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EX-99.6 - EX-99.6 - EQT Corpa17-22068_2ex99d6.htm
EX-99.5 - EX-99.5 - EQT Corpa17-22068_2ex99d5.htm
EX-99.3 - EX-99.3 - EQT Corpa17-22068_2ex99d3.htm
EX-99.2 - EX-99.2 - EQT Corpa17-22068_2ex99d2.htm
EX-99.1 - EX-99.1 - EQT Corpa17-22068_2ex99d1.htm
EX-23.3 - EX-23.3 - EQT Corpa17-22068_2ex23d3.htm
EX-23.2 - EX-23.2 - EQT Corpa17-22068_2ex23d2.htm
EX-23.1 - EX-23.1 - EQT Corpa17-22068_2ex23d1.htm
8-K - 8-K - EQT Corpa17-22068_28k.htm

Exhibit 99.4

 

VANTAGE ENERGY, LLC

 

Condensed Consolidated Balance Sheets

 

(Unaudited)

 

(In thousands)

 

September 30,
2016

 

December 31,
2015

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

1,260

 

$

2,191

 

Accounts receivable (Note 2)

 

11,416

 

21,989

 

Accounts receivable—related party

 

33,199

 

 

Inventory

 

806

 

1,212

 

Prepayments and deposits

 

4,191

 

815

 

Commodity derivative assets

 

13,930

 

40,944

 

Total current assets

 

64,802

 

67,151

 

Property, plant, and equipment:

 

 

 

 

 

Oil and gas properties, full-cost method of accounting:

 

 

 

 

 

Proved

 

1,083,681

 

1,032,782

 

Unproved

 

72,605

 

74,619

 

Total oil and gas properties

 

1,156,286

 

1,107,401

 

Accumulated depletion and ceiling write-down

 

(821,083

)

(634,082

)

Net oil and gas properties

 

335,203

 

473,319

 

Gathering systems, less accumulated depreciation of $7,741 and $5,299

 

63,553

 

58,815

 

Other property, plant, and equipment, less accumulated depreciation of $2,134 and $1,948

 

717

 

772

 

Net property, plant, and equipment

 

399,473

 

532,906

 

Commodity derivative assets

 

10,689

 

15,679

 

Other assets

 

2,515

 

2,043

 

Total assets

 

$

477,479

 

$

617,779

 

Liabilities and Members’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities (Note 2)

 

$

33,524

 

$

40,937

 

Accounts payable—related party

 

 

1,100

 

Current portion of Revolving Credit Facility, net of unamortized deferred financing costs

 

265,430

 

 

Current portion of Second Lien Note Payable

 

2,000

 

2,000

 

Total current liabilities

 

300,954

 

44,037

 

Revolving Credit Facility, net of unamortized deferred financing costs

 

 

270,555

 

Second Lien Note Payable, net of unamortized deferred financing costs

 

189,260

 

189,780

 

Asset retirement obligations

 

8,927

 

8,466

 

Total liabilities

 

499,141

 

512,838

 

Contingently redeeemable Founders’ units

 

5,960

 

5,788

 

Members’ equity:

 

 

 

 

 

Member contributions, net of issuance costs

 

448,059

 

428,227

 

Accumulated deficit

 

(475,681

)

(329,074

)

Total members’ equity

 

(27,622

)

99,153

 

Total liabilities and members’ equity

 

$

477,479

 

$

617,779

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 



 

VANTAGE ENERGY, LLC

 

Condensed Consolidated Statements of Operations

 

(Unaudited)

 

 

 

Nine months ended
September 30,

 

(In thousands)

 

2016

 

2015

 

Operating revenues:

 

 

 

 

 

Gas revenues

 

$

66,211

 

$

53,334

 

Oil revenues

 

2,124

 

2,524

 

NGLs revenues

 

8,764

 

6,683

 

Midstream revenues

 

7,244

 

4,318

 

Gain on commodity derivatives

 

9,929

 

45,123

 

Total operating revenues

 

94,272

 

111,982

 

Operating expenses:

 

 

 

 

 

Production and ad valorem tax expense

 

5,041

 

3,244

 

Marketing and gathering expense

 

7,457

 

3,567

 

Lease operating and workover expense

 

9,838

 

12,591

 

Midstream operating expense

 

2,198

 

1,068

 

