UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information and accompanying notes reflect the pro forma effects of:
West Williston Acquisition. On October 1, 2013, Oasis Petroleum North America LLC, a wholly owned subsidiary of Oasis Petroleum Inc. (the “Company”) completed a purchase and sale agreement (the “Purchase Agreement”) with two undisclosed private sellers (the “Sellers”), pursuant to which the Company agreed to purchase 136,000 net acres in its West Williston project area in the Williston Basin (the “West Williston Acquisition”) for aggregate consideration of approximately $1,478.6 million in cash (the “Purchase Price”), which is subject to customary post close adjustments.
Financing. In accordance with the Purchase Agreement, the Company funded the Purchase Price of the West Williston Acquisition with proceeds from the Company’s issuance of $1,000.0 million of 6.875% senior unsecured notes due 2022 (the “2022 Notes”) and borrowings under its revolving credit facility.
The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2013 and the year ended December 31, 2012 presented below have been prepared based on the Company’s historical consolidated statements of operations for such periods, and were prepared as if the West Williston Acquisition and related financing had occurred on January 1, 2012. The unaudited pro forma condensed combined balance sheet at June 30, 2013 presented below was prepared based on the Company’s historical consolidated balance sheet at June 30, 2013, and was prepared as if the West Williston Acquisition and related financing had occurred on June 30, 2013.
Management believes that the assumptions used to prepare the unaudited pro forma condensed combined financial information and accompanying notes provide a reasonable and reliably determinable basis for presenting the significant effects directly attributable to the West Williston Acquisition and related financing. The following unaudited pro forma condensed combined statements of operations do not purport to represent what the Company’s results of operations would have been if the West Williston Acquisition and related financing had occurred on January 1, 2012. The unaudited pro forma condensed combined financial information should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and the historical Statements of Revenues and Direct Operating Expenses of the West Williston Acquisition and the notes thereto filed as Exhibit 99.1 to the Current Report on Form 8-K of which this Exhibit 99.2 is a part.
Unaudited Pro Forma Condensed Combined Balance Sheet | ||||||||||||||||
As of June 30, 2013 | ||||||||||||||||
Oasis Historical | West Williston Acquisition Properties Pro Forma Acquisition Adjustments (a) |
West Williston Acquisition Properties Pro Forma Financing Adjustments (b) |
Oasis Pro Forma | |||||||||||||
(In thousands, except share data) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets |
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Cash and cash equivalents |
$ | 161,601 | $ | (1,478,588 | ) | $ | 1,583,000 | $ | 266,013 | |||||||
Accounts receivable — oil and gas revenues |
130,518 | 130,518 | ||||||||||||||
Accounts receivable — joint interest partners |
92,785 | 92,785 | ||||||||||||||
Inventory |
16,385 | 5,601 | 21,986 | |||||||||||||
Prepaid expenses |
6,121 | 6,121 | ||||||||||||||
Advances to joint interest partners |
1,319 | 1,319 | ||||||||||||||
Derivative instruments |
7,353 | 7,353 | ||||||||||||||
Other current assets |
5 | 5 | ||||||||||||||
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Total current assets |
416,087 | (1,472,987 | ) | 1,583,000 | 526,100 | |||||||||||
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Property, plant and equipment |
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Oil and gas properties (successful efforts method) |
2,675,902 | 1,466,085 | 4,141,987 | |||||||||||||
Other property and equipment |
144,518 | 13,500 | 158,018 | |||||||||||||
Less: accumulated depreciation, depletion, amortization and impairment |
(514,567 | ) | (514,567 | ) | ||||||||||||
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Total property, plant and equipment, net |
2,305,853 | 1,479,585 | — | 3,785,438 | ||||||||||||
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Derivative instruments |
10,554 | 10,554 | ||||||||||||||
Deferred costs and other assets |
25,650 | 17,000 | 42,650 | |||||||||||||
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Total assets |
