,
and from 2.25% to 3.00% in the case of borrowings based on the
LIBOR rate, depending on the utilization level in relation to the
borrowing base.
For the
nine months ended September 30, 2016 and 2015, the weighted average
interest rate on the Senior Credit Facility was 2.67% and 2.50%,
respectively.
The
Senior Credit Facility is collateralized by mortgages on
substantially all of the Company’s oil and gas properties and
contains customary financial and other covenants, the most
restrictive of which requires the Company’s ratio of
consolidated current assets to consolidated current liabilities to
be no less than 1.00 to 1.00 at the end of any quarter. In
addition, the Company is subject to covenants limiting dividends,
transactions with affiliates, incurrence of debt, changes of
control, asset sales, and affirmative representations regarding the
absence of material adverse changes, and liens on properties.
The Company was in compliance with all debt covenants at September
30, 2016 and December 31, 2015.
New Senior Credit Facility
Upon
the closing of the Merger, the entire outstanding balance under the
Senior Credit Facility was assumed by Yuma Delaware in a new credit
facility (the “Credit Agreement”). The Credit Agreement
provides for a $75.0 million 3-year revolving credit facility with
SG Americas Securities, LLC (“SG Americas”) as Lead
Arranger and Bookrunner, Société Générale
(“SocGen”) as Administrative Agent and the lenders
party thereto. The Credit Agreement replaces Yuma’s existing
credit agreement. The initial borrowing base of the Credit
Agreement is $44.0 million, and is subject to redetermination as of
January 1, 2017 as well as April 1st and October 1st of each year.
As of October 26, 2016, Yuma Delaware had approximately $39.5
million outstanding under the Credit Agreement. The incremental
$9.7 million of debt outstanding at October 26, 2016 under the new
Credit Agreement from Yuma’s outstanding debt balance of
$29.8 million at September 30, 2016 was primarily the result of
paying off Davis’ outstanding debt balance of $9.0 million at
Bank of America, accrued interest under the old credit facility, as
well as fees associated with the new Credit Agreement. All of
the obligations under the Credit Agreement, and the guarantee of
those obligations, are secured by substantially all of the assets
of Yuma Delaware and customary financial covenants have been
made.
11
10.
Stockholders’ Equity
Series A Convertible Preferred Stock
During
the nine months ended September 30, 2016 and 2015, the Company
issued 1,784,267 and 1,658,468 shares of Preferred Stock,
respectively, as paid in-kind dividends. As of September 30, 2016,
there were 35,151,454 shares of preferred stock
outstanding.
11.
Share-Based Compensation
Total
share-based compensation expense recognized for the nine months
ended September 30, 2016 and 2015 was $1,665 thousand ($3,380 less
$1,715 capitalized) and $745 thousand, respectively, and is
reflected in general and administrative expenses in the
Consolidated Income Statement.
12.
Earnings Per Share
Basic
earnings per common share is computed by dividing net income (loss)
attributable to common stock by the weighted average number of
common shares outstanding during each year. The diluted earnings
per share calculation adds to the weighted average number of common
shares outstanding: the incremental shares that would have been
outstanding assuming the exercise of dilutive stock options, the
vesting of unvested restricted shares of common stock and the
assumed conversion of convertible preferred stock.
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2016
|
2015
|
|
|
|
Net
loss
|
$(28,008)
|
$(7,873)
|
Weighted
average common shares - Basic
|
150,103
|
148,993
|
Effect of exercise of stock options
(1)
|
-
|
-
|
Effective of conversion of preferred
stock (2)
|
33,962
|
31,683
|
Weighted
average common shares - Diluted
|
184,065
|
180,676
|
Earnings
(loss) per common share
|
|
|
Basic
|
$(0.19)
|
$(0.05)
|
Diluted
|
$(0.19)
|
$(0.05)
|
|
|
|
(1) There
were 6,804 thousand and 6,153 thousand stock options in 2016 and
2015, respectively
|
|
|
that were not included in the diluted shares outstanding as they
were all out-of-the money.
|
|
|
(2) The
effect of conversion of preferred stock was not included in the
calculation of earnings per share
|
|
|
for all periods presented as they would have been
anti-dilutive.
|
|
|
12
13.
Supplemental Cash Flow Information
The
following is additional information concerning supplemental
disclosures of cash payments and non-cash investing and financing
activities:
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2016
|
2015
|
(In
thousands)
|
|
|
Cash
paid for interest, net of amounts capitalized
|
$194
|
$311
|
Change
in accrued capital expenditures
|
(498)
|
(13,098)
|
14.