General and administrative expense

 

5,415

 

5,357

 

Depreciation, depletion, amortization, and accretion expense

 

35,793

 

39,672

 

Impairment of oil and gas properties

 

155,994

 

156,767

 

Total operating expenses

 

221,736

 

222,266

 

Operating loss

 

(127,464

)

(110,284

)

Other expenses:

 

 

 

 

 

Other expense

 

153

 

3

 

Interest expense

 

18,990

 

16,158

 

Total other expenses

 

19,143

 

16,161

 

Net loss

 

$

(146,607

)

$

(126,445

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 



 

VANTAGE ENERGY, LLC

 

Condensed Consolidated Statements of Cash Flows

 

(Unaudited)

 

 

 

Nine months ended
September 30,

 

(In thousands)

 

2016

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(146,607

)

$

(126,445

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion, amortization, and accretion

 

35,793

 

39,672

 

Accretion of original issue discount

 

296

 

275

 

Impairment of oil and gas properties

 

155,994

 

156,767

 

Gain on commodity derivatives

 

(9,929

)

(45,123

)

Settlement of commodity derivatives

 

41,933

 

59,491

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

10,573

 

10,467

 

Accounts payable—related party

 

(34,299

)

(7,960

)

Inventory

 

406

 

292

 

Prepayments and deposits

 

(3,376

)

(1,109

)

Accounts payable and accrued liabilities

 

6,371

 

6,074

 

Net cash provided by operating activities

 

57,155

 

92,401

 

Cash flows from investing activities:

 

 

 

 

 

Oil and gas property acquisition, exploration, and development

 

(60,940

)

(150,588

)

Gathering system additions

 

(7,916

)

(11,151

)

Water investment additions, net of surcharges refunded

 

(1,477

)

 

Other property, plant, and equipment additions

 

(95

)

(438

)

Net cash used in investing activities

 

(70,428

)

(162,177

)

Cash flows from financing activities:

 

 

 

 

 

Borrowings under Revolving Credit Facility

 

58,000

 

54,000

 

Principal payments on Revolving Credit Facility

 

(63,000

)

 

Principal payments on Second Lien Note Payable

 

(1,500

)

(1,500

)

Members’ contributions, net

 

20,004

 

 

Financing costs

 

(1,162

)

(1,377

)

Net cash provided by financing activities

 

12,342

 

51,123

 

Net change in cash and cash equivalents

 

(931

)

(18,653

)

Cash and cash equivalents—beginning of period

 

2,191

 

20,479

 

Cash and cash equivalents—end of period

 

$

1,260

 

$

1,826

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

19,941

 

$

17,156

 

Accrued capital expenditures

 

$

13,787

 

$

21,383

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(1) Description of Business and Summary of Significant Accounting Policies

 

(a)      Nature of Operations and Principles of Consolidation

 

Vantage Energy, LLC (the “Company”) was organized as a limited liability company under the laws of the state of Delaware in 2006. The condensed consolidated financial statements include the accounts of Vantage Energy, LLC and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

 

The Company is engaged in the exploration and exploitation of oil, natural gas and natural gas liquids, as well as natural gas acquisition, development, and gathering, in various basins in the United States of America, with the primary focus on unconventional natural gas plays.

 

The accompanying unaudited condensed consolidated financial statements of Vantage Energy, LLC have been prepared by the Company’s management in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP for annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes therein for the year ended December 31, 2015. The unaudited condensed consolidated financial statements included herein contain all adjustment which are, in the opinion of management, necessary to present fairly the Company’s financial position as of September 30, 2016 and December 31, 2015, and its condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2016 and 2015. The condensed consolidated statements of operations for the nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for future periods.

 

(b)      Use of Estimates

 

The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. As a result, actual amounts could differ from estimated amounts. By their nature, these estimates are subject to measurement uncertainty, and the effect on the condensed consolidated financial statements of changes in such estimates in future periods could be significant. Significant estimates with regard to the Company’s condensed consolidated financial statements include the estimate of proved oil and gas reserve volumes and the related present value of estimated future net cash flows, the recoverability of unproved oil and gas properties, the calculation of depletion of oil and gas reserves, the estimated cost and timing related to asset retirement obligations, and the estimated fair value of derivative assets and liabilities.

