QEP RESOURCES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
On July 24, 2017, QEP Resources, Inc. (the "Company"), through its wholly owned subsidiary QEP Energy Company, entered into a Purchase and Sale Agreement (the "Purchase Agreement") with Pinedale Energy Partners, LLC (the "Buyer"), an affiliate of Oak Ridge Natural Resources, LLC, to sell oil and natural gas interests in the Pinedale Anticline located in Sublette County, Wyoming (the "Pinedale Disposition"), for an aggregate purchase price of approximately $740.0 million, subject to purchase price adjustments. As contemplated by the Purchase Agreement, certain rights and obligations of Buyer under the Purchase Agreement were subsequently assigned by Buyer to its wholly owned subsidiary Pinedale Energy Partners Operating LLC ("PEPO"). On September 20, 2017, the Company closed on the Pinedale Disposition for net cash proceeds (after purchase price adjustments) of approximately $718.2 million, subject to post-closing purchase price adjustments. As part of the Pinedale Purchase Agreement, the Company agreed to reimburse the Buyer for certain deficiency charges incurred related to gas processing and natural gas liquids (NGL) transportation and fractionation contracts, if any, between the effective date of the sale and December 31, 2019.
The Pinedale Disposition constituted a significant disposition for purposes of Item 2.01 of Form 8-K. As a result, the Company prepared the accompanying unaudited pro forma condensed consolidated financial statements in accordance with Article 11 of Regulation S-X. The Pinedale Disposition does not qualify as discontinued operations as it does not represent a strategic shift that will have a major effect on the Company's operations or financial results.
The unaudited pro forma balance sheet data as of June 30, 2017, gives effect to the Pinedale Disposition as if the transaction had occurred on June 30, 2017. The unaudited pro forma statements of operations data for the six month period ended June 30, 2017, and the year ended December 31, 2016, gives effect to the Pinedale Disposition as if the transaction had occurred on January 1, 2016. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this Current Report on Form 8-K.
The unaudited pro forma condensed consolidated financial statements were based on and derived from our historical consolidated financial statements, adjusted for those amounts which were determined to be directly attributable to the Pinedale Disposition, factually supportable, and with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on our consolidated results. Actual adjustments, however, may differ materially from the information presented. Pro forma adjustments do not include allocations of corporate costs, as those are not directly attributable to the Pinedale Disposition. The unaudited pro forma financial information is subject to adjustments and is presented for informational purposes only and does not purport to represent what the Company's results of operations or financial position would actually have been if the Pinedale Disposition had in fact occurred on the dates discussed above. It also does not project or forecast the Company's consolidated results of operations or financial position for any future date or period.
The unaudited pro forma condensed consolidated financial statements have been developed from and should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and Quarterly Report on Form 10-Q for quarter ended June 30, 2017.
