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EX-99.3 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - Yuma Energy, Inc. | yuma_ex993.htm |
8-K/A - CURRENT REPORT AMENDMENT NO. 2 - Yuma Energy, Inc. | yuma_8ka.htm |
Exhibit 99.7
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION OF
YUMA DELAWARE
Introduction
On
February 10, 2016 and as amended on September 2, 2016, Yuma Energy,
Inc., a California corporation, and certain of its wholly-owned
subsidiaries (collectively, “Yuma”), and privately-held
Davis Petroleum Acquisition Corp. a Delaware corporation
(“Davis”), entered into a definitive merger agreement
(the “Merger Agreement”) for an all-stock transaction
(the “Merger”). The Merger was approved by the
shareholders of Yuma and closed on October 26, 2016. Pursuant to
the terms of the Merger Agreement, on October 26, 2016, Yuma
reincorporated in Delaware (“Yuma Delaware”), and Davis
became a direct subsidiary of Yuma Delaware.
As a
result of the closing of the Merger, each share of Yuma’s
common stock, no par value per share (“Yuma Common
Stock”), was converted to one-twentieth of one (1) share (the
“Reverse Stock Split”) of Yuma Delaware’s common
stock, $0.001 par value per share (“Yuma Delaware Common
Stock”). Additionally, each share of Yuma’s existing
9.25% Series A Cumulative Redeemable Preferred Stock, no par value
per share (the “Series A Preferred Stock”), was
converted into 35 shares of Yuma, before giving effect to the
Reverse Stock Split. Following these actions, Yuma Delaware issued
7.46 million shares of Yuma Delaware Common Stock to the former
stockholders of Yuma, which resulted in approximately 61.1% of the
outstanding Yuma Delaware Common Stock being owned by the former
holders of Davis common stock. Yuma Delaware also issued
approximately 1.75 million shares of a new Series D Convertible
Preferred Stock, $0.001 par value per share (the “Series D
Preferred Stock”) to existing Davis preferred stockholders.
Upon closing, there was an aggregate of approximately 12.20 million
shares of Yuma Delaware Common Stock outstanding (after giving
effect to the Reverse Stock Split and conversion of the Series A
Preferred Stock to Yuma Common Stock as described
above).
At the
closing of the Merger, Davis appointed a majority of the board of
directors of Yuma Delaware. Four out of the five members of
Yuma’s board of directors prior to the closing of the Merger
continue to serve on the board of directors of Yuma Delaware, with
one of those four directors having been appointed by Davis. Three
additional directors were appointed by Davis. The Merger was
accounted for as a “reverse acquisition” and a
recapitalization since the former common stockholders of Davis have
control over the combined company through their post-Merger 61.1%
ownership of the Yuma Delaware Common Stock and majority
representation on Yuma Delaware’s board of
directors.
The
following unaudited pro forma condensed consolidated combined
financial statements reflect the combination of the historical
consolidated results of both Yuma and Davis, 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 condensed consolidated combined balance sheet
purposes, and on January 1, 2015 for pro forma condensed
consolidated combined statement of operations
purposes:
●
Purchase Accounting
Adjustments. Although Yuma (the public company) is the legal
acquirer, Davis (the private company) is the accounting acquirer.
Accordingly, the assets and liabilities of Yuma are recorded at
their preliminary estimated fair values. The final allocations of
the Merger Agreement consideration and the effects of such
allocations on Yuma Delaware’s results of operations may
differ materially from the preliminary allocations and unaudited
pro forma combined amounts included herein.
●
Merger Related
Adjustments. Adjustments to reflect the reincorporation and
merger of Yuma and Davis into Yuma Delaware or a direct subsidiary
thereof.
The unaudited pro forma condensed consolidated combined balance
sheet of Yuma Delaware is based on (i) the unaudited historical
consolidated balance sheet of Yuma as of September 30, 2016; and
(ii) the unaudited historical consolidated balance sheet of Davis
as of September 30, 2016, and includes pro forma adjustments to
give effect to the Purchase Accounting Adjustments and Merger
Related Adjustments as if they had occurred on September 30,
2016.
The
unaudited pro forma condensed consolidated combined statements of
operations of Yuma Delaware are based on the audited
historical consolidated statements of operations of both Yuma and
Davis for the twelve months ended December 31, 2015, and the
unaudited historical consolidated statements of operations of both
Yuma and Davis for the nine months ended September 30, 2016, having
given effect to the Purchase Accounting Adjustments and Merger
Related Adjustments as if they had occurred on January 1,
2015.
1
The
unaudited pro forma data presented herein reflects events directly
attributable to the described transactions and certain assumptions
which management believes are reasonable. Such pro forma data is
not necessarily indicative of financial results that would have
been attained had the described transactions occurred on the dates
indicated above, or the results of the combined company that may be
achieved in the future. The adjustments are based on currently
available information and certain estimates and assumptions.
Therefore, the actual results may differ from the pro forma results
indicated herein. However, 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 condensed consolidated
combined financial statements.
The
unaudited pro forma condensed consolidated combined financial
statements are provided for illustrative purposes only and are not
intended to represent or be indicative of the consolidated results
of operations or consolidated financial position of Yuma Delaware
that would have been recorded had the Merger been completed as of
the dates presented, and they should not be taken as representative
of the expected future results of operations or financial position
of Yuma Delaware. The unaudited pro forma condensed consolidated
combined financial statements do not reflect the impacts of any
potential operational efficiencies, asset dispositions, cost
savings or economies of scale that Yuma Delaware may achieve with
respect to the operations of the combined company, except to
reflect the reduction in general and administrative expenses
related to the termination of certain employees that have been
terminated or for which termination has been clearly communicated
and whose termination is directly attributable to the Merger.