$ | 2,758,144 | $ | 6,598 | $ | 1,600,000 | $ | 4,364,742 | ||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities |
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Accounts payable |
$ | 30,682 | $ | 30,682 | ||||||||||||
Advances from joint interest partners |
15,583 | 15,583 | ||||||||||||||
Revenues and production taxes payable |
102,661 | 102,661 | ||||||||||||||
Accrued liabilities |
180,988 | 180,988 | ||||||||||||||
Accrued interest payable |
29,133 | 29,133 | ||||||||||||||
Derivative instruments |
— | — | ||||||||||||||
Deferred income taxes |
1,030 | 1,030 | ||||||||||||||
Other current liabilities |
688 | 688 | ||||||||||||||
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Total current liabilities |
360,765 | — | — | 360,765 | ||||||||||||
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Long-term debt |
1,200,000 | 1,600,000 | 2,800,000 | |||||||||||||
Asset retirement obligations |
26,268 | 6,598 | 32,866 | |||||||||||||
Derivative instruments |
291 | 291 | ||||||||||||||
Deferred income taxes |
249,172 | 249,172 | ||||||||||||||
Other liabilities |
2,435 | 2,435 | ||||||||||||||
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Total liabilities |
1,838,931 | 6,598 | 1,600,000 | 3,445,529 | ||||||||||||
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Commitments and contingencies |
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Stockholders’ equity |
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Common stock, $0.01 par value; 300,000,000 shares authorized; 93,693,829 issued and 93,554,121 outstanding at June 30, 2013 |
925 | 925 | ||||||||||||||
Treasury stock, at cost; 139,708 shares at June 30, 2013 |
(4,160 | ) | (4,160 | ) | ||||||||||||
Additional paid-in-capital |
663,545 | 663,545 | ||||||||||||||
Retained earnings |
258,903 | 258,903 | ||||||||||||||
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Total stockholders’ equity |
919,213 | — | — | 919,213 | ||||||||||||
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Total liabilities and stockholders’ equity |
$ | 2,758,144 | $ | 6,598 | $ | 1,600,000 | $ | 4,364,742 | ||||||||
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See accompanying notes to unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statement of Operations | ||||||||||||||||
For the six months ended June 30, 2013 | ||||||||||||||||
Oasis Historical | West Williston Acquisition Properties Pro Forma Acquisition Adjustments |
West Williston Acquisition Properties Pro Forma Financing Adjustments |
Oasis Pro Forma | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenues |
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Oil and gas revenues |
$ | 483,493 | $ | 99,168 | (c) | $ | — | $ | 582,661 | |||||||
Well services and midstream revenues |
19,393 | — | — | 19,393 | ||||||||||||
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Total revenues |
502,886 | 99,168 | — | 602,054 | ||||||||||||
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Expenses |
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Lease operating expenses |
37,755 | 19,057 | (c) | — | 56,812 | |||||||||||
Well services and midstream operating expenses |
9,558 | — | — | 9,558 | ||||||||||||
Marketing, transportation and gathering expenses |
14,168 | — | — | 14,168 | ||||||||||||
Production taxes |
43,486 | — | — | 43,486 | ||||||||||||
Depreciation, depletion and amortization |
133,051 | 57,510 | (d) | — | 190,561 | |||||||||||
Exploration expenses |
2,249 | — | — | 2,249 | ||||||||||||
Impairment of oil and gas properties |
706 | — | — | 706 | ||||||||||||
General and administrative expenses |
30,510 | 1,200 | (e) | — | 31,710 | |||||||||||
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Total expenses |
271,483 | 77,767 | — | 349,250 | ||||||||||||
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Operating income |
231,403 | 21,401 | — | 252,804 | ||||||||||||
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Other income (expense) |
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Net loss on derivative instruments |
(2,021 | ) | — | — | (2,021 | ) | ||||||||||
Interest expense, net of capitalized interest |
(42,575 | ) | — | (24,038 | )(f) | (66,613 | ) | |||||||||
Other income |
1,074 | — | — | 1,074 | ||||||||||||
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Total other income (expense) |
(43,522 | ) | — | (24,038 | ) | (67,560 | ) | |||||||||