QEP RESOURCES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
| | | | | | | | | | | | | |
| | June 30, 2017 |
| | Historical | | Pro Forma Adjustments | |
| | Pro Forma |
| ASSETS | (in millions) |
| Current Assets | | | | | | | |
| Cash and cash equivalents | $ | 178.8 |
| | $ | 713.1 |
| | (a) | | $ | 891.9 |
|
| Accounts receivable, net | 165.0 |
| | (12.1 | ) | | (b) | | 152.9 |
|
| Income tax receivable | 12.9 |
| | — |
| |
| | 12.9 |
|
| Fair value of derivative contracts | 48.8 |
| | — |
| |
| | 48.8 |
|
| Hydrocarbon inventories, at lower of average cost or net realizable value | 8.6 |
| | (3.0 | ) | | (b) | | 5.6 |
|
| Prepaid expenses and other | 10.2 |
| | — |
| |
| | 10.2 |
|
| Total Current Assets | 424.3 |
| | 698.0 |
| |
| | 1,122.3 |
|
| Property, Plant and Equipment (successful efforts method for oil and gas properties) | | | | | | | |
| Proved properties | 14,840.2 |
| | (3,070.5 | ) | | (b) | | 11,769.7 |
|
| Unproved properties | 729.6 |
| | (0.5 | ) | | (b) | | 729.1 |
|
| Gathering and other | 305.8 |
| | — |
| |
| | 305.8 |
|
| Materials and supplies | 39.0 |
| | (5.6 | ) | | (b) | | 33.4 |
|
| Total Property, Plant and Equipment | 15,914.6 |
| | (3,076.6 | ) | |
| | 12,838.0 |
|
| Less Accumulated Depreciation, Depletion and Amortization | | | | | | | |
| Exploration and production | 9,069.9 |
| | (2,538.8 | ) | | (b) | | 6,531.1 |
|
| Gathering and other | 107.4 |
| | — |
| |
| | 107.4 |
|
| Total Accumulated Depreciation, Depletion and Amortization | 9,177.3 |
| | (2,538.8 | ) | |
| | 6,638.5 |
|
| Net Property, Plant and Equipment | 6,737.3 |
| | (537.8 | ) | |
| | 6,199.5 |
|
| Fair value of derivative contracts | 28.6 |
| | — |
| |
| | 28.6 |
|
| Other noncurrent assets | 75.3 |
| | — |
| |
| | 75.3 |
|
| TOTAL ASSETS | $ | 7,265.5 |
| | $ | 160.2 |
| |
| | $ | 7,425.7 |
|
| LIABILITIES AND EQUITY | | | | | | | |
|
| Current Liabilities | | | | | | | |
| Checks outstanding in excess of cash balances | $ | 11.9 |
| | $ | — |
| |
| | $ | 11.9 |
|
| Accounts payable and accrued expenses | 305.9 |
| | (0.3 | ) | | (b) | | 332.2 |
|
| | | | 26.6 |
| | (c) | | |
| Production and property taxes | 33.0 |
| | — |
| |
| | 33.0 |
|
| Interest payable | 32.9 |
| | — |
| |
| | 32.9 |
|
| Fair value of derivative contracts | 1.4 |
| | — |
| |
| | 1.4 |
|
| Current portion of long-term debt | 134.0 |
| | — |
| |
| | 134.0 |
|
| Total Current Liabilities | 519.1 |
| | 26.3 |
| |
| | 545.4 |
|
| Long-term debt | 1,889.0 |
| | — |
| |
| | 1,889.0 |
|
| Deferred income taxes | 894.3 |
| | — |
| | (g) | | 894.3 |
|
| Asset retirement obligations | 225.6 |
| | (34.9 | ) | | (b) | | 190.7 |
|
| Fair value of derivative contracts | 0.1 |
| | — |
| |
| | 0.1 |
|
| Other long-term liabilities | 102.4 |
| | (0.7 | ) | | (b) | | 110.2 |
|
| | | | 8.5 |
| | (c) | | |
| Commitments and contingencies | | | | | | | |
| EQUITY | | | | | | | |
| Total Common Shareholders' Equity | 3,635.0 |
| | 161.0 |
| | (d) | | 3,796.0 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 7,265.5 |
| | $ | 160.2 |
| |
| | $ | 7,425.7 |
|
See Notes accompanying the Pro Forma Condensed Consolidated Financial Statements.