 

Reserve estimates are, by their nature, inherently imprecise. The process of estimating quantities of oil and gas reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering, and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history, and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that the reserve estimates represent the most accurate assessments possible, subjective decisions, and available data for the various fields make these estimates generally less precise than other estimates included in financial statement disclosures.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(1) Description of Business and Summary of Significant Accounting Policies (Continued)

 

(c)      Oil and Gas Properties

 

The Company follows the full-cost method of accounting for oil and gas properties. Pursuant to full-cost accounting rules, the Company is required to perform a “ceiling test” calculation to test its oil and gas properties for possible impairment. If the net capitalized cost of the Company’s oil and gas properties subject to amortization (the carrying value) exceeds the ceiling limitation, the excess is charged to expense. The ceiling limitation is equal to the sum of the present value discounted at 10% of estimated future net cash flows from proved reserves, the cost of properties not being amortized, the lower of cost or estimated fair value of unproven properties included in the costs being amortized, and all related income tax effects. The present value of estimated future net revenue is computed by applying the average first day of the month oil and gas price for the preceding 12-month period to estimated future production of proved oil and gas reserves as of period-end, less estimated future expenditures to be incurred in developing and producing the proved reserves, assuming the continuation of existing economic conditions.

 

As of June 30, 2016, the carrying value of the Company’s oil and gas properties subject to the test exceeded the calculated value of the ceiling limitation. As a result, the Company recorded an impairment of $156.0 million for the six months ended June 30, 2016. No impairment was required for the three-month period ended September 30, 2016 as the calculated ceiling exceeded the carrying value of the Company’s oil and gas properties subject to the test. As the ceiling test calculation uses rolling 12-month average commodity prices, the effect of lower quarter-over-quarter prices in future quarters is a potentially lower ceiling value each quarter. Declines in commodity prices could result in future impairments.

 

(d)      Adoption of New Accounting Principles

 

The FASB issued ASU 2015-03, Interest Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, in April 2015. The core principle of ASU 2015-03 will require all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of debt, consistent with debt discounts. The Company adopted this standard as of January 1, 2016, and has applied the standard retrospectively. As a result of adoption, the Company has classified debt issuance costs to its Revolving Credit Facility (defined herein) and Second Lien Note Payable (defined herein) from other assets to debt on its condensed consolidated balance sheets.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(1) Description of Business and Summary of Significant Accounting Policies (Continued)

 

The retrospective adjustment to the December 31, 2015 condensed consolidated balance sheet is as follows:

 

 

 

Previously
reported
December 31,
2015

 

Adjustments

 

As adjusted
December
31,
2015

 

 

 

(In
thousands)

 

Other assets

 

$

4,771

 

$

(3,390

)

$

1,381

 

Revolving Credit Facility

 

271,000

 

(445

)

270,555

 

Second Lien Note Payable

 

192,725

 

(2,945

)

189,780

 

 

(2) Balance Sheet Disclosures

 

Accounts receivable consist of the following:

 

 

 

September
30, 2016

 

December
31, 2015

 

 

 

(In thousands)

 

Revenue

 

$

8,490

 

$

14,128

 

Joint interest billings

 

3,966

 

5,021

 

Derivative receivable

 

52

 

1,056

 

Other receivables

 

108

 

2,284

 

Allowance for doubtful accounts

 

(1,200

)

(500

)

Accounts receivable

 

$

11,416

 

$

21,989

 

 

Joint interest billings represent receivables from joint interest owners on properties the Company operates. For receivables from joint interest owners, the Company typically has the ability to withhold future revenue disbursements to recover nonpayment of joint interest billings.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(2) Balance Sheet Disclosures (Continued)

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

September
30, 2016

 

December
31, 2015

 

 

 

(In thousands)

 

Accrued capital expenditures

 

$

5,206

 

$

18,993

 

Accounts payable

 

8,913

 

1,467

 

Accrued revenue payable

 

7,930

 

6,978

 

Accrued marketing, gathering and transportation

 

3,781

 

5,646

 

Accrued production and ad valorem taxes

 

2,813

 

3,127

 

Accrued general and administrative expense

 

2,493

 

1,854

 

Accrued production expense payable

 

2,256

 

2,264

 

Other

 

132

 

608

 

Accounts payable and accrued liabilities

 

$

33,524

 

$

40,937

 

 

(3) Debt

 

Revolving Credit Facility

 