Additionally, the unaudited 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 consolidated combined financial
statements have been derived from, and should be read in
conjunction with, the historical consolidated financial statements
and accompanying notes of both Davis and Yuma Energy, Inc., as
included in the Current Report on Form 8-K/A filed with the
Securities and Exchange Commission on January 9, 2017.
2
Yuma Delaware
Unaudited Pro Forma Condensed Consolidated Combined Balance
Sheet
As of September 30, 2016
|
|
|
Purchase
|
Merger
|
|
|
|
Yuma
|
Davis
|
Accounting
|
Related
|
|
Pro Forma
|
($
in thousands)
|
Historical
|
Historical
|
Adjustments
|
Adjustments
|
|
Combined
|
|
|
|
(a)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$1,832
|
$3,169
|
$-
|
$(2,709)
|
(b)
|
$2,292
|
Accounts
receivable, net of allowance for doubtful accounts
|
3,347
|
1,515
|
-
|
-
|
|
4,862
|
Commodity
derivative instruments
|
1,017
|
230
|
-
|
-
|
|
1,247
|
Prepayments
|
321
|
25
|
-
|
-
|
|
346
|
Other
current assets
|
30
|
804
|
-
|
-
|
|
834
|
Total
current assets
|
6,547
|
5,743
|
-
|
(2,709)
|
|
9,581
|
|
|
|
|
|
|
|
OIL AND GAS PROPERTIES (full cost method):
|
|
|
|
|
|
|
Oil
and gas properties
|
220,668
|
437,139
|
(163,856)
|
-
|
|
493,951
|
Less:
accumulated depreciation, depletion and amortization
|
(134,312)
|
(404,553)
|
134,312
|
-
|
|
(404,553)
|
Net
oil and gas properties
|
86,356
|
32,586
|
(29,544)
|
-
|
|
89,398
|
|
|
|
|
|
|
|
OTHER PROPERTY AND EQUIPMENT:
|
|
|
|
|
|
|
Land,
buildings and improvements
|
2,795
|
6,203
|
-
|
-
|
|
8,998
|
Other
property and equipment
|
3,498
|
2,832
|
(1,420)
|
-
|
|
4,910
|
|
6,293
|
9,035
|
(1,420)
|
-
|
|
13,908
|
Less:
accumulated depreciation and amortization
|
(2,361)
|
(7,711)
|
2,361
|
-
|
|
(7,711)
|
Net
other property and equipment
|
3,932
|
1,324
|
941
|
-
|
|
6,197
|
|
|
|
|
|
|
|
OTHER ASSETS AND DEFERRED CHARGES:
|
|
|
|
|
|
|
Commodity
derivative instruments
|
178
|
-
|
-
|
-
|
|
178
|
Deposits
|
414
|
-
|
-
|
-
|
|
414
|
Deferred
taxes
|
-
|
1,419
|
-
|
-
|
|
1,419
|
Other
noncurrent assets
|
-
|
53
|
-
|
-
|
|
53
|
Total
other assets and deferred charges
|
592
|
1,472
|
-
|
-
|
|
2,064
|
TOTAL ASSETS
|
$97,427
|
$41,125
|
$(28,603)
|
$(2,709)
|
|
$107,240
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Current
maturities of debt
|
$29,800
|
$9,000
|
$-
|
$(29,800)
|
(c)
|
$-
|
|
-
|
-
|
-
|
(9,000)
|
(d)
|
|
Accounts
payable, principally trade
|
6,379
|
2,111
|
-
|
-
|
|
8,490
|
Commodity
derivative instruments
|
74
|
-
|
-
|
-
|
|
74
|
Asset
retirement obligations
|
244
|
696
|
-
|
-
|
|
940
|
Other
accrued liabilities
|
2,594
|
353
|
-
|
-
|
|
2,947
|
Total
current liabilities
|
39,091
|
12,160
|
-
|
(38,800)
|
|
12,451
|
|
|
|
|
|
|
|
LONG-TERM DEBT:
|
|
|
|
|
|
|
Bank
debt
|
-
|
-
|
-
|
29,800
|
(c)
|
39,500
|
|
-
|
-
|
-
|
9,000
|
(d)
|
|
|
-
|
-
|
-
|
700
|
(b)
|
|
|
|
|
|
|
|
|
OTHER NONCURRENT LIABILITIES:
|
|
|
|
|
|
|
Asset
retirement obligations
|
8,572
|
4,873
|
-
|
-
|
|
13,445
|
Commodity
derivative instruments
|
4
|
-
|
|
|
|
4
|
Deferred
taxes
|
145
|
-
|
(145)
|
-
|
|
-
|
Other
liabilities
|
7
|
-
|
-
|
-
|
|
7
|
Total
other noncurrent liabilities
|
8,728
|
4,873
|
(145)
|
-
|
|
13,456
|
|
|
|
|
|
|
|
EQUITY:
|
|
|
|
|
|
|
Preferred
stock
|
10,829
|
352
|
(10,829)
|
(352)
|
(e)
|
-
|
Series
D convertible preferred stock
|
-
|
-
|
-
|
2
|
(e)
|
2
|
Common
stock
|
142,725
|
2,241
|
(142,725)
|
(2,241)
|
(f)
|
12,201
|
|
-
|
-
|
-
|
12,201
|
(f)
|
|
Treasury
stock
|
-
|
(41,759)
|
-
|
41,759
|
(f)
|
-
|
Accumulated
deficit
|
(103,946)
|
(148,366)
|
103,946
|
148,366
|
(f)
|
(3,409)
|
|
-
|
-
|
-
|
(3,409)
|
(b)
|
|
Additional
paid-in capital
|
-
|
211,624
|
21,150
|
(211,624)
|
(f)
|
33,039
|
|
-
|
-
|
-
|
11,539
|
(f)
|
|
|
-
|
-
|
-
|
350
|
(e)
|
|
Total
equity
|
49,608
|
24,092
|
(28,458)
|
(3,409)
|
|
41,833
|
TOTAL LIABILITIES AND EQUITY
|
$97,427
|
$41,125
|
$(28,603)
|
$(2,709)
|
|
$107,240
|
The
accompanying notes are an integral part of these unaudited pro
forma condensed consolidated combined financial
statements.