QEP RESOURCES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| | | | | | | | | | | |
| | Six Months Ended June 30, 2017 |
| | Historical | | Pro Forma Adjustments (e) | | Pro Forma |
| REVENUES | (in millions, except per share amounts) |
| Oil sales | $ | 437.7 |
| | $ | (12.7 | ) | | $ | 425.0 |
|
| Gas sales | 268.7 |
| | (106.8 | ) | | 161.9 |
|
| NGL sales | 51.8 |
| | (20.0 | ) | | 31.8 |
|
| Other revenue (loss) | 6.7 |
| | 0.2 |
| | 6.9 |
|
| Purchased oil and gas sales | 38.9 |
| | — |
| | 38.9 |
|
| Total Revenues | 803.8 |
| | (139.3 | ) | | 664.5 |
|
| OPERATING EXPENSES | | | | | |
| Purchased oil and gas expense | 38.5 |
| | — |
| | 38.5 |
|
| Lease operating expense | 139.2 |
| | (17.5 | ) | | 121.7 |
|
| Transportation and processing costs | 142.4 |
| | (50.8 | ) | | 91.6 |
|
| Gathering and other expense | 3.3 |
| | — |
| | 3.3 |
|
| General and administrative | 64.9 |
| | 7.0 |
| | 71.9 |
|
| Production and property taxes | 57.6 |
| | (13.2 | ) | | 44.4 |
|
| Depreciation, depletion and amortization | 383.3 |
| | (27.0 | ) | | 356.3 |
|
| Exploration expenses | 0.4 |
| | — |
| | 0.4 |
|
| Impairment | 0.1 |
| | — |
| | 0.1 |
|
| Total Operating Expenses | 829.7 |
| | (101.5 | ) | | 728.2 |
|
| Net gain (loss) from asset sales | 19.8 |
| | — |
| | 19.8 |
|
| OPERATING INCOME (LOSS) | (6.1 | ) | | (37.8 | ) | | (43.9 | ) |
| Realized and unrealized gains (losses) on derivative contracts | 267.6 |
| | — |
| | 267.6 |
|
| Interest and other income (expense) | 2.4 |
| | (0.4 | ) | | 2.0 |
|
| Interest expense | (68.7 | ) | | 0.1 |
| | (68.6 | ) |
| INCOME (LOSS) BEFORE INCOME TAXES | 195.2 |
| | (38.1 | ) | | 157.1 |
|
| Income tax (provision) benefit | (72.9 | ) | | 13.5 |
| | (59.4 | ) |
| NET INCOME (LOSS) | $ | 122.3 |
| | $ | (24.6 | ) | | $ | 97.7 |
|
| | | | | | |
| Earnings (loss) per common share | | | | | |
| Basic | $ | 0.51 |
| | | | $ | 0.41 |
|
| Diluted | $ | 0.51 |
| | | | $ | 0.41 |
|
| | | | | | |
| Weighted-average common shares outstanding | | | | | |
| Used in basic calculation | 240.4 |
| | | | 240.3 |
|
| Used in diluted calculation | 240.5 |
| | | | 240.5 |
|
| Dividends per common share | $ | — |
| | | | $ | — |
|
See Notes accompanying the Pro Forma Condensed Consolidated Financial Statements.
QEP RESOURCES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Historical | | Pro Forma Adjustments (e) | | | | Pro Forma |
| REVENUES | (in millions, except per share amounts) |
| Oil sales | $ | 769.1 |
| | $ | (25.8 | ) | |
| | $ | 743.3 |
|
| Gas sales | 417.1 |
| | (194.1 | ) | |
| | 223.0 |
|
| NGL sales | 83.5 |
| | (40.6 | ) | |
| | 42.9 |
|
| Other revenue (loss) | 6.2 |
| | 0.6 |
| |
| | 6.8 |
|
| Purchased oil and gas sales | 101.2 |
| | — |
| |
| | 101.2 |
|
| Total Revenues | 1,377.1 |
| | (259.9 | ) | |
| | 1,117.2 |
|
| OPERATING EXPENSES | | | | | | | |
| Purchased oil and gas expense | 105.5 |
| | — |
| |
| | 105.5 |
|
| Lease operating expense | 224.7 |
| | (32.4 | ) | |
| | 192.3 |
|
| Transportation and processing costs | 289.2 |
| | (108.2 | ) | |
| | 181.0 |
|
| Gathering and other expense | 5.0 |
| | — |
| |
| | 5.0 |
|
| General and administrative | 198.4 |
| | 13.9 |
| |
| | 212.3 |
|
| Production and property taxes | 94.8 |
| | (23.1 | ) | |
| | 71.7 |
|
| Depreciation, depletion and amortization | 871.1 |
| | (101.9 | ) | |
| | 769.2 |
|
| Exploration expenses | 1.7 |
| | (0.2 | ) | |
| | 1.5 |
|
| Impairment | 1,194.3 |