Effective July 19, 2007, the Company secured a credit facility with a group of bank lenders. Wells Fargo Bank, N.A. acts as administrative agent. Effective December 20, 2013, the Company amended and restated its credit facility (the “Revolving Credit Facility”) to adjust the borrowing base, increase the maximum commitment to $750 million, and allow for the Second Lien Note Payable (see below). The maturity date of the Revolving Credit Facility is January 1, 2017. As of September 30, 2016 and December 31, 2015, the Company had a borrowing base of $285.0 million and $276.0 million, respectively. As of September 30, 2016 and December 31, 2015, the Company had net outstanding borrowings of $265.4 million and $271.0 million, respectively. On each borrowing, the Company has the election to pay interest at a Base rate or Eurodollar LIBOR. The margin on Base rate loans ranges from 0.75% to 1.75%. The margin on LIBOR loans ranges from 1.75% to 2.75%. The Company pays quarterly commitment fees ranging from 0.375% to 0.500% of the unused borrowing base. The Company generally elects to pay interest based on LIBOR, plus the applicable margin, which was 4.03% in total as of September 30, 2016.

 

As of September 30, 2016, the Revolving Credit Facility was collateralized by all of the Company’s assets, including its 50% undivided nonoperated interest in the Vantage Midstream assets (as defined in Note 7).

 

The Revolving Credit Facility contains certain financial covenants, including maintenance of a minimum current ratio, a minimum interest coverage ratio, and a minimum asset coverage ratio. As of September 30, 2016, the Company was in compliance with all of its financial covenants.

 

Second Lien Note Payable

 

In December 2013, the Company entered into a second lien note payable (“Second Lien Note Payable”) with a face amount of $200 million, maturing on December 20, 2018. The Company has the election to pay interest at a Base rate or Eurodollar LIBOR. The margin on Base rate loans is 6.50%. The margin on LIBOR loans is 7.50%.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(3) Debt (Continued)

 

LIBOR has a floor of 1.00%. As of September 30, 2016, the stated interest rate was 8.5%, and net borrowings of $191.3 million was outstanding. The Second Lien Note Payable contains an optional prepayment provision that enables the Company to prepay the Second Lien Note Payable at par. The Second Lien Note Payable was issued with an original issue discount of $2.0 million, which has been classified as a reduction to the note balance. The discount is amortized over the term of the note using the effective interest method. The Second Lien Note Payable requires quarterly principal payments of $500,000, which commenced March 31, 2014.

 

As of September 30, 2016, the Second Lien Note Payable was collateralized by a second lien interest in all of the Company’s assets, including its 50% nonoperated interest in the Vantage Midstream assets, and contains certain financial covenants. These covenants include maintenance of a minimum asset coverage ratio and a minimum proved reserves value. As of September 30, 2016, the Company was in compliance with all of its financial covenants.

 

Borrowings outstanding as of September 30, 2016:

 

 

 

As of September 30, 2016

 

(in thousands)

 

Revolving
Credit
Facility

 

Second Lien
Note
Payable

 

Principal

 

$

266,000

 

$

194,500

 

Net unamortized premium

 

 

(979

)

Net unamortized debt issuance costs

 

(570

)

(2,261

)

 

 

 

 

 

 

Total debt

 

265,430

 

191,260

 

Less: Current portion of long-term debt

 

265,430

 

2,000

 

Total long-term debt

 

$

 

$

189,260

 

 

The Revolving Credit Facility matures on January 1, 2017. The Company expects to repay and retire the Revolving Credit Facility and the Second Lien Note Payable in connection with the net proceeds from a future monetization event, undrawn capital commitments and/or and cash on hand. Additionally, the Company plans to obtain new financing following the anticipated corporate reorganization, contemporaneous with a monetization event. In addition, the Company expects that it will be able to secure incremental equity commitments or other sources of capital, including debt, if necessary, from its current equity investors, other investors, or lenders to address any shortfall. The Company’s current equity investors continue to be supportive of the Company’s long-term growth and financing strategy.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(3) Debt (Continued)

 

Maturities of outstanding borrowings as of September 30, 2016 are as follows:

 

(in thousands)

 

Revolving
Credit
Facility

 

Second Lien
Note
Payable

 

Year ending December 31,

 

 

 

 

 

2016

 

$

 

$

500

 

2017

 

266,000

 

2,000

 

2018

 

 

192,000

 

Total future maturities of outstanding borrowings

 

$

266,000

 

$

194,500

 

 

(4) Fair Value Measurements

 

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

Level 1:

Quoted prices are available in active markets for identical assets or liabilities.

