Exhibit 99.2
GASTAR EXPLORATION LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009 AND
NINE MONTHS ENDED SEPTEMBER 30, 2010
Introduction
On November 1, 2010, Gastar Exploration USA Inc., a wholly-owned subsidiary of Gastar Exploration Ltd. (collectively, the “Company”) completed its previously announced Marcellus Shale joint venture transaction with Atinum Marcellus I LLC (“Atinum”) (the “Atinum Joint Venture”) as contemplated by the Purchase and Sale Agreement, dated September 21, 2010, and the Form of Participation Agreement (the “Closing”). Pursuant to the Closing, the Company assigned a 21.43% interest in all of its existing Marcellus Shale assets in West Virginia and Pennsylvania, which consists of approximately 34,200 net acres and a 50% working interest in 16 producing shallow conventional wells and one non-producing vertical Marcellus Shale well. At Closing, Atinum paid approximately $30.0 million in cash to the Company. As of Closing, the drilling carry balance was $40.0 million, which will be used to cover Atinum’s 50% share of drilling, completion and infrastructure costs along with 75% of the Company’s 50% share of those same costs within the areas of mutual interest.
The following unaudited pro forma condensed consolidated financial statements and accompanying notes present the financial statements of the Company assuming the transaction occurred as of September 30, 2010 with respect to the Condensed Consolidated Balance Sheet and as of January 1, 2009 with respect to the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2010 and the year ended December 31, 2009.
The adjustments presented in the unaudited pro forma condensed consolidated financial statements are based on currently available information and certain estimates and assumptions. Therefore, actual results may differ from the pro forma adjustments. However, management believes that the estimates and assumptions used provide a reasonable basis for presenting the significant effects of the transaction. Management also believes the pro forma adjustments give appropriate effect to the estimates and assumptions and are applied in conformity with U.S. generally accepted accounting principles.
GASTAR EXPLORATION LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2010 | ||||||||||||
Historical | Pro Forma Adjustments | Pro Forma | ||||||||||
(in thousands, except share and per share data ) | ||||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 6,937 | $ | 6,000 | (a) | $ | 12,937 | |||||
Term deposit | - | - | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of $577 | 2,954 | 2,954 | ||||||||||
Receivable from unproved property sale | - | - | ||||||||||
Commodity derivative contracts | 12,233 | 12,233 | ||||||||||
Prepaid expenses | 269 | 269 | ||||||||||
Total current assets | 22,393 | 6,000 | 28,393 | |||||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||||||
Natural gas and oil properties, full cost method of accounting: | ||||||||||||
Unproved properties, excluded from amortization | 151,793 | (25,289 | )(b) | 126,504 | ||||||||
Proved properties | 338,954 | (4,816 | )(b)(d) | 334,138 | ||||||||
Total natural gas and oil properties | 490,747 | (30,105 | ) | 460,642 | ||||||||
Furniture and equipment | 1,032 | 1,032 | ||||||||||
Total property, plant and equipment | 491,779 | (30,105 | ) | 461,674 | ||||||||
Accumulated depreciation, depletion and amortization | (290,094 | ) | (290,094 | ) | ||||||||
Total property, plant and equipment, net | 201,685 | (30,105 | ) | 171,580 | ||||||||
OTHER ASSETS: | ||||||||||||
Restricted cash | 50 | 50 | ||||||||||
Commodity derivative contracts | 11,567 | 11,567 | ||||||||||
Deferred charges, net | 567 | 567 | ||||||||||
Drilling advances and other assets | 100 | 100 | ||||||||||
Total other assets | 12,284 | - | 12,284 | |||||||||
