Attached files
| file | filename |
|---|---|
| 8-K - 8-K - SM Energy Co | form8-k31017.htm |
| EX-99.2 - EXHIBIT 99.2 - SM Energy Co | exhibit992pressrelease.htm |
EXHIBIT 99.1
SM ENERGY COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is presented to illustrate the effect of the sale by SM Energy Company (the “Company”) of its non-operated Eagle Ford shale assets, including its ownership interest in related midstream assets (the “Eagle Ford Assets” and the “Divestiture”) on its historical financial position and operating results. The Divestiture had an effective date of November 1, 2016, and was completed on March 10, 2017. Net proceeds from the Divestiture, after customary closing adjustments and estimated selling costs, were $747.4 million. The Divestiture is subject to customary post-closing purchase price adjustments that have not yet been finalized.
The unaudited pro forma consolidated balance sheet as of December 31, 2016, is based on the historical financial statements of the Company as of December 31, 2016, after giving effect to the Divestiture as if it had occurred on December 31, 2016. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2016, is based on the historical financial statements of the Company for such period after giving effect to the Divestiture as if it had occurred on January 1, 2016. The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable as of the date of this Current Report on Form 8-K. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial statements.
The preparation of the unaudited pro forma consolidated financial information is based on financial statements prepared in accordance with accounting principles generally accepted in the United States. These principles require the use of estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The Company determined that the Divestiture does not qualify for discontinued operations accounting under financial statement presentation authoritative guidance.
The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the Divestiture been consummated on the date or for the period presented. The unaudited pro forma consolidated financial information should be read in conjunction with the Company’s historical consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 23, 2017.
SM ENERGY COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2016
(in thousands, except share amounts)
As Reported | Pro Forma Adjustments | Notes | As Adjusted | ||||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 9,372 | $ | 747,395 | (a) | $ | 756,767 | ||||||
Accounts receivable | 151,950 | (644 | ) | (d) | 151,306 | ||||||||
Derivative asset | 54,521 | 54,521 | |||||||||||
Prepaid expenses and other | 8,799 | 8,799 | |||||||||||
Total current assets | 224,642 | 746,751 | 971,393 | ||||||||||
Property and equipment (successful efforts method): | |||||||||||||
Proved oil and gas properties | 5,700,418 | 5,700,418 | |||||||||||
Less - accumulated depletion, depreciation, and amortization | (2,836,532 | ) | (2,836,532 | ) | |||||||||
Unproved oil and gas properties | 2,471,947 | 2,471,947 | |||||||||||
Wells in progress | 235,147 | 235,147 | |||||||||||
Oil and gas properties held for sale, net | 372,621 | (372,621 | ) | (b) | — | ||||||||
Other property and equipment, net of accumulated depreciation of $42,882 | 137,753 | 137,753 | |||||||||||
Total property and equipment, net | 6,081,354 | (372,621 | ) | 5,708,733 | |||||||||
Noncurrent assets: | |||||||||||||
Derivative asset | 67,575 | 67,575 | |||||||||||
Other noncurrent assets | 19,940 | 19,940 | |||||||||||
Total other noncurrent assets | 87,515 | — | 87,515 | ||||||||||
Total Assets | $ | 6,393,511 | $ | 374,130 | $ | 6,767,641 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||
Current liabilities: | |||||||||||||
Accounts payable and accrued expenses | $ | 299,708 | $ | 13,902 | (d) | $ | 313,610 | ||||||
Derivative liability | 115,464 | 115,464 | |||||||||||
Total current liabilities | 415,172 | 13,902 | 429,074 | ||||||||||
Noncurrent liabilities: | |||||||||||||
Revolving credit facility | — | — | |||||||||||
Senior Notes, net of unamortized deferred financing costs | 2,766,719 | 2,766,719 | |||||||||||
Senior Convertible Notes, net of unamortized discount and deferred financing costs | 130,856 | 130,856 | |||||||||||
Asset retirement obligation | 96,134 | 96,134 | |||||||||||
Asset retirement obligation associated with oil and gas properties held for sale | 26,241 | (26,241 | ) | (c) | — | ||||||||
Deferred income taxes | 315,672 | 128,493 | (d) | 444,165 | |||||||||
Derivative liability | 98,340 | 98,340 | |||||||||||
Other noncurrent liabilities | 47,244 | 47,244 | |||||||||||
Total noncurrent liabilities | 3,481,206 | 102,252 | 3,583,458 | ||||||||||
Commitments and contingencies | |||||||||||||
Stockholders’ equity: | |||||||||||||
Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 111,257,500 | 1,113 | 1,113 | |||||||||||
Additional paid-in capital | 1,716,556 | 1,716,556 | |||||||||||
Retained earnings | 794,020 | 257,976 | (e) | 1,051,996 | |||||||||
Accumulated other comprehensive loss | (14,556 | ) | (14,556 | ) | |||||||||
Total stockholders’ equity | 2,497,133 | 257,976 | 2,755,109 | ||||||||||
Total Liabilities and Stockholders’ Equity | $ | 6,393,511 | $ | 374,130 | $ | 6,767,641 | |||||||
SM ENERGY COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
(in thousands, except per share amounts)