Revision of Previously Issued Financial Statements
During the
preparation of Davis’ September 30, 2016 consolidated
financial statements and the associated September 30, 2016
unaudited pro forma condensed consolidated combined statements of
Yuma Delaware reflecting the merger between Davis and Yuma Delaware
that was completed on October 26, 2016, Davis management identified
certain errors related to the Company’s historical impairment
calculations. These errors related to the Company’s failure
to add back future cash outflows associated with abandonment cost
in its calculation of the ceiling test, as well as the
Company’s failure to update its fourth quarter 2015 ceiling
test calculation for certain period-end financial reporting journal
entries. In addition, two journal entries related to the
Company’s accrued capital expenditures and prepaid AFE
amounts were identified as not having been made in the third
quarter of 2015. The Company assessed the materiality of these
errors on the Company's previously issued statements, in accordance
with the SEC’s Staff Bulletin No. 99 (“SAB 99”)
and the SEC’s Staff Accounting Bulletin No. 108 (“SAB
108”), and concluded that the errors were not material to any
previously issued financial statements. However, the Company has
elected to correct these errors by revising its previously issued
financial statements. The net effect of correcting these errors
resulted in a reduction in impairment expense of $2.467 million and
a reduction in depletion expense of $274,000 for the year ended
December 31, 2015. Also, during the third quarter of 2015, the
Company recognized a reduction of Accounts Payable and Proved
Properties of $780,212 as well as a reduction to the
Company’s Joint Interest Billing Prepaid account of $227,818
offset by an increase in Proved Properties for the same amount. For
the six months ended June 30, 2016, the net effect of correcting
the errors was a reduction in impairment expense of $971,000,
offset by an increase in depletion expense of $201,000, for a net
adjustment of $770,000. For the three months ended June 30, 2016,
the net effect of correcting the errors was a reduction in
impairment expense of $117,000, offset by an increase in depletion
expense of $124,000, for a net adjustment of $7,000. These
revisions had no impact on the Company’s subtotal of net cash
provided by (used in) operating activities for the twelve months
ended December 31, 2015 or the six months ended June 30,
2016.
The
Company is revising its previously issued (i) consolidated balance
sheet as of December 31, 2015, (ii) consolidated statements of
operations, consolidated statements of changes in equity and
consolidated statements of cash flows for the year ended
December 31, 2015, and (iii) unaudited financial information
for the quarter ended June 30, 2015 and for all subsequent quarters
through June 30, 2016, along with certain related notes (the
“Revision”).
The
tables below illustrate the impact of the Revision on the
Company’s consolidated financial statements, each as compared
with the amounts presented in the original Form S-4 and related
quarterly information previously filed with the SEC.
The
following table represents a summary of the as previously reported
balances, adjustments to correct the errors and revised balances on
the Company’s consolidated balance sheets by impacted
financial statement line item for the years 2016 and 2015 as of
each quarter end:
13
|
As of
|
||
|
June 30,
2016
|
||
|
(unaudited) ($
thousands)
|
||
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
Joint interest
advances paid
|
253
|
(228)
|
25
|
Total current
assets
|
7,181
|
(228)
|
6,953
|
Proved
properties
|
436,696
|
(552)
|
436,144
|
Less: Accumulated
depreciation, depletion, amortization, and impairment
|
(414,237)
|
3,511
|
(410,726)
|
Total property,
plant and equipment, net
|
31,673
|
2,958
|
34,631
|
Total
Assets
|
40,711
|
2,730
|
43,441
|
Accounts payable
and accrued expenses
|
3,094
|
(780)
|
2,314
|
Total current
liabilities
|
13,770
|
(780)
|
12,990
|
Total
liabilities
|
18,618
|
(780)
|
17,838
|
Accumulated
deficit
|
(149,667)
|
3,511
|
(146,156)
|
Total
stockholders’ equity
|
22,093
|
3,511
|
25,604
|
Total liabilities
and stockholders’ equity
|
40,711
|
2,730
|
43,441
|
|
As
of
|
||
|
December 31,
2015
|
||
|
($
thousands)
|
||
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
Joint interest
advances paid
|
403
|
(228)
|
175
|
Total current
assets
|
12,167
|
(228)
|
11,939