 

 

Level 2:

Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability.

 

 

Level 3:

Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(4) Fair Value Measurements (Continued)

 

The assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s policy is to recognize transfers in to and/or out of the fair value hierarchy as of the end of the reporting period in which the event or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques discussed below in all periods presented. The following tables present the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, by level, within the fair value hierarchy (in thousands):

 

 

 

September 30, 2016

 

 

 

Fair value measurements

 

Description

 

Level
1

 

Level 2

 

Level
3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Commodity derivative instruments

 

$

 

$

24,619

 

$

 

$

24,619

 

 

 

 

December 31, 2015

 

 

 

Fair value measurements

 

Description

 

Level
1

 

Level 2

 

Level
3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Commodity derivative instruments

 

$

 

$

56,623

 

$

 

$

56,623

 

 

The Company’s commodity derivative instruments consist of variable-to-fixed price swaps. The fair values of the swap agreements are determined under the income valuation technique using a discounted cash flow model. The valuation model requires a variety of inputs, including contractual terms, published forward prices, and discount rates as appropriate. The Company’s estimates of fair value of commodity derivative instruments include consideration of the counterparties’ creditworthiness, the Company’s creditworthiness, and the time value of money. The consideration of these factors results in an estimated exit price for each derivative asset or liability under a marketplace participant’s view. All of the significant inputs are observable, either directly or indirectly; therefore, the Company’s derivative instruments are included within Level 2 of the fair value hierarchy. The counterparties on the Company’s derivative instruments are the same financial institutions that hold the Revolving Credit Facility (Note 3). Accordingly, the Company is not required to post collateral on these derivatives since the banks are secured by the Company’s oil and gas properties.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(5) Asset Retirement Obligations

 

As of September 30, 2016, the Company’s asset retirement obligation was $8.9 million. Liabilities incurred, accretion expense and revisions to the Company’s estimates were not material for the nine months ended September 30, 2016.

 

(6) Commodity Derivative Instruments

 

The Company uses derivative commodity instruments that are placed with major financial institutions whose creditworthiness is regularly monitored. The Company currently uses fixed price natural gas swaps for which it receives a fixed swap price for future production in exchange for a payment of the variable market price received at the time future production is sold. The Company has entered into various derivative contracts to manage price risk and to achieve more predictable cash flows. As a result of the Company’s hedging activities, the Company may realize prices that are greater or less than the market prices that it would have received otherwise.

 

The Company recognizes all derivative instruments as either assets or liabilities at fair value per Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) “Derivatives and Hedging (Topic 815)”. The Company’s derivative commodity instruments have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized currently in earnings.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(6) Commodity Derivative Instruments (Continued)

 

The following tables present the gross amounts of the Company’s recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets for the periods presented, at fair value.

 

 

 

 

 

September 30, 2016

 

 

 

Condensed consolidated

 

Gross amounts

 

 

 

balance
sheet classification

 

Gross
recognized

 

Offset

 

Net
recognized

 

 

 

 

 

 

 

(In thousands)

 

 

 

Derivative assets:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current assets

 

$

17,917

 

$

(3,987

)

$

13,930

 

Commodity contracts

 

Noncurrent assets

 

14,234

 

(3,545

)

10,689

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current liabilities

 

$

3,987

 

$

(3,987

)

$

 

Commodity contracts

 

Noncurrent liabilities

 

3,545

 

(3,545

)

 

 

 

 

 

 

December 31, 2015

 

 

 

Condensed consolidated

 

Gross amounts

 

 

 

balance
sheet classification

 

Gross
recognized

 

Offset

 

Net
recognized

 

 

 

 

 

 

 

(In thousands)

 

 

 

Derivative assets:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current assets

 

$

41,242

 

$

(298

)

$

40,944

 

Commodity contracts

 

Noncurrent assets

 

15,872

 

(193

)

15,679

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current liabilities

 

$

298

 

$

(298

)

$

 

Commodity contracts

 

Noncurrent liabilities

 

193

 

(193

)

 

 

The table below summarizes the realized and unrealized gains and losses, net related to the Company’s derivative instruments for the nine months ended September 30, 2016 and 2015, recorded as operating revenues in the accompanying condensed consolidated statements of operations.