As Reported | Pro Forma Adjustments | Notes | As Adjusted | ||||||||||
Operating revenues and other income: | |||||||||||||
Oil, gas, and NGL production revenue | $ | 1,178,426 | $ | (216,844 | ) | (f) | $ | 961,582 | |||||
Net gain on divestiture activity | 37,074 | (g) | 37,074 | ||||||||||
Other operating revenues | 1,950 | 1,950 | |||||||||||
Total operating revenues and other income | 1,217,450 | (216,844 | ) | 1,000,606 | |||||||||
Operating expenses: | |||||||||||||
Oil, gas, and NGL production expense | 597,565 | (96,829 | ) | (f) | 500,736 | ||||||||
Depletion, depreciation, amortization, and asset retirement obligation liability accretion | 790,745 | (68,911 | ) | (h) | 721,834 | ||||||||
Exploration | 65,641 | 65,641 | |||||||||||
Impairment of proved properties | 354,614 | (269,610 | ) | (i) | 85,004 | ||||||||
Abandonment and impairment of unproved properties | 80,367 | 80,367 | |||||||||||
General and administrative | 126,428 | 126,428 | |||||||||||
Change in Net Profits Plan liability | (7,200 | ) | (7,200 | ) | |||||||||
Net derivative loss | 250,633 | 250,633 | |||||||||||
Other operating expenses | 17,972 | 17,972 | |||||||||||
Total operating expenses | 2,276,765 | (435,350 | ) | 1,841,415 | |||||||||
Loss from operations | (1,059,315 | ) | 218,506 | (840,809 | ) | ||||||||
Non-operating income (expense): | |||||||||||||
Interest expense | (158,685 | ) | (158,685 | ) | |||||||||
Gain on extinguishment of debt | 15,722 | 15,722 | |||||||||||
Other, net | 362 | 362 | |||||||||||
Loss before income taxes | (1,201,916 | ) | 218,506 | (983,410 | ) | ||||||||
Income tax benefit | 444,172 | (79,099 | ) | (j) | 365,073 | ||||||||
Net loss | $ | (757,744 | ) | $ | 139,407 | $ | (618,337 | ) | |||||
Basic weighted-average common shares outstanding | 76,568 | 76,568 | |||||||||||
Diluted weighted-average common shares outstanding | 76,568 | 76,568 | |||||||||||
Basic net loss per common share | $ | (9.90 | ) | $ | (8.08 | ) | |||||||
Diluted net loss per common share | $ | (9.90 | ) | $ | (8.08 | ) | |||||||
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated financial statements reflect the following adjustments:
Pro Forma Consolidated Balance Sheet
“As Reported” - represents the historical consolidated balance sheet of the Company as of December 31, 2016.
a. | To adjust cash and cash equivalents for the receipt of proceeds from the sale of the Company’s Eagle Ford Assets, net of estimated selling costs. |
b. | To eliminate oil and gas properties related to the assets sold, which were previously classified as assets held for sale. |
c. | To eliminate the asset retirement obligation liability related to the assets sold. |
d. | To reflect the estimated change in income tax receivables and payables and deferred income taxes related to additional utilization of gross federal and state net operating losses of $632.8 million resulting in a decrease to deferred tax assets of $176.2 million, offset by the reversal of $28.9 million of net deferred tax liabilities associated with assets sold, and the reversal of valuation allowances on deferred tax assets of $4.3 million relating to state net operating losses and other deferred deductions which are now expected to be utilized. |
e. | To record the estimated gain on sale of oil and gas properties, net of tax effect, as illustrated in the table below. |
For the Year Ended December 31, 2016 | |||
(in thousands) | |||
Gross purchase price | $ | 800,000 | |
Less: customary closing adjustments | (45,965 | ) | |
Cash proceeds received at closing | 754,035 | ||
Less: estimated selling costs | (6,640 | ) | |
Net divestiture proceeds | 747,395 | ||
Less: cost basis of assets and liabilities sold | (346,380 | ) | |
Net gain on the Divestiture, before tax | 401,015 | ||
Less: income tax expense | (143,039 | ) | |
Net gain on the Divestiture | $ | 257,976 | |
Pro Forma Consolidated Statement of Operations
“As Reported” - represents the historical consolidated statement of operations of the Company for the year ended December 31, 2016.
f. | To eliminate the revenues and direct operating expenses for the assets sold. |
g. | The gain directly attributable to the Divestiture is not expected to have a continuing impact on the Company’s operations, and therefore, is not reflected in the unaudited pro forma consolidated income statement. |
h. | To eliminate depletion, depreciation, amortization, and asset retirement obligation liability accretion expense attributable to the assets sold. |
i. | To eliminate the impairment of proved properties expense recorded for the assets sold. |
j. | To adjust the income tax benefit for the effects of the pro forma adjustments at a 36.2 percent blended federal and state statutory rate. |
No pro forma adjustment was made for historical overhead costs reflected in general and administrative and exploration expense or for interest expense, as these costs are not directly attributable to the assets sold. The Divestiture proceeds will be used primarily for development activity. If market conditions are favorable, the Company may use a portion of the Divestiture proceeds to pay down debt; however, the amount and timing is uncertain. Additionally, the Company’s oil, gas, and NGL commodity derivative contracts are not directly attributable to the assets sold, and therefore, were not reflected in the unaudited pro forma consolidated financial statements.