|
Proved
properties
|
426,320
|
(553)
|
425,767
|
Less: Accumulated
depreciation, depletion, amortization, and impairment
|
(392,086)
|
2,741
|
(389,345)
|
Total property,
plant and equipment, net
|
43,447
|
2,188
|
45,635
|
Total
Assets
|
57,444
|
1,961
|
59,405
|
Accounts payable
and accrued expenses
|
4,716
|
(780)
|
3,936
|
Total current
liabilities
|
5,815
|
(780)
|
5,035
|
Total
liabilities
|
11,057
|
(780)
|
10,277
|
Accumulated
deficit
|
(122,117)
|
2,741
|
(119,376)
|
Total
stockholders’ equity
|
46,387
|
2,741
|
49,128
|
Total liabilities
and stockholders’ equity
|
57,444
|
1,961
|
59,405
|
14
The
following table represents a summary of the as previously reported
balances, adjustments and revised balances on the Company’s
consolidated statements of operations by financial statement line
item for the periods ended:
|
Three Months
Ended
|
|||||
|
March 31,
2016
|
June 30,
2016
|
||||
|
(unaudited) ($
thousands)
|
(unaudited) ($
thousands)
|
||||
|
As
Reported
|
Adjustment
|
As
Revised
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
1,710
|
78
|
1,788
|
1,921
|
124
|
2,045
|
Impairment of oil
and gas properties
|
10,702
|
(854)
|
9,848
|
7,819
|
(117)
|
7,702
|
Total
expenses
|
15,366
|
(776)
|
14,590
|
17,012
|
6
|
17,018
|
LOSS FROM
OPERATIONS
|
(13,180)
|
776
|
(12,404)
|
(13,649)
|
(6)
|
(13,655)
|
|
|
|
|
|
|
|
NET LOSS BEFORE
INCOME TAXES
|
(13,223)
|
776
|
(12,447)
|
(13,707)
|
(6)
|
(13,713)
|
|
|
|
|
|
|
|
NET
LOSS
|
(13,226)
|
776
|
(12,450)
|
(13,677)
|
(6)
|
(13,683)
|
|
|
|
|
|
|
|
NET LOSS
ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
(13,226)
|
776
|
(12,450)
|
(13,677)
|
(6)
|
(13,683)
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
Basic
|
(0.09)
|
0.01
|
(0.08)
|
(0.09)
|
(0.00)
|
(0.09)
|
Diluted
|
(0.09)
|
0.01
|
(0.08)
|
(0.09)
|
(0.00)
|
(0.09)
|
15
|
Six Months
Ended
|
||
|
June 30,
2016
|
||
|
(unaudited) ($
thousands)
|
||
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
Depreciation,
depletion and amortization
|
3,632
|
201
|
3,833
|
Impairment of oil
and gas properties
|
18,520
|
(971)
|
17,549
|
Total
expenses
|
32,378
|
(770)
|
31,608
|
LOSS FROM
OPERATIONS
|
(26,829)
|
770
|
(26,059)
|
|
|
|
|
NET LOSS BEFORE
INCOME TAXES
|
(26,930)
|
770
|
(26,160)
|
Income tax
(expense) benefit
|
(27)
|
-
|
(27)
|
NET
LOSS
|
(26,903)
|
770
|
(26,133)
|
|
|
|
|
NET LOSS
ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
(26,903)
|
770
|
(26,133)
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE:
|
|
|
|
Basic
|
(0.18)
|
0.01
|
(0.17)
|
Diluted
|
(0.18)
|
0.01
|
(0.17)
|
16
|
Year
Ended
|
||
|
December 31,
2015 ($ thousands)
|
||
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
Depreciation,
depletion and amortization
|
17,413
|
(274)
|
17,139
|
Impairment of oil
and gas properties
|
42,947
|
(2,467)
|
40,480
|
Total
expenses
|
72,814
|
(2,741)
|
70,074
|
LOSS FROM
OPERATIONS
|
(54,040)
|
2,741
|
(51,300)
|
|
|
|
|
NET LOSS BEFORE
INCOME TAXES
|
(54,597)
|
2,741
|
(51,857)
|
|
|
|
|
NET
LOSS
|
(65,058)
|
2,741
|
(62,318)
|
|
|
|
|
NET LOSS
ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
(65,058)
|
2,741
|
(62,318)
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE:
|
|
|
|
Basic
|
(0.44)
|
0.02
|
(0.42)
|
Diluted
|
(0.44)
|
0.02
|
(0.42)
|
17
The
following table represents a summary of the as previously reported
balances, adjustments and revised balances on the Company’s
consolidated statements of changes in equity by financial statement
line item for the year ended December 31, 2015:
|
Year Ended
December 31, 2015 ($ thousands)
|
||
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
Net loss
attributable to Davis Petroleum Acquisition Corp.
|
(65,058)
|
2,741
|
(62,318)
|
Balance at end of
period
|
(122,118)
|
2,742
|
(119,376)
|
TOTAL
EQUITY
|
46,386
|
2,742
|
49,128
|
The
following table represents a summary of the as previously reported
balances, adjustments and revised balances on the Company’s
consolidated statements of cash flows by financial statement line
item for the year ended December 31, 2015:
|
Year Ended
December 31, 2015 ($ thousands)
|
||
|
As
Reported
|
Adjustment
|
As
Revised
|
|
|
|
|
Net
loss
|
(65,058)
|
2,741
|
(62,317)
|
Depreciation,
depletion and amortization
|
17,413
|
(274)
|
17,139
|
Impairment of oil
and gas properties
|
42,947
|
(2,467)
|
40,480
|
15.
Commitments and Contingencies
We are
not aware of any commitments or contingencies that warrant
disclosure or would materially impact the financial
statements.
18