3
Yuma Delaware
Unaudited Pro Forma Condensed Consolidated Combined Statement of
Operations
For the Nine Months Ended September 30, 2016
|
|
|
Purchase
|
|
Merger
|
|
|
|
Yuma
|
Davis
|
Accounting
|
|
Related
|
|
Pro
Forma
|
(In
thousands, except per share amounts)
|
Historical
|
Historical
|
Adjustments
|
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
Sales
of gas and oil
|
$9,208
|
$8,611
|
$-
|
|
$-
|
|
$17,819
|
Net
gains (losses) from commodity derivatives
|
(408)
|
-
|
-
|
|
(161)
|
(g)
|
(569)
|
Total
revenues
|
8,800
|
8,611
|
-
|
|
(161)
|
|
17,250
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
Marketing
cost of sales
|
-
|
-
|
-
|
|
-
|
|
-
|
Lease
operating expenses
|
5,692
|
3,270
|
-
|
|
-
|
|
8,962
|
Re-engineering
and workovers
|
133
|
-
|
-
|
|
-
|
|
133
|
General
and administrative – stock-based compensation
|
909
|
1,665
|
-
|
|
-
|
|
2,574
|
General
and administrative – other
|
5,743
|
8,295
|
-
|
|
(1,876)
|
(h)
|
12,162
|
Depreciation,
depletion and amortization
|
6,178
|
5,356
|
(1,497)
|
(i)
|
-
|
|
10,037
|
Asset
retirement obligation accretion expense
|
318
|
159
|
-
|
|
-
|
|
477
|
Goodwill
impairment
|
-
|
-
|
-
|
|
-
|
|
-
|
Impairment
of oil and gas properties
|
11,016
|
17,561
|
-
|
|
-
|
|
28,577
|
(Gain)
Loss on derivative instruments
|
-
|
161
|
-
|
|
(161)
|
(g)
|
-
|
Other
|
(10)
|
(35)
|
-
|
|
-
|
|
(45)
|
Total
expenses
|
29,979
|
36,432
|
(1,497)
|
|
(2,037)
|
|
62,877
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
(21,179)
|
(27,821)
|
1,497
|
|
1,876
|
|
(45,627)
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
expense
|
(974)
|
(195)
|
-
|
|
(13)
|
(j)
|
(1,182)
|
Other
income, net
|
17
|
15
|
-
|
|
-
|
|
32
|
Total
other income (expense), net
|
(957)
|
(180)
|
-
|
|
(13)
|
|
(1,150)
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) BEFORE INCOME TAXES
|
(22,136)
|
(28,001)
|
1,497
|
|
1,863
|
|
(46,778)
|
INCOME TAX (EXPENSE) BENEFIT
|
1,273
|
(7)
|
(1,273)
|
(k)
|
-
|
|
(7)
|
NET INCOME (LOSS)
|
$(20,863)
|
$(28,008)
|
$224
|
|
$1,863
|
|
$(46,785)
|
|
|
|
|
|
|
|
|
PREFERRED
STOCK, SERIES A AND SERIES B:
|
|
|
|
|
|
|
|
Dividends
paid in cash, perpetual preferred Series A
|
-
|
-
|
-
|
|
-
|
|
$-
|
Dividends
in arrears, perpetual preferred Series A
|
962
|
-
|
-
|
|
(962)
|
(l)
|
-
|
Accretion,
Series A and Series B
|
-
|
-
|
-
|
|
-
|
|
-
|
Dividends
paid in cash, Series A and Series B
|
-
|
-
|
-
|
|
-
|
|
-
|
Dividends
paid in kind, Series A and Series B
|
-
|
-
|
-
|
|
-
|
|
-
|
Dividends
paid in kind, cumulative preferred Series D
|
-
|
-
|
-
|
|
1,020
|
(m)
|
1,020
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$(21,825)
|
$(28,008)
|
$224
|
|
$1,805
|
|
$(47,805)
|
|
|
|
|
|
|
|
|
LOSS
PER COMMON SHARE:
|
|
|
|
|
|
|
|
Basic
|
$(6.04)
|
$(0.19)
|
-
|
|
-
|
|
$(3.92)
|
Diluted
|
$(6.04)
|
$(0.19)
|
-
|
|
-
|
|
$(3.92)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
Basic
|
3,611
|
150,103
|
-
|
|
-
|
|
12,201
|
Diluted
|
3,611
|
150,103
|
-
|
|
-
|
|
12,201
|
The
accompanying notes are an integral part of these unaudited pro
forma condensed consolidated combined financial
statements.