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Income before income taxes |
187,881 | 21,401 | (24,038 | ) | 185,244 | |||||||||||
Income tax expense |
68,911 | 7,854 | (g) | (8,822 | )(g) | 67,943 | ||||||||||
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Net income |
$ | 118,970 | $ | 13,547 | $ | (15,216 | ) | $ | 117,301 | |||||||
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Earnings per share: |
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Basic |
$ | 1.29 | $ | 1.27 | ||||||||||||
Diluted |
1.28 | 1.26 | ||||||||||||||
Weighted average shares outstanding: |
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Basic |
92,387 | 92,387 | ||||||||||||||
Diluted |
92,812 | 92,812 |
See accompanying notes to unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statement of Operations | ||||||||||||||||
For the year ended December 31, 2012 | ||||||||||||||||
Oasis Historical | West Williston Acquisition Properties Pro Forma Acquisition Adjustments |
West Williston Acquisition Properties Pro Forma Financing Adjustments |
Oasis Pro Forma | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenues |
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Oil and gas revenues |
$ | 670,491 | $ | 144,907 | (c) | $ | — | $ | 815,398 | |||||||
Well services revenues |
16,177 | — | — | 16,177 | ||||||||||||
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Total revenues |
686,668 | 144,907 | — | 831,575 | ||||||||||||
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Expenses |
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Lease operating expenses |
54,924 | 27,830 | (c) | — | 82,754 | |||||||||||
Well services operating expenses |
11,774 | — | — | 11,774 | ||||||||||||
Marketing, transportation and gathering expenses |
9,257 | — | — | 9,257 | ||||||||||||
Production taxes |
62,965 | — | — | 62,965 | ||||||||||||
Depreciation, depletion and amortization |
206,734 | 92,268 | (d) | — | 299,002 | |||||||||||
Exploration expenses |
3,250 | — | — | 3,250 | ||||||||||||
Impairment of oil and gas properties |
3,581 | — | — | 3,581 | ||||||||||||
General and administrative expenses |
57,190 | 1,200 | (e) | — | 58,390 | |||||||||||
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Total expenses |
409,675 | 121,298 | — | 530,973 | ||||||||||||
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Operating income |
276,993 | 23,609 | — | 300,602 | ||||||||||||
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Other income (expense) |
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Net gain on derivative instruments |
34,164 | — | — | 34,164 | ||||||||||||
Interest expense, net of capitalized interest |
(70,143 | ) | — | (43,275 | )(f) | (113,418 | ) | |||||||||
Other income (expense) |
4,860 | — | — | 4,860 | ||||||||||||
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Total other income (expense) |
(31,119 | ) | — | (43,275 | ) | (74,394 | ) | |||||||||
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Income before income taxes |
245,874 | 23,609 | (43,275 | ) | 226,208 | |||||||||||
Income tax expense |
92,486 | 8,882 | (g) | (16,280 | )(g) | 85,088 | ||||||||||
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Net income |
$ | 153,388 | $ | 14,727 | $ | (26,995 | ) | $ | 141,120 | |||||||
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Earnings per share: |
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Basic and diluted |
$ | 1.66 | $ | 1.53 | ||||||||||||
Weighted average shares outstanding: |
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Basic |
92,180 | 92,180 | ||||||||||||||
Diluted |
92,513 | 92,513 |
See accompanying notes to unaudited pro forma condensed combined financial information.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Balance Sheet. The unaudited pro forma condensed combined balance sheet at June 30, 2013 reflects the following adjustments:
(a) | Adjustments to reflect the consideration paid and the preliminary fair value measurements of assets acquired and liabilities assumed by the Company for the West Williston Acquisition. |
The West Williston Acquisition qualifies as a business combination, and as such, the Company estimated the fair value of these properties as of the October 1, 2013 acquisition close date, in accordance with the Financial Accounting Standards Board’s authoritative guidance on business combinations. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Fair value measurements also utilize market assumptions of market participants.