TOTAL ASSETS | $ | 236,362 | $ | (24,105 | ) | $ | 212,257 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable | $ | 3,127 | $ | 3,127 | ||||||||
Revenue payable | 4,556 | 4,556 | ||||||||||
Accrued interest | 167 | 167 | ||||||||||
Accrued drilling and operating costs | 3,540 | 3,540 | ||||||||||
Commodity derivative contracts | 3,263 | 3,263 | ||||||||||
Commodity derivative premium payable | 3,024 | 3,024 | ||||||||||
Accrued litigation settlement liability | 19,750 | 19,750 | ||||||||||
Short-term loan | - | - | ||||||||||
Accrued taxes payable | - | - | ||||||||||
Other accrued liabilities | 1,706 | 1,706 | ||||||||||
Total current liabilities | 39,133 | - | 39,133 | |||||||||
LONG-TERM LIABILITIES: | ||||||||||||
Long-term debt | 24,000 | (24,000 | )(c) | - | ||||||||
Commodity derivative contracts | 2,141 | 2,141 | ||||||||||
Commodity derivative premium payable | 5,838 | 5,838 | ||||||||||
Accrued litigation settlement liability | 1,400 | 1,400 | ||||||||||
Asset retirement obligation | 6,463 | (105 | )(d) | 6,358 | ||||||||
Warrant derivative | - | - | ||||||||||
Total long-term liabilities | 39,842 | (24,105 | ) | 15,737 | ||||||||
Commitments and contingencies (Note 13) | ||||||||||||
SHAREHOLDERS' EQUITY: | ||||||||||||
Preferred stock, no par value; unlimited shares authorized; no shares issued | - | - | ||||||||||
Common stock, no par value; unlimited shares authorized; 50,378,094 shares issued and outstanding at September 30, 2010 | 263,809 | 263,809 | ||||||||||
Additional paid-in capital | 22,789 | 22,789 | ||||||||||
Accumulated deficit | (129,211 | ) | (129,211 | ) | ||||||||
Total shareholders' equity | 157,387 | - | 157,387 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 236,362 | $ | (24,105 | ) | $ | 212,257 |
GASTAR EXPLORATION LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2010 | ||||||||||||
Historical | Pro Forma Adjustments | Pro Forma | ||||||||||
(in thousands, except share and per share data ) | ||||||||||||
REVENUES: | ||||||||||||
Natural gas and oil revenues | $ | 22,152 | $ | (160 | )(e) | $ | 21,992 | |||||
Unrealized natural gas hedge gain (loss) | 13,893 | 13,893 | ||||||||||
Total revenues | 36,045 | (160 | ) | 35,885 | ||||||||
EXPENSES: | ||||||||||||
Production taxes | 300 | (7 | )(f) | 293 | ||||||||
Lease operating expenses | 5,206 | (85 | )(f) | 5,121 | ||||||||
Transportation, treating and gathering | 3,508 | (0 | ) | 3,508 | ||||||||
Depreciation, depletion and amortization | 6,068 | (38 | )(f) | 6,030 | ||||||||
Impairment of natural gas and oil properties | - | - | ||||||||||
Accretion of asset retirement obligation | 292 | (5 | )(f) | 287 | ||||||||
General and administrative expense | 11,618 | 11,618 | ||||||||||
Litigation settlement expense | 21,150 | 21,150 | ||||||||||
Total expenses | 48,142 | (135 | ) | 48,007 | ||||||||
LOSS FROM OPERATIONS | (12,097 | ) | (25 | ) | (12,122 | ) | ||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest expense | (120 | ) | (120 | ) | ||||||||
Early extinguishment of debt | - | - | ||||||||||
Investment income and other | 1,343 | 1,343 | ||||||||||
Gain on sale of assets | - | - | ||||||||||
Unrealized warrant derivative gain (loss) | 205 | 205 | ||||||||||
Foreign transaction gain | 349 | 349 | ||||||||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | (10,320 | ) | (25 | ) | (10,345 | ) | ||||||
Provision for income tax expense (benefit) | (804 | ) | (804 | ) | ||||||||
NET INCOME (LOSS) | $ | (9,516 | ) | $ | (25 | ) | $ | (9,541 | ) | |||
NET INCOME (LOSS) PER SHARE: | ||||||||||||
Basic | $ | (0.19 | ) | $ | (0.19 | ) | ||||||
Diluted | $ | (0.19 | ) | $ | (0.19 | ) | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||
Basic | 49,063,253 | 49,063,253 | ||||||||||
Diluted | 49,063,253 | 49,063,253 |
GASTAR EXPLORATION LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009 | ||||||||||||
