Exhibit 99.3
QUICKSILVER RESOURCES INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND NOTES
Page | ||
Pro Forma Condensed Combined Balance Sheet as of June 30, 2008 | 3 | |
Pro Forma Condensed Combined Statement of Income for the Six Months Ended June 30, 2008 | 4 | |
Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 2007 | 5 | |
Notes to Pro Forma Condensed Combined Financial Information | 6 |
QUICKSILVER RESOURCES INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND NOTES
UNAUDITED
Quicksilver Resources Inc. (“Quicksilver” or the “Company”) is an independent oil and gas company incorporated in the state of Delaware and headquartered in Fort Worth, Texas. Quicksilver engages in the development, exploitation, exploration, acquisition and production and sale of natural gas, NGLs and crude oil as well as the marketing, processing and transmission of natural gas. As of December 31, 2007, substantial portions of Quicksilver’s reserves are located in Texas, the Rocky Mountains and Alberta, Canada with U.S. offices in Fort Worth, Texas; Granbury, Texas; Cut Bank, Montana and a Canadian subsidiary, Quicksilver Resources Canada Inc. (“QRCI”) located in Calgary, Alberta.
On August 8, 2008, Quicksilver completed the acquisition of leasehold, royalty and midstream assets ( collectively “Alliance Assets”), associated with the Barnett Shale in northern Tarrant and southern Denton counties of Texas (“Alliance Asset Acquisition”), from various private parties including Chief Resources LP, Hillwood Oil & Gas L.P. and Collins and Young, L.L.C. (collectively “Sellers”) for consideration of $1 billion in cash and 10,400,468 shares of Quicksilver Resources common stock. The cash portion of the purchase price was funded with net proceeds of $674.5 million from the issuance of a $700 million face value second-lien term loan facility and $326 million drawn on Quicksilver’s senior secured credit facility. Preliminary post-close adjustments reduced Quicksilver’s senior secured credit facility borrowing by $10.0 million.
Unaudited pro forma financial information
The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not purport to be indicative of the combined results of operations that would have actually occurred had the described transaction occurred on the indicated dates or that may be achieved in the future. However, management believes that the assumptions provide a reasonable basis for presenting the significant effect of the transaction and that the pro forma adjustments give appropriate effect to those assumptions. The unaudited pro forma condensed combined financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Quicksilver’s 2007 Annual Report on Form 10-K and its June 30, 2008 Quarterly Report on Form 10-Q, the unaudited combined statements of revenues and direct operating expenses for the Alliance Operations for the six months ended June 30, 2008 and 2007 and the audited combined statements of revenues and direct operating expenses for the Alliance Operations for the years ended December 31, 2007 and 2006 (Exhibits 99.1 and 99.2 included herein).