 

 

 

Nine months ended
September 30,

 

 

 

2016

 

2015

 

 

 

(In thousands)

 

Commodity derivative instruments:

 

 

 

 

 

Realized gains on commodity derivatives, net

 

$

41,932

 

$

59,491

 

Unrealized loss on commodity derivatives, net

 

(32,003

)

(14,368

)

 

 

 

 

 

 

Gain on commodity derivatives

 

$

9,929

 

$

45,123

 

 

 

 

 

 

 

 

Due to the volatility of oil and natural gas prices, the estimated fair values of the Company’s commodity derivative instruments are subject to significant fluctuations from period to period.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(7) Related Party Transactions

 

(a)                                 Gas Gathering System Operating Agreement

 

In connection with the Joint Development Agreement between the Company and Vantage Energy II, LLC (“Vantage II”), Vista Gathering, LLC (hereinafter referred to as “Vantage Midstream”) became the operator of the gas gathering and compression assets. Pursuant to a Gas Gathering System Operating Agreement, dated August 2, 2012, between the Company and Vantage Midstream, the Company and Vantage II are to pay their respective 50% shares of the gas gathering system’s operating and development costs, as well as their incurred gas gathering and compression fees. The Company was charged gas gathering and compression fees by Vantage Midstream for the wells that it operates of approximately $8.3 million and $3.7 million for the nine months ended September 30, 2016 and 2015, respectively.

 

(b)                                 Water Investment

 

Pursuant to the Water Services and Supply Agreement, Vantage Midstream provides water services required in the Company’s drilling operations. For the nine months ended September 30, 2016, the Company’s payments to Vantage Midstream for water supply and transportation were immaterial.

 

(c)                                  Management Services Agreement

 

In August 2012, the Company and Vantage II entered into a Management Services Agreement (“MSA”) whereby the Company is to provide certain executive management, administrative, accounting, finance, engineering, land, and information technology assistance to Vantage II. In exchange for receiving these services, Vantage II will pay the Company a fee (the “MSA Fee”). The MSA Fee is allocated based upon the gross general and administrative expenses incurred by the Company multiplied by a ratio of the relative capital expenditures and oil and natural gas production volumes of the Company and Vantage II. Certain adjustments are made to this calculation to reflect the allocation of general and administrative expenses to Vantage Midstream. The Company billed general and administrative expenses under the MSA to Vantage II of approximately $11.3 million and $8.6 million for the nine months ended September 30, 2016 and 2015, respectively.

 

(d)                                 MIU Notes Receivable

 

In December 2014, the Company made loans to certain employees in the form of notes receivable. Interest accrues on the notes at 0.34% per annum, and the notes mature upon the earlier to occur of: 1) December 1, 2017; 2) consummation of Monetization Event (as defined); or 3) fifteen days after the date of voluntary termination of employment by the employee or termination by the Company for cause. As of September 30, 2016, the notes outstanding were approximately $1.3 million and are classified in other assets in the accompanying condensed consolidated balance sheets. The notes are collateralized by a first lien interest in each employees’ Management Incentive Units (“MIUs”) and all potential dividends and distributions and a second lien on all other personal assets. Interest income was not material for the nine months ended September 30, 2016 and 2015, respectively.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(8) Commitments and Contingencies

 

The Company leases office spaces in Colorado, Pennsylvania, and Texas and various compressors in Pennsylvania and Texas under noncancelable operating leases that expire at various dates through 2017. The associated future remaining obligations of such leases was not material as of September 30, 2016.

 

On August 22, 2008, the Company secured a letter of credit in the amount of $0.1 million with Wells Fargo Bank, N.A. in connection with the signing of an exploration agreement. Partial draws under this letter of credit are permitted. As of September 30, 2016, no amounts have been drawn under the letter of credit.

 

As part of a Founder’s employment agreement, the Company will pay $0.5 million to such Founder provided all of the following conditions have been met:

 

i.                  The Company’s invested capital equals $250 million or greater

 

ii.               Monetization events aggregating at least $500 million in proceeds have been completed

 

iii.            Distributions to Capital Interest Members are sufficient, in part, to exceed the Second Threshold, as defined in the LLC Agreement.