Historical | Pro Forma Adjustments | Pro Forma | ||||||||||
(in thousands, except share and per share data ) | ||||||||||||
REVENUES: | ||||||||||||
Natural gas and oil revenues | $ | 40,636 | $ | (177 | )(e) | $ | 40,459 | |||||
Unrealized natural gas hedge gain (loss) | (7,767 | ) | (7,767 | ) | ||||||||
Total revenues | 32,869 | (177 | ) | 32,692 | ||||||||
EXPENSES: | ||||||||||||
Production taxes | 439 | (9 | )(f) | 430 | ||||||||
Lease operating expenses | 6,572 | (66 | )(f) | 6,506 | ||||||||
Transportation, treating and gathering | 1,547 | (0 | ) | 1,547 | ||||||||
Depreciation, depletion and amortization | 16,484 | (80 | )(f) | 16,404 | ||||||||
Impairment of natural gas and oil properties | 68,729 | 68,729 | ||||||||||
Accretion of asset retirement obligation | 379 | (3 | )(f) | 376 | ||||||||
General and administrative expense | 15,649 | 15,649 | ||||||||||
Total expenses | 109,799 | (158 | ) | 109,641 | ||||||||
LOSS FROM OPERATIONS | (76,930 | ) | (19 | ) | (76,949 | ) | ||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest expense | (3,993 | ) | (3,993 | ) | ||||||||
Early extinguishment of debt | (15,902 | ) | (15,902 | ) | ||||||||
Investment income and other | 1,267 | 1,267 | ||||||||||
Gain on sale of assets | 211,162 | 211,162 | ||||||||||
Unrealized warrant derivative gain (loss) | (205 | ) | (205 | ) | ||||||||
Foreign transaction gain | 3,764 | 3,764 | ||||||||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 119,163 | (19 | ) | 119,144 | ||||||||
Provision for income tax expense (benefit) | 70,317 | 70,317 | ||||||||||
NET INCOME (LOSS) | $ | 48,846 | $ | (19 | ) | $ | 48,827 | |||||
NET INCOME (LOSS) PER SHARE: | ||||||||||||
Basic | $ | 1.06 | $ | 1.06 | ||||||||
Diluted | $ | 1.06 | $ | 1.06 | ||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||
Basic | 46,102,662 | 46,102,662 | ||||||||||
Diluted | 46,210,424 | 46,210,424 |
GASTAR EXPLORATION LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of Presentation |
The historical amounts as of and for the nine months ended September 30, 2010 and for the year ended December 31, 2009 are derived from and should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2009, filed on April 15, 2010, and Form 10-Q for the nine months ended September 30, 2010, which was filed on November 4, 2010.
The pro forma adjustments in the accompanying Condensed Consolidated Balance Sheet have been prepared as if the Closing of the Atinum Joint Venture was completed on September 30, 2010. The pro forma adjustments in the accompanying Condensed Consolidated Statements of Operations have been prepared as if the Closing of the Atinum Joint Venture was completed on January 1, 2009. The pro forma Condensed Consolidated Financial Statements do not contend to be indicative of the financial position or results of the Company’s operations as of such dates or for such periods, nor are they necessarily indicative of future results.
2. | Pro Forma Adjustments and Assumptions |
The unaudited pro forma Condensed Consolidated Financial Statements give pro forma effect to the following:
(a) | Reflects the cash received upon the Closing of the Atinum Joint Venture, excluding amounts used to repay outstanding debt under the Revolving Credit Facility. |
(b) | Reflects the sale of the assets to Atinum. |
(c) | Reflects the repayment of outstanding debt under the Revolving Credit Facility. |
(d) | Reflects the adjustment to the asset retirement obligation for Atinum’s share of the assets sold and the liability assumed. |
(e) | Reflects Atinum’s share of natural gas and oil revenues for Marcellus Shale operations sold during the stated period. |
(f) | Reflects Atinum’s share of production taxes, lease operating expenses, depreciation, depletion and amortization expense and accretion expense for Marcellus Shale operations sold during the stated period. |