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QUICKSILVER RESOURCES INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2008
In thousands, except for share data - Unaudited
Historical | Pro Forma | ||||||||||||
Quicksilver | Pro Forma | Quicksilver | |||||||||||
Resources Inc. | Adjustments | Resources Inc. | |||||||||||
ASSETS | |||||||||||||
Current assets | |||||||||||||
Cash and cash equivalents | $ | 2,329 | $ | 990,487 | (a) | $ | 1,316 | ||||||
(991,500 | ) | (b) | |||||||||||
Accounts receivable - net of allowance for doubtful accounts | 116,301 | - | 116,301 | ||||||||||
Current deferred income tax asset | 97,980 | - | 97,980 | ||||||||||
Other current assets | 58,012 | - | 58,012 | ||||||||||
Total current assets | 274,622 | (1,013 | ) | 273,609 | |||||||||
Investment in BreitBurn Energy Partners | 395,787 | - | 395,787 | ||||||||||
Property, plant and equipment | |||||||||||||
Oil and gas properties, full cost method | |||||||||||||
Proved oil and gas properties | 1,920,507 | 787,918 | (b) | 2,708,425 | |||||||||
Unproved oil and gas properties | 293,312 | 436,917 | (b) | 730,229 | |||||||||
Other property and equipment | 488,827 | 30,025 | (b) | 518,852 | |||||||||
Property, plant and equipment - net | 2,702,646 | 1,254,860 | 3,957,506 | ||||||||||
Other assets | 40,232 | 11,513 | (a) | 51,745 | |||||||||
$ | 3,413,287 | $ | 1,265,360 | $ | 4,678,647 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
Current liabilities | |||||||||||||
Accounts payable | $ | 209,815 | $ | - | $ | 209,815 | |||||||
Income taxes payable | 104 | - | 104 | ||||||||||
Accrued liabilities | 42,289 | 497 | (b) | 42,786 | |||||||||
Derivative liabilities at fair value | 297,087 | - | 297,087 | ||||||||||
Total current liabilities | 549,295 | 497 | 549,792 | ||||||||||
Long-term debt | 1,288,824 | 686,000 | (a) | 2,290,824 | |||||||||
316,000 | (a) | ||||||||||||
Asset retirement obligations | 26,326 | 771 | (b) | 27,097 | |||||||||
Derivative liabilities at fair value | 121,893 | - | 121,893 | ||||||||||
Other liabilities | 10,609 | - | 10,609 | ||||||||||
Deferred income taxes | 384,298 | - | 384,298 | ||||||||||
Deferred gain on sale of partnership interests | 79,316 | - | 79,316 | ||||||||||
Minority interests in consolidated subsidiaries | 29,098 | - | 29,098 | ||||||||||
Stockholders' equity | |||||||||||||
Preferred stock, par value $0.01, 10,000,000 shares authorized, none outstanding | - | - | - | ||||||||||
Common stock, $0.01 par value, 400,000,000 shares authorized and | |||||||||||||
161,260,383 and 171,660,851 shares issued, respectively | 1,613 | 104 | (b) | 1,717 | |||||||||
Paid in capital in excess of par value | 280,730 | 261,988 | (b) | 542,718 | |||||||||
Treasury stock of 2,661,967 shares | (14,658 | ) | - | (14,658 | ) | ||||||||
Accumulated other comprehensive loss | (205,101 | ) | - | (205,101 | ) | ||||||||
Retained earnings | 861,044 | - | 861,044 | ||||||||||
Total stockholders' equity | 923,628 | 262,092 | 1,185,720 | ||||||||||
$ | 3,413,287 | $ | 1,265,360 | $ | 4,678,647 |
The accompanying notes are an integral part of these pro forma condensed combined financial statements.
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QUICKSILVER RESOURCES INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2008
In thousands, except for per share data - Unaudited
Quicksilver | Alliance | Quicksilver | |||||||||||||||
Resources Inc. | Operations | Pro Forma | Resources Inc. | ||||||||||||||
Historical | Historical | Adjustments | Pro Forma | ||||||||||||||
Revenues | |||||||||||||||||
Natural gas, NGL and crude oil sales | $ | 356,503 | $ | 61,658 | $ | - | $ | 418,161 | |||||||||
Other | (985 | ) | 630 | - | (355 | ) | |||||||||||
Total revenues | 355,518 | 62,288 | - | 417,806 | |||||||||||||
Operating expenses | |||||||||||||||||