4
Yuma Delaware
Unaudited Pro Forma Condensed Consolidated Combined Statement of
Operations
For the Twelve Months Ended December 31, 2015
|
|
|
Purchase
|
|
Merger
|
|
|
|
Yuma
|
Davis
|
Accounting
|
|
Related
|
|
Pro Forma
|
(In thousands, except per share
amounts)
|
Historical
|
Historical
|
Adjustments
|
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
Sales
of gas and oil
|
$18,681
|
$18,774
|
$-
|
|
$-
|
|
$37,455
|
Net
gains from commodity derivatives
|
5,039
|
-
|
-
|
|
3,319
|
(g)
|
8,358
|
Total
revenues
|
23,720
|
18,774
|
-
|
|
3,319
|
|
45,813
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
Marketing
cost of sales
|
533
|
-
|
-
|
|
-
|
|
533
|
Lease
operating expenses
|
11,401
|
7,616
|
-
|
|
-
|
|
19,017
|
Re-engineering
and workovers
|
556
|
-
|
-
|
|
-
|
|
556
|
General
and administrative – stock-based compensation
|
2,289
|
933
|
-
|
|
-
|
|
3,222
|
General
and administrative – other
|
7,434
|
6,875
|
|
|
(4,177)
|
(h)
|
10,132
|
Depreciation,
depletion and amortization
|
13,651
|
17,139
|
(9,090)
|
(i)
|
-
|
|
21,700
|
Asset
retirement obligation accretion expense
|
605
|
176
|
-
|
|
-
|
|
781
|
Goodwill
impairment
|
4,928
|
-
|
-
|
|
-
|
|
4,928
|
Impairment
of oil and gas properties
|
-
|
40,480
|
-
|
|
-
|
|
40,480
|
(Gain)
on derivative instruments
|
-
|
(3,319)
|
-
|
|
3,319
|
(g)
|
-
|
Other
|
468
|
174
|
-
|
|
-
|
|
642
|
Total
expenses
|
41,865
|
70,074
|
(9,090)
|
|
(858)
|
|
101,991
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
(18,145)
|
(51,300)
|
9,090
|
|
4,177
|
|
(56,178)
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
expense
|
(456)
|
(578)
|
-
|
|
(26)
|
(j)
|
(1,060)
|
Other
income, net
|
36
|
21
|
-
|
|
-
|
|
57
|
Total
other income (expense), net
|
(420)
|
(557)
|
-
|
|
(26)
|
|
(1,003)
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) BEFORE INCOME TAXES
|
(18,565)
|
(51,857)
|
9,090
|
|
4,151
|
|
(57,182)
|
INCOME TAX (EXPENSE) BENEFIT
|
3,726
|
(10,461)
|
(5,402)
|
(k)
|
-
|
|
(12,137)
|
NET INCOME (LOSS)
|
$(14,839)
|
$(62,318)
|
$3,688
|
|
$4,151
|
|
$(69,318)
|
|
|
|
|
|
|
|
|
PREFERRED
STOCK, SERIES A AND SERIES B:
|
|
|
|
|
|
|
|
Dividends
paid in cash, perpetual preferred Series A
|
1,047
|
-
|
-
|
|
(1,047)
|
(l)
|
-
|
Dividends
in arrears, perpetual preferred Series A
|
214
|
-
|
-
|
|
(214)
|
(l)
|
-
|
Accretion,
Series A and Series B
|
-
|
-
|
-
|
|
-
|
|
-
|
Dividends
paid in cash, Series A and Series B
|
-
|
-
|
-
|
|
-
|
|
-
|
Dividends
paid in kind, Series A and Series B
|
-
|
-
|
-
|
|
-
|
|
-
|
Dividends
paid in kind, cumulative preferred Series D
|
-
|
-
|
-
|
|
1,360
|
(m)
|
1,360
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$(16,100)
|
$(62,318)
|
$3,688
|
|
$4,052
|
|
$(70,678)
|
|
|
|
|
|
|
|
|
LOSS
PER COMMON SHARE:
|
|
|
|
|
|
|
|
Basic
|
$(0.23)
|
$(0.42)
|
-
|
|
-
|
|
$(5.79)
|
Diluted
|
$(0.23)
|
$(0.42)
|
-
|
|
-
|
|
$(5.79)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
Basic
|
71,014
|
149,182
|
-
|
|
-
|
|
12,201
|
Diluted
|
71,014
|
149,182
|
-
|
|
-
|
|
12,201
|
The accompanying
notes are an integral part of these unaudited pro forma condensed
consolidated combined financial statements.
5
Notes
to the Unaudited Pro Forma Condensed Consolidated Combined
Financial Statements
1.