The Company used a discounted cash flow model to calculate the fair value of oil and natural gas properties and asset retirement obligations (“ARO”). The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the valuation of oil and natural gas properties include estimates of i) quantities of oil and natural gas reserves, ii) future commodity prices, iii) future operating and development costs, iv) projections of future rates of production, v) expected recovery rates and vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates.
Estimating the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what constitutes adequate restoration. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate costs, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments.
The Company estimates the fair value of the West Williston Acquisition to be approximately $1,478.6 million, which the Company considers to be representative of the price paid by a typical market participant. This measurement resulted in no goodwill or bargain purchase price being recognized. The acquisition costs were insignificant.
The following table summarizes the consideration paid for the West Williston Acquisition and the fair value of the assets acquired and liabilities assumed as of October 1, 2013. The purchase price allocation is preliminary and subject to adjustments, as the final closing will be complete during the first quarter of 2014.
Consideration given to West Williston Acquisition (in thousands): |
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Cash |
$ | 1,478,588 | ||
Recognized amounts of identifiable assets acquired and liabilities assumed: |
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Proved developed properties |
$ | 513,889 | ||
Proved undeveloped properties |
473,353 | |||
Unproved lease acquisition costs |
478,843 | |||
Other property and equipment |
13,500 | |||
Inventory |
5,601 | |||
Asset retirement obligations |
(6,598 | ) | ||
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$ | 1,478,588 | |||
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(b) | Adjustments to reflect the financing transactions related to the West Williston Acquisition. |
The 2022 Notes consisted of a principal note amount of $1,000.0 million and resulted in aggregate net proceeds to the Company of approximately $983.0 million. Additional offering expenses payable by the Company totaled approximately $17.0 million and are included in deferred costs and other assets on the unaudited pro forma condensed combined balance sheet at June 30, 2013.
In addition, the Company has total outstanding borrowings under its revolving credit facility of $600.0 million, a significant portion of which was used to fund the West Williston Acquisition.
Statements of Operations. The unaudited pro forma condensed combined statements of operations for the six month period ended June 30, 2013 and the year ended December 31, 2012 reflect the following adjustments:
(c) | Revenues and direct operating expenses of the oil and natural gas properties acquired in the West Williston Acquisition (the “West Williston Acquisition Properties”). |
(d) | Depreciation, depletion and amortization (“DD&A”) and accretion expense related to the West Williston Acquisition Properties. DD&A was calculated using the unit-of-production method under the successful efforts method of accounting, and adjusts DD&A for (1) the increase in DD&A reflecting the fair values and production volumes attributable to the West Williston Acquisition Properties and (2) the revision to the Company’s DD&A rate reflecting the reserve volumes acquired in the West Williston Acquisition. The pro forma DD&A rate is $27.69 per BOE and $28.47 per BOE for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. This adjustment also includes the straight-line depreciation on other property and equipment of $0.3 million and $0.6 million and the additional accretion expense on the ARO of $0.2 million and $0.4 million attributable to the West Williston Acquisition Properties for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. |
(e) | General and administrative expenses resulting from a transaction services agreement between the Company and the Sellers of the West Williston Acquisition, in which the Company agreed to pay the Sellers a monthly fee of $0.4 million for a defined three month transition period, subsequent to the close date of the West Williston Acquisition. |
(f) | Interest expense, net of capitalized interest, and amortization of deferred financing costs associated with the 2022 Notes and borrowings under our revolving credit facility for the periods presented. Interest capitalized for the six months ended June 30, 2013 and the year ended December 31, 2012 was $13.8 million and $30.0 million, respectively. A 1/8% change in the interest rate associated with the revolving credit facility would result in a change in interest expense of approximately $0.4 million for the six months ended June 30, 2013 and approximately $0.8 million for the year ended December 31, 2012. |
(g) | Income tax expense for the six months ended June 30, 2013 and the year ended December 31, 2012 was recorded at 36.7% and 37.6% of pre-tax net income, respectively. The Company’s effective tax rates for the periods presented were consistent with the statutory tax rate applicable to the U.S. and the blended state rate for the states in which the Company conducts business. |