Oil and gas production expense | 66,090 | 9,116 | - | 75,206 | |||||||||||||
Production and ad valorem taxes | 4,867 | 3,515 | - | 8,382 | |||||||||||||
Other operating costs | 1,959 | - | - | 1,959 | |||||||||||||
Depletion, depreciation and accretion | 73,979 | - | 24,175 | (c) | 98,154 | ||||||||||||
General and administrative | 30,797 | - | - | (d) | 30,797 | ||||||||||||
Total expenses | 177,692 | 12,631 | 24,175 | 214,498 | |||||||||||||
Operating income | 177,826 | 49,657 | (24,175 | ) | 203,308 | ||||||||||||
Equity loss from BreitBurn Energy Partners | 4,050 | - | - | 4,050 | |||||||||||||
Other income - net | (1,058 | ) | - | - | (1,058 | ) | |||||||||||
Interest expense | 26,298 | - | 36,070 | (e) | 62,368 | ||||||||||||
Income before income taxes and minority interest | 148,536 | 49,657 | (60,245 | ) | 137,948 | ||||||||||||
Income tax expense | 52,468 | - | (3,775 | ) | (f) | 48,693 | |||||||||||
Minority interest expense, net of income tax | 1,496 | - | - | 1,496 | |||||||||||||
Net income | $ | 94,572 | $ | 49,657 | $ | (56,470 | ) | $ | 87,759 | ||||||||
Earnings per common share - basic | $ | 0.60 | $ | 0.52 | |||||||||||||
Earnings per common share - diluted | $ | 0.56 | $ | 0.49 | |||||||||||||
Basic weighted average shares outstanding | 157,807 | - | 10,400 | (g) | 168,207 | ||||||||||||
Diluted weighted average shares outstanding | 169,764 | - | 10,400 | (g) | 180,164 |
The accompanying notes are an integral part of these pro forma condensed combined financial statements.
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QUICKSILVER RESOURCES INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2007
In thousands, except for per share data - Unaudited
Alliance | Quicksilver | ||||||||||||||||
Quicksilver | Operations | Pro Forma | Resources Inc. | ||||||||||||||
Resources Inc. | Historical | Adjustments | Pro Forma | ||||||||||||||
Revenues | |||||||||||||||||
Natural gas, NGL and crude oil sales | $ | 545,089 | $ | 67,608 | $ | - | $ | 612,697 | |||||||||
Other | 16,169 | 1,002 | - | 17,171 | |||||||||||||
Total revenues | 561,258 | 68,610 | - | 629,868 | |||||||||||||
Operating expenses | |||||||||||||||||
Oil and gas production expense | 136,831 | 10,334 | - | 147,165 | |||||||||||||
Production and ad valorem taxes | 16,142 | 4,292 | - | 20,434 | |||||||||||||
Other operating costs | 2,792 | - | - | 2,792 | |||||||||||||
Depletion, depreciation and accretion | 120,697 | - | 55,858 | (h) | 176,555 | ||||||||||||
General and administrative | 47,060 | - | - | (d) | 47,060 | ||||||||||||
Total expenses | 323,522 | 14,626 | 55,858 | 394,006 | |||||||||||||
Income from equity affiliates | 661 | - | - | 661 | |||||||||||||
Gain on sale of oil and gas properties | 628,709 | - | - | 628,709 | |||||||||||||
Loss on natural gas sales contract | (63,525 | ) | - | - | (63,525 | ) | |||||||||||
Operating income | 803,581 | 53,984 | (55,858 | ) | 801,707 | ||||||||||||
Other income - net | (3,887 | ) | - | - | (3,887 | ) | |||||||||||
Interest expense | 70,527 | - | 71,283 | (i) | 141,810 | ||||||||||||
Income before income taxes and minority interest | 736,941 | 53,984 | (127,141 | ) | 663,784 | ||||||||||||
Income tax expense | 256,508 | - | (26,081 | ) | (j) | 230,427 | |||||||||||
Minority interest expense, net of income tax | 1,055 | - | - | 1,055 | |||||||||||||
Net income | $ | 479,378 | $ | 53,984 | $ | (101,060 | ) | $ | 432,302 | ||||||||
Earnings per common share - basic | $ | 3.08 | $ | 2.61 | |||||||||||||
Earnings per common share - diluted | $ | 2.86 | $ | 2.43 | |||||||||||||
Basic weighted average shares outstanding | 155,475 | - | 10,400 | (k) | 165,875 | ||||||||||||
Diluted weighted average shares outstanding | 168,029 | - | 10,400 | (k) | 178,429 |
The accompanying notes are an integral part of these pro forma condensed combined financial statements.