Basis of Presentation
The
unaudited pro forma condensed consolidated combined balance sheet
as of September 30, 2016 is based on the unaudited consolidated
balance sheets of both Yuma and Davis as adjusted to reflect the
following items as though they had occurred on September 30,
2016:
●
The application of
preliminary purchase accounting adjustments based on values
assigned to the Yuma assets to be acquired and liabilities to be
assumed;
●
The implementation
of a one-for-twenty reverse stock split in which each share of Yuma
Common Stock, no par value per share, was converted into
one-twentieth of one share of Yuma Delaware Common Stock, $0.001
par value per share;
●
The conversion of
each share of Yuma Series A Preferred Stock, no par value per
share, into 1.75 shares of Yuma Delaware Common Stock, which
includes any accrued and unpaid dividends on the Yuma Series A
Preferred Stock as of the consummation of the Merger;
●
The issuance of
7.46 million shares of Yuma Delaware Common Stock to former holders
of Davis common stock, which results in approximately 61.1% of Yuma
Delaware Common Stock being owned by former holders of Davis common
stock; and
●
The issuance of
approximately 1.75 million shares of a Series D Preferred Stock of
Yuma Delaware to former Davis preferred stockholders.
The
unaudited pro forma condensed consolidated combined statement of
operations for the twelve months ended December 31, 2015 is based
on Yuma’s and Davis’ respective audited consolidated
statement of operations for such period, with adjustments made to
recast such historical operations as if the Merger had occurred on
January 1, 2015. The unaudited pro forma condensed consolidated
combined statement of operations for the nine months ended
September 30, 2016 is based on Yuma’s and Davis’
respective unaudited consolidated statement of operations for such
period, with adjustments made to recast such historical operations
as if the Merger had occurred on January 1, 2015.
The
unaudited pro forma condensed consolidated combined financial
statements are presented under the full cost method of accounting.
Under this method, exploration activities and the cost of
unsuccessful exploratory wells are capitalized. The full cost
method also requires that the capitalized costs of successful and
unsuccessful exploratory and developmental wells plus the estimated
future development costs on a single cost center basis per country
be amortized on a unit-of-production basis against total proved
reserves.
2.
Pro Forma Adjustments
The
following adjustments were made in the preparation of the unaudited
pro forma condensed consolidated combined balance sheet and
unaudited pro forma condensed consolidated combined statement of
operations:
(a)
Adjustments to
reflect the elimination of Yuma’s total equity, the estimated
value of consideration to be paid in the Merger and to adjust,
where required, the historical book values of Yuma’s assets
and liabilities as of September 30, 2016 to their estimated fair
value, in accordance with the acquisition method of
accounting.
The
estimated fair value of the consideration to be transferred, assets
acquired, and liabilities assumed are described below (in
thousands):
6
Purchase
Consideration
|
|
Common
stock (1)
|
$20,883
|
Stock
appreciation rights (2)
|
85
|
Stock
options (3)
|
1
|
Restricted
stock awards (4)
|
181
|
Restricted
stock units (5)
|
-
|
Debt
(6)
|
29,800
|
Total
preliminary estimated purchase price
|
$50,950
|
Less
debt assumed
|
(29,800)
|
Net
purchase consideration to be allocated
|
$21,150
|
|
|
Estimated Fair
Value of Assets Acquired(7)
|
|
Cash
|
1,832
|
Other
current assets
|
4,715
|
Proved
natural gas and oil properties(8)
|
56,212
|
Unproved
natural gas and oil properties(8)
|
600
|
Other
noncurrent assets
|
5,465
|
Total assets
acquired
|
$68,824
|
|
|
Estimated Fair
Value of Liabilities Assumed
|
|
Current
maturities of debt
|
29,800
|
Current
asset retirement obligation
|
244
|
Other
current liabilities
|
9,047
|
Long-term
debt
|
-
|
Noncurrent
asset retirement obligation
|
8,572
|
Other
|
11
|
Total liabilities
assumed
|
$47,674
|
|
|
Total
net assets acquired
|
$21,150
|
(1)
4,746,179 shares of
Yuma Common Stock were effectively transferred in connection with
the Merger. Those shares were valued at $4.40 per share, which was
the last sales price of Yuma Common Stock at October 26, 2016. The
October 26, 2016 share price used is the same date as the October
26, 2016 NYMEX strip price applied in Yuma’s most recent
engineering reports.
(2)
Yuma’s stock
appreciation rights were valued using the binomial lattice
model.
(3)
Yuma’s 5,000
stock options were valued at approximately $0.013 per option using
the Black-Scholes model.
(4)
18,014 restricted
stock awards vested in 2016 and the 78,336 restricted stock awards
vesting in 2017 and 2018 were valued at the share price as of
October 26, 2016.
(5)
Yuma had no
restricted stock units outstanding as of October 26,
2016.
(6)
Debt fair value
approximates the related book value at September 30, 2016, as shown
on Yuma’s consolidated balance sheet.
(7)
Includes a $6.3
million deferred tax liability and a $20.6 million deferred tax
asset, with an offsetting $14.3 million valuation
allowance.
(8)
A step-down in
basis of Yuma’s natural gas and oil properties was made, even
with Yuma’s natural gas and oil properties being impaired as
of September 30, 2016 due to the differences in the methodology for
an impairment test and the methodology for determining the fair
value of net assets acquired. For example, the methodology for an
impairment test uses a different discount rate than that used in
determining fair value.
(b)
Adjustments to
reflect approximately $3.41 million in severance costs and legal
and advisory fees directly related to the Merger that were not
reflected in the historical financial statements.
(c)
Adjustments to
reflect the reclassification of Yuma’s current maturities of
debt to long-term debt. On a pro forma combined basis, Yuma
Delaware was in compliance with all debt covenants as of the
closing of the Merger.