| | (1,164.0 | ) | |
| | 30.3 |
|
| Total Operating Expenses | 2,984.7 |
| | (1,415.9 | ) | |
| | 1,568.8 |
|
| Net gain (loss) from asset sales | 5.0 |
| | — |
| | (f) | | 5.0 |
|
| OPERATING INCOME (LOSS) | (1,602.6 | ) | | 1,156.0 |
| |
| | (446.6 | ) |
| Realized and unrealized gains (losses) on derivative contracts | (233.0 | ) | | — |
| |
| | (233.0 | ) |
| Interest and other income (expense) | 25.6 |
| | (0.8 | ) | |
| | 24.8 |
|
| Interest expense | (143.2 | ) | | — |
| |
| | (143.2 | ) |
| INCOME (LOSS) BEFORE INCOME TAXES | (1,953.2 | ) | | 1,155.2 |
| |
| | (798.0 | ) |
| Income tax (provision) benefit | 708.2 |
| | (403.0 | ) | |
| | 305.2 |
|
| NET INCOME (LOSS) | $ | (1,245.0 | ) | | $ | 752.2 |
| |
| | $ | (492.8 | ) |
| | | | | | | | |
| Earnings (loss) per common share | | | | | | | |
| Basic | $ | (5.62 | ) | | | | | | $ | (2.22 | ) |
| Diluted | $ | (5.62 | ) | | | | | | $ | (2.22 | ) |
| | | | | | | | |
| Weighted-average common shares outstanding | | | | | | | |
| Used in basic calculation | 221.7 |
| | | | | | 221.7 |
|
| Used in diluted calculation | 221.7 |
| | | | | | 221.8 |
|
| Dividends per common share | $ | — |
| | | | | | $ | — |
|
See Notes accompanying the Pro Forma Condensed Consolidated Financial Statements.
QEP RESOURCES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
Note 1 – Basis of Presentation
The unaudited pro forma condensed consolidated financial statements give effect to the pro forma adjustments necessary to reflect the Pinedale Disposition as if the transaction had occurred as of January 1, 2016, in the unaudited pro forma statements of operations for the six months ended June 30, 2017, and the year ended December 31, 2016 and on June 30, 2017, in the unaudited pro forma balance sheet.
Note 2 – Pro Forma Adjustments
The unaudited pro forma condensed consolidated financial statements represent the following adjustments:
| |
| (a) | To adjust cash and cash equivalents for the receipt of cash proceeds from the Pinedale Disposition of $740.0 million, net of purchase price adjustments and estimated selling costs. |
| |
| (b) | To eliminate assets and liabilities related to the assets sold as of June 30, 2017. |
| |
| (c) | To adjust for the remaining liability expected to be incurred by the Company, pursuant to the Pinedale Purchase Agreement, in which the Company will reimburse the Buyer for certain deficiency charges incurred related to gas processing and NGL transportation and fractionation contracts, if any, between the effective date of the sale and December 31, 2019. |
| |
| (d) | To adjust shareholders' equity, which amount is primarily related to the estimated gain on sale from the Pinedale Disposition that would have been recorded as of June 30, 2017. |
| |
| (e) | To eliminate revenues and expenses, including the tax impact, related to the operations of the assets sold for the six months ended June 30, 2017, and the year ended December 31, 2016. |
| |
| (f) | The gain directly attributable to the Pinedale Disposition is not expected to have a continuing impact on the Company's operations, and therefore, is not reflected in the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016. |
| |
| (g) | There is no pro forma adjustment to deferred income taxes as the Company expects to use the proceeds from the Pinedale Disposition to fund its previously announced acquisition of properties in the Permian Basin through a like-kind exchange. |