 

As of September 30, 2016, none of the $0.5 million has been accrued, as fulfillment of the above criteria has not been deemed probable as of such date.

 

Effective August 1, 2010, and amended in October 2014, the Company entered into a gas gathering agreement related to its Lake Arlington project in Tarrant County, Texas, which committed the Company to transport a minimum quantity of natural gas for seven years starting on the date gas is first delivered. If the Company transports more than the minimum quantity, the Company will receive a credit for excess transported gas, calculated as actual quantity transported, less minimum transportation quantity, multiplied by a stated dollar amount per MMBtu. This credit can be used to offset shortfalls incurred, if any, in the year immediately before or after the excess quantity was incurred. As of September 30, 2016, remaining total minimum revenue commitments due over the term of the agreement aggregate to $10.9 million. As of September 30, 2016, the portion of the remaining minimum commitment that is due in 2017 totals $7.1 million, subject to a rollover provision in the agreement that permits the Company to roll a portion of any deficit commitment to the subsequent period.

 

Effective August 1, 2013, the Company entered into a gas gathering agreement related to its Wedgwood project in Tarrant County, Texas, under which the Company is required to make a minimum revenue commitment of $8.8 million over four years starting on the date gas is first delivered. The gas gathering fee on which the minimum revenue commitment is based is $0.55 per MMBtu, and remains at that level under the agreement until the Company sells 20,000,000 MMBtu from its Wedgewood project, at which time the gas gathering fee reduces to $0.34 per MMBtu for all subsequent volumes. As of September 30, 2016, the Company had a remaining total commitment of $2.2 million. As of September 30, 2016 the portion of the remaining minimum revenue commitment that is due in 2017 totals $1.5 million, subject to a rollover provision in the agreement that permits the Company to roll a portion of any deficit obligations to the subsequent period.

 

On April 17, 2014, the Company entered into a 20,000 MMBtu/d firm marketing agreement to market a portion of production associated with volumes produced in the Marcellus Shale. The agreement began in October 2014 and continues through October 2020. Under the contract, the Company is paid based on TETCO M-2 pricing with the ability to share in downstream price upside when market conditions allow.

 



 

VANTAGE ENERGY, LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(8) Commitments and Contingencies (Continued)

 

On May 9, 2014, the Company entered in a 37,500 MMBtu/d firm marketing agreement to market a portion of our production associated with volumes produced in the Marcellus Shale. The agreement began in November 2014 and continues through October 2019. Under the contract, the Company is paid based on TETCO M-2 pricing.

 

From time to time, the Company is party to litigation. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the financial statements.

 

(9) Capital Structure

 

Capital Interests

 

Capital Interests are issued to Members from time to time, in exchange for a Member’s capital commitment to make cash contributions when called by the Company pursuant to the terms as described in the Agreement.

 

Total capital contributions and deemed commitments associated with outstanding Capital Interests are as follows:

 

 

 

September
30,
2016

 

December
31,
2015

 

 

 

(In thousands)

 

Institutional investors (deemed commitment—$470,559)

 

$

445,716

 

$

420,940

 

Founders (deemed commitment—$6,281)

 

5,960

 

5,788

 

Other employees (deemed commitment—$2,169)

 

2,103

 

2,055

 

Friends and family (deemed commitment—$6,225)

 

5,827

 

5,568

 

Total (total deemed commitment—$485,234)

 

$

459,606

 

$

434,351

 

 

Management Incentive Units

 

The Company has issued management incentive units to certain employees. The management incentive units participate only in distributions in liquidation events, meeting requisite financial thresholds after Capital Interests have recovered their investment and special allocation amounts. Management incentive units have no voting rights. Compensation expense for these awards will be recognized when all performance, market, and service conditions are probable of being satisfied (in general, upon a liquidating event), which has not occurred as of September 30, 2016. Accordingly, no value was assigned to the interests when issued.

 

(10) Subsequent Events

 

The Company has evaluated subsequent events that occurred after September 30, 2016 through, September 19, 2017. Any material subsequent events that occurred during this time have been properly recognized or disclosed in these condensed consolidated financial statements or the notes to the condensed consolidated financial statements. Effective October 19, 2016, Vantage Energy, LLC was acquired by Rice Energy Inc.