(d)
Adjustments to
reflect the extinguishment of Davis’ existing current
maturities of debt in connection with Yuma Delaware’s entry
into its new long-term credit facility. The new credit facility
replaces Yuma’s existing credit agreement and has an initial
borrowing base of $44.0 million.
(e)
Adjustment to
reflect the issuance of approximately 1.75 million shares of Series
D Preferred Stock to former Davis preferred stockholders. The fair
value of the Series D Preferred Stock is expected to approximate
the carrying value of Davis’ preferred stock as of September
30, 2016.
(f)
Adjustments to
reflect the recapitalization of Yuma upon closing of the Merger,
after which approximately 12.2 million shares of Yuma Delaware
Common Stock were outstanding. In accordance with the acquisition
method of accounting, Davis’ existing common stock, treasury
stock, accumulated deficit and additional paid-in capital, less the
par value of the Yuma Delaware Common Stock received ($0.001 par
value per share), will be reclassified to additional paid-in
capital of Yuma Delaware.
(g)
Adjustments to
conform the historical financial statement presentation of net
gains and losses from commodity derivatives.
(h)
Adjustments to
reflect the reduction in general and administrative expenses
related to the termination of certain employees, as if the Merger
had occurred on January 1, 2015. The reduction related to the
termination of certain employees includes only those employees that
have been terminated or for which termination has been clearly
communicated and whose termination is directly attributable to the
transaction.
(i)
Adjustments to
reflect the calculation of Yuma Delaware depreciation, depletion,
and amortization, as if the Merger had occurred on January 1, 2015.
The calculations of Yuma Delaware depreciation, depletion and
amortization expense for the nine months ended September 30, 2016
and for the twelve months ended December 31, 2015 are included
below (in thousands):
7
Yuma Delaware Depreciation, Depletion and Amortization for the Nine
Months Ended September 30, 2016:
|
|
|
||
Yuma
amortization base (1)
|
|
$125,166
|
|
|
Davis
amortization base
|
|
75,731
|
|
|
Pro
forma DD&A recorded for the year ended 12/31/2015
Yuma
Delaware amortization base
|
|
(21,700)
179,197
|
|
|
Multiplied
by: DD&A rate (2)
|
|
0.05601
|
|
|
Yuma
Delaware 9/30/2016 DD&A
|
|
$10,037
|
|
|
|
|
|
|
|
(1)
Yuma amortization base is the fair value of Yuma’s oil and
natural gas properties subject to amortization plus Yuma’s
future development costs as of September 30, 2016.
|
|
|
||
|
|
|
|
|
(2)
Yuma Delaware combined net production as of September 30, 2016
(Boe)
|
|
828,711
|
=
|
0.05601
|
Divided
by: Yuma Delaware combined September 30, 2016 total proved
reserves
|
|
14,794,944
|
Yuma Delaware Depreciation, Depletion and Amortization for the
Twelve Months Ended December 31, 2015:
|
|
|
||
Yuma
amortization base (1)
|
|
$173,776
|
|
|
Davis
amortization base
|
|
125,812
|
|
|
Yuma
Delaware amortization base
|
|
299,588
|
|
|
Multiplied
by: DD&A rate (2)
|
|
0.07243
|
|
|
Yuma
Delaware 12/31/2015 DD&A
|
|
$21,700
|
|
|
|
|
|
|
|
(1)
Yuma amortization base is the fair value of Yuma’s oil and
natural gas properties subject to amortization plus Yuma’s
future development costs as of December 31, 2015.
|
|
|
||
|
|
|
|
|
(2)
Yuma Delaware combined net 2015 production (Boe)
|
|
1,409,039
|
=
|
0.07243
|
Divided
by: Yuma Delaware combined January 1, 2015 total proved
reserves
|
|
19,452,630
|
(j)
Adjustments to
reflect the interest expense associated with the $0.70 million in
debt assumed in (b), as if the Merger had occurred on January 1,
2015. An interest rate of 3.75% was assumed on the debt. If the
interest rate changed by 1/8%, pro forma interest expense would
change by $49,375 on an annual basis and $12,344 on a quarterly
basis.
(k)
Adjustments to
reflect the change in the income tax expense or benefit for the
period presented, as if the Merger had occurred on January 1,
2015.
(l)
Adjustments to
reflect the conversion of Series A Preferred Stock to shares of
Yuma Delaware common stock, as if the Merger had occurred on
January 1, 2015.
(m)
Adjustment to
reflect estimated dividends related to the Series D Preferred Stock
that would have been paid in-kind to preferred shareholders, as if
the Merger had occurred on January 1, 2015.
8
3. Unaudited Pro Forma Supplemental Disclosure
of Oil and Natural Gas Operations
The
following pro forma standardized measure of the discounted net
future cash flows and changes applicable to the combined
company’s proved reserves reflect the effect of income
taxes.
The pro
forma standardized measure of discounted future net cash flows, in
management’s opinion, should be reviewed with caution. The
basis for this table is the reserve studies prepared by the
Yuma’s and Davis’ independent petroleum engineering
consultants, and such reserve estimates contain imprecise estimates
of quantities and rates of production of reserves. Revisions of
previous year estimates can have a significant impact on these
results. Also, exploration costs in one year may lead to
significant discoveries in later years and may significantly change
previous estimates of proved reserves and their valuation.
Therefore, the pro forma standardized measure of discounted future
net cash flow is not necessarily indicative of the fair value of
the combined company’s proved oil and natural gas
properties.