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QUICKSILVER RESOURCES INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
UNAUDITED
Pro forma balance sheet
The unaudited pro forma condensed combined balance sheet as of June 30, 2008 is based on the historical unaudited condensed consolidated balance sheet of Quicksilver as of June 30, 2008. The pro forma condensed combined balance sheet gives effect to the Alliance Asset Acquisition and related transactions as if such acquisition had occurred on June 30, 2008.
(a) | Pro forma adjustment to reflect proceeds of $686.0 million from borrowings under the Company’s $700 million second lien term loan facility at 98% of face value, debt issuance costs of $11.5 million funded from those borrowings and recorded in other assets to be amortized over the life of the debt. The pro forma adjustment also reflects borrowings of $326.0 million under the Company’s senior secured credit facility and subsequent repayment of $10.0 million of borrowings under the senior secured credit facility from cash received in preliminary post-close settlement subsequent to the close date. |
(b) | Reflects payment of $990.0 million and issuance of 10,400,468 shares of Quicksilver common stock to Sellers for the Alliance Assets. The acquisition of the Alliance Assets will be accounted for as a purchase with the following preliminary allocation of the purchase price: |
(in thousands) | ||||
Purchase price: | ||||
Cash paid to Sellers | $ | 1,000,000 | ||
Cash received from post-closing settlement | (10,000 | ) | ||
Cash paid for acquisition-related expenses | 1,500 | |||
Total cash | 991,500 | |||
Shares issued to Sellers | 262,092 | |||
Total purchase price | $ | 1,253,592 | ||
Allocation of purchase price: | ||||
Oil and gas properties - proved | $ | 787,918 | ||
Oil and gas properties - unproved | 436,917 | |||
Midstream assets | 30,025 | |||
Liabilities assumed | (497 | ) | ||
Asset retirement obligations | (771 | ) | ||
$ | 1,253,592 |
Pro forma statements of income
The unaudited pro forma combined statement of income for the six months ending June 30, 2008 is based on the unaudited condensed consolidated financial statements for Quicksilver for the six months ended June 30, 2008 and the unaudited combined statement of revenues and direct operating expenses for the Alliance Operations for the six months ended June 30, 2008. The unaudited pro forma condensed combined statement of income for the year ended December 31, 2007 is based on the audited consolidated financial statements for Quicksilver for the year ended December 31, 2007 and the audited combined statement of revenues and direct operating expenses of the Alliance Operations for the year ended December 31, 2007. The pro forma condensed combined financial information gives effect to the following events as if each had occurred on January 1, 2007.