The
data presented below should not be viewed as representing the
expected future cash flows from, or the current value of, existing
proved reserves since the computations are based on estimates and
assumptions. Reserve quantities cannot be measured with precision
and their estimation requires many judgmental determinations and
frequent revisions. Actual future prices and costs are likely to be
substantially different from the prices and costs utilized in the
computation of reported amounts.
The
following table provides a pro forma rollforward of the total
proved reserves for the twelve months ended December 31, 2015,
as well as pro forma proved developed and proved undeveloped
reserves at the beginning and end of 2015, as if the Merger had
occurred on January 1, 2015 (in Boe).
|
Yuma Historical
December 31, 2015
|
|||
|
Oil
(Bbls)
|
Natural Gas
Liquids (Bbls)
|
Natural Gas
(Mcf)
|
Total
(Boe)
|
Proved
reserves:
|
|
|
|
|
Balance, beginning
of year
|
11,532,185
|
2,479,158
|
35,259,522
|
19,887,930
|
Revisions
of previous estimates
|
(5,095,277)
|
(501,101)
|
(11,436,325)
|
(7,502,432)
|
Purchases
of oil and gas properties and minerals in place
|
95,362
|
8,025
|
264,981
|
147,551
|
Extensions
and discoveries
|
630,573
|
139,088
|
3,675,358
|
1,382,221
|
Sale
of oil and gas properties and minerals in place
|
0
|
0
|
0
|
0
|
Production
|
(247,177)
|
(74,511)
|
(1,993,842)
|
(653,995)
|
|
|
|
|
|
Balance,
end of year
|
6,915,666
|
2,050,659
|
25,769,694
|
13,261,274
|
|
|
|
|
|
Proved
developed reserves:
|
|
|
|
|
Balance, beginning
of year
|
2,034,950
|
312,532
|
7,786,537
|
3,645,238
|
|
|
|
|
|
Balance,
end of year
|
1,801,624
|
315,935
|
8,552,249
|
3,542,934
|
|
|
|
|
|
Proved
undeveloped reserves:
|
|
|
|
|
Balance, beginning
of year
|
9,497,235
|
2,166,626
|
27,472,985
|
16,242,692
|
|
|
|
|
|
Balance,
end of year
|
5,114,042
|
1,734,724
|
17,217,445
|
9,718,340
|
Yuma’s
revisions in 2015 to previously estimated reserves for crude oil,
natural gas liquids and natural gas were primarily caused by (i)
commodity price reductions of 6,771,739 Mcf of natural gas, 753,922
Bbl of natural gas liquids, and 2,673,927 Bbl of oil causing wells
to reach their economic limits sooner and causing some proved
undeveloped locations to become uneconomic; (ii) upward revisions
of 2,337,685 Mcf of natural gas, 877,061 Bbl of natural gas
liquids, and 250,071 Bbl of oil primarily associated with increased
performance of Bayou Hebert (La Posada) field; and (iii)
reclassifying PUD reserves of 7,002,271 Mcf, 624,582 Bbl of natural
gas liquids, and 2,671,079 Bbl of oil to probable reserves
primarily in Yuma’s Greater Masters Creek Area due to the
current economic conditions and uncertainty in future development
plans.
9
|
Davis Historical
December 31, 2015
|
|||
|
Crude oil
(Bbls)
|
Natural Gas
Liquids (Bbls)
|
Natural Gas
(Mcf)
|
Total
(Boe)
|
Proved
reserves:
|
|
|
|
|
Balance, beginning
of year
|
1,995,900
|
717,400
|
12,650,500
|
4,821,700
|
Revisions
of previous estimates
|
(871,200)
|
14,100
|
3,711,100
|
(238,600)
|
Purchases
of oil and gas properties and minerals in place
|
12,800
|
25,100
|
516,600
|
124,000
|
Extensions
and discoveries
|
261,200
|
403,600
|
2,132,100
|
1,020,200
|
Sale
of oil and gas properties and minerals in place
|
(21,300)
|
(2,300)
|
(945,100)
|
(181,100)
|
Production
|
(209,500)
|
(129,700)
|
(2,547,300)
|
(763,800)
|
|
|
|
|
|
Balance,
end of year
|
1,167,900
|
1,028,200
|
15,517,900
|
4,782,400
|
|
|
|
|
|
Proved
developed reserves:
|
|
|
|
|
Balance, beginning
of year
|
1,084,900
|
579,400
|
11,901,600
|
3,647,900
|
|
|
|
|
|
Balance,
end of year
|
703,400
|
604,300
|
10,464,300
|
3,051,700
|
|
|
|
|
|
Proved
undeveloped reserves:
|
|
|
|
|
Balance, beginning
of year
|
911,000
|
138,000
|
748,900
|
1,173,800
|
|
|
|
|
|
Balance,
end of year
|
464,500
|
423,900
|
5,053,600
|
1,730,700
|
From
January 1, 2015 to December 31, 2015 Davis proved reserves
decreased by 39,300 Boe, a change of less than 1%. Davis had
763,800 Boe of production during the year. Extensions of
discoveries resulting from successful drilling in the Chalktown
field added 1,020,200 Boe of PUD reserves. Partially offsetting the
Chalktown extensions were downward revisions of 464,306 Boe in
proved reserves from a pilot downspaced drilling program that did
not perform as well as expected. In the second half of 2015,
Davis’ technical work focused on the high-valued Lac Blanc
and high-potential Cameron Canal fields. Davis’ geological,
geophysical and reservoir engineering reinterpretations resulted in
upward revisions of 555,761 Boe of proved developed reserves at the
Lac Blanc field and 538,521 Boe of proved undeveloped reserves at
the Cameron Canal field. Commodity price reductions resulted in a
downward revision to PUD reserves of 827,107 Boe as uneconomic
undeveloped locations in the El Halcón field were dropped from
PUD reserves. Low prices also resulted in a downward revision of
170,179 Boe of proved developed reserves due to wells in the
Vinceburg field in Galveston Bay reaching their economic limit.
These revisions, together with other insignificant revisions adding
approximately 128,600 Boe of proved reserves, resulted in a total
net reduction in proved reserves of 238,600 Boe. The purchase of a
partner’s interests in the Lac Blanc field added 124,000 Boe
of proved developed reserves, and sales of minor assets at Kings
Bayou, Cat Spring and Eagle Bay reduced proved developed reserves
by 181,117 Boe.
|
Pro Forma
Adjusted December 31, 2015
|
|||
|
Crude oil
(Bbls)
|
Natural Gas
Liquids (Bbls)
|
Natural Gas
(Mcf)
|
Total
(Boe)
|
Proved
reserves:
|
|
|
|
|
Balance, beginning
of year
|
13,528,085
|
3,196,558
|
47,910,022
|
24,709,630
|
Revisions
of previous estimates
|
(5,966,477)
|
(487,001)
|
(7,725,225)
|
(7,741,032)
|
Purchases
of oil and gas properties and minerals in place
|
108,162
|
33,125
|
781,581
|
271,551
|
Extensions
and discoveries
|
891,773
|
542,688
|
5,807,458
|
2,402,421
|
Sale
of oil and gas properties and minerals in place
|
(21,300)
|
(2,300)
|
(945,100)
|
(181,100)
|
Production
|
(456,677)
|
(204,211)
|
(4,541,142)
|
(1,417,795)
|
|
|
|
|
|
Balance,
end of year
|
8,083,566
|
3,078,859
|
41,287,594
|
18,043,674
|
|
|
|
|
|
Proved
developed reserves:
|
|
|
|
|
Balance, beginning
of year
|
3,119,850
|
891,932
|
19,688,137
|
7,293,138
|
|
|
|
|
|
Balance,
end of year
|
2,505,024
|
920,235
|
19,016,549
|
6,594,634
|
|
|
|
|
|
Proved
undeveloped reserves:
|
|
|
|
|
Balance, beginning
of year
|
10,408,235
|
2,304,626
|
28,221,885
|
17,416,492
|
|
|
|
|
|
Balance,
end of year
|
5,578,542
|
2,158,624
|
22,271,045
|
11,449,040
|
10
The pro
forma standardized measure of discounted estimated future net cash
flows was as follows as of December 31, 2015:
|
Yuma
Historical
|
Davis
Historical
|
Pro Forma
Adjusted
|
Future cash
inflows
|
$438,816,500
|
$112,449,000
|
$551,265,500
|
Future cash
outflows:
|
|
|
-
|
Production
cost
|
(129,636,500)
|
(38,404,000)
|
(168,040,500)
|
Development
cost
|
(126,463,700)
|
(21,947,000)
|
(148,410,700)
|
Future income
taxes
|
(22,664,783)
|
-
|
(22,664,783)
|
|
|
|
|
Future net cash
flows
|
$160,051,517
|
$52,098,000
|
$212,149,517
|
Adjustment to
discount future annual net cash flows at 10%
|
(53,506,567)
|
(11,118,000)
|
(64,624,567)
|
|
|
|
|
Standardized
measure of discounted future net cash flows
|
$106,544,950
|
$40,980,000
|
$147,524,950
|
The
changes in the pro forma standardized measure of discounted
estimated future net cash flows were as follows for the twelve
months ended December 31, 2015:
|
Yuma
Historical
|
Davis
Historical
|
Pro Forma
Adjusted
|
Standardized
measure, beginning of period
|
$295,478,496
|
$101,671,000
|
$397,149,496
|
Sales of oil and
gas, net of production cost
|
(7,069,544)
|
(10,769,000)
|
(17,838,544)
|
Extensions and
discoveries
|
16,659,700
|
3,534,000
|
20,193,700
|
Purchases of oil
and gas properties and reserves in place
|
2,268,907
|
1,062,000
|
3,330,907
|
Development costs
incurred during the period that reduced future development
costs
|
4,052,919
|
-
|
4,052,919
|
Prices and
operating expenses
|
(373,314,797)
|
(66,321,000)
|
(439,635,797)
|
Income
taxes
|
64,883,059
|
-
|
64,883,059
|
Estimated future
development costs
|
245,056,050
|
15,322,000
|
260,378,050
|
Quantity
estimates
|
(98,817,149)
|
(12,951,000)
|
(111,768,149)
|
Sale of reserves in
place
|
-
|
(2,784,000)
|
(2,784,000)
|
Accretion of
discount
|
37,672,481
|
10,167,000
|
47,839,481
|
Production rates,
timing and other
|
(80,325,172)
|
2,049,000
|
(78,276,172)
|
|
|
|
|
Standardized
measure, end of period
|
$106,544,950
|
$40,980,000
|
$147,524,950
|
11