· | the proceeds of $686.0 million from issuance of the $700 million second lien term loan facility and debt issuance costs of $11.5 million funded from those borrowings and recorded in other assets to be amortized over the life of the debt; borrowings of $326.0 million under Quicksilver’s senior secured credit facility and subsequent repayment of an estimated $10.0 million of borrowings under the senior secured credit facility from cash received in preliminary post-close settlement subsequent to the close date; |
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· | the issuance of 10,400,468 shares of Quicksilver common stock at the August 8, 2008 closing market price of $25.20 per common share; and |
· | the acquisition of the Alliance Assets. |
(c) | Pro forma adjustment to depletion for the six months ended June 30, 2008 giving effect to considerations including the net historical cost for existing oil and gas properties, estimated valuation of the Alliance oil and gas properties, estimated proved reserves owned after the Alliance Asset Acquisition and pro forma production during the period. Additionally, the pro forma adjustment includes depreciation on the acquired midstream assets and accretion for all Alliance Assets. |
(d) | Management does not expect to incur incremental general and administrative expenses as a result of the Alliance Acquisition. |
(e) | Pro forma adjustment to include interest expense associated with the $700 million second lien loan term facility, with an assumed interest rate of 7.75%, and $316 million of net borrowings under Quicksilver’s senior secured credit facility, with an assumed interest rate of 4.09% for the six months ended June 30, 2008. |
(f) | Pro forma adjustment to amend the provision for income taxes with respect to the Alliance Assets and associated transactions at an effective U.S. tax rate of 35.7%. |
(g) | Pro forma weighted average basic and diluted shares outstanding and earnings per share were calculated as follows: |
Quicksilver | Alliance | Quicksilver | ||||||||||||||
Resources Inc. | Operations | Pro Forma | Resources Inc. | |||||||||||||
Historical | Historical | Adjustments | Pro Forma | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Net income | $ | 94,572 | $ | 49,657 | $ | (56,470 | ) | $ | 87,759 | |||||||
Impact of assumed conversions – interest on 1.875% convertible debentures, net of income taxes | 950 | - | - | 950 | ||||||||||||
Income available to stockholders assuming conversion of convertible debentures | $ | 95,522 | $ | 49,657 | $ | (56,470 | ) | $ | 88,709 | |||||||
Weighted average common shares – basic | 157,807 | - | 10,400 | 168,207 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options | 742 | - | 742 | |||||||||||||
Employee stock and stock unit awards | 1,399 | - | 1,399 | |||||||||||||
Contingently convertible debentures | 9,816 | - | 9,816 | |||||||||||||
Weighted average common shares – diluted | 169,764 | 10,400 | 180,164 | |||||||||||||
Earnings per common share - basic | $ | 0.60 | $ | 0.52 | ||||||||||||
Earnings per common share - diluted | $ | 0.56 | $ | 0.49 |
(h) | Pro forma adjustment to depletion for the year ended December 31, 2007 giving effect to considerations including the net historical cost for existing oil and gas properties, estimated valuation of the Alliance oil and gas properties, estimated proved reserves owned after the Alliance Asset Acquisition and pro forma production during the period. Additionally, the pro forma adjustment includes depreciation on the acquired midstream assets and accretion for all Alliance Assets. |
(i) | Pro forma adjustment to include interest expense associated with the $700 million second lien loan term facility, with an assumed average interest rate of 7.75%, and $316 million of net borrowings under Quicksilver’s senior secured credit facility, with an average interest rate of 4.09% for the year ended December 31, 2007. |
(j) | Pro forma adjustment to amend the provision for income taxes with respect to the Alliance Assets and associated transactions at an effective U.S. tax rate of 35.7%. |
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(k) | Pro forma weighted average basic and diluted shares outstanding and earnings per share were calculated as follows: |
Quicksilver | Alliance | Quicksilver | ||||||||||||||
Resources Inc. | Operations | Pro Forma | Resources Inc. | |||||||||||||
Historical | Historical | Adjustments | Pro Forma | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Net income | $ | 479,378 | $ | 53,984 | $ | (101,060 | ) | $ | 432,302 | |||||||
Impact of assumed conversions – interest on 1.875% convertible debentures, net of income taxes | 1,901 | - | - | 1,901 | ||||||||||||
Income available to stockholders assuming conversion of convertible debentures | $ | 481,279 | $ | 53,984 | $ | (101,060 | ) | $ | 434,203 | |||||||
Weighted average common shares – basic | 155,475 | - | 10,400 | 165,875 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options | 1,326 | - | 1,326 | |||||||||||||
Employee stock and stock unit awards | 1,412 | - | 1,412 | |||||||||||||
Contingently convertible debentures | 9,816 | - | 9,816 | |||||||||||||
Weighted average common shares – diluted | 168,029 | 10,400 | 178,429 | |||||||||||||
Earnings per common share - basic | $ | 3.08 | $ | 2.61 | ||||||||||||
Earnings per common share - diluted | $ | 2.86 | $ | 2.43 |
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