Exhibit 99.1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements adjust our historical consolidated financial statements to give effect to the following transactions, which we refer to as the Transactions:
· the acquisition in February 2007 of certain oil and gas properties and related assets in the Mid-Continent region from Stallion Energy LLC, or the Mid-Continent I Acquisition;
· the acquisition in August 2007 of certain oil and gas properties in the Mid-Continent region from Dominion Resources, Inc., or the Mid-Continent III Acquisition;
· the acquisition in January 2008 of certain oil and gas properties in the Mid-Continent region from Lamamco Drilling Company, or the Mid-Continent IV Acquisition; and
· our pending sale of certain oil and gas properties located in the Appalachian Basin to XTO Energy, Inc., which we expect to close in July 2008.
The unaudited pro forma consolidated financial statements are based on our historical consolidated financial statements for the three years ended December 31, 2005, 2006 and 2007 and for the three months ended March 31, 2007 and 2008 and give effect to (i) the Mid-Continent IV Acquisition, Mid-Continent III Acquisition and Mid-Continent I Acquisition as if they were completed on January 1, 2007 for the purposes of the consolidated statements of operations, (ii) our pending disposition of our Appalachian Basin properties as if it was completed on January 1, 2005 for the purposes of the consolidated statements of operations, and (iii) our pending disposition of our Appalachian Basin properties as if it occurred on March 31, 2008 for the purposes of the consolidated balance sheet at March 31, 2008.
The unaudited pro forma condensed consolidated financial statements do not purport to represent what our results of operations or financial position would have actually been had the Transactions occurred on the dates noted above, or to project our results of operations or financial position as of any future date or for any future periods. The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. The adjustments are directly attributable to the Transactions and are expected to have a continuing impact on our financial position and results of operations. In our opinion, all adjustments necessary to present fairly the unaudited pro forma condensed consolidated financial statements have been made.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the information contained in “Selected Historical Consolidated Financial Data” in our Annual Report on Form 10-K for the year ended December 31, 2007 and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and the related notes thereto appearing in our Annual Report on Form 10-K for the year ended December 31, 2007 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.
1
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2008
| | Linn Energy
Historical | | Appalachian
Basin Sale
Pro Forma
Adjustments | | Linn Energy
Pro Forma | |
| | | | (in thousands) | | | |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 1,076 | | $ | 580,100 | (a) | $ | 128,676 | |
| | | | (452,500 | )(b) | | |
Accounts receivable – trade, net | | 197,342 | | (11,733 | )(c) | 185,609 | |
Other current assets | | 15,454 | | — | | 15,454 | |
Total current assets | | 213,872 | | 115,867 | | 329,739 | |
Oil and gas properties, net | | 4,097,710 | | (393,297 | )(c) | 3,704,413 | |
Property and equipment, net | | 23,305 | | (5,680 | )(c) | 17,625 | |
Goodwill | | 64,419 | | — | | 64,419 | |
Other noncurrent assets, net | | 14,280 | | (197 | )(c) | 14,083 | |
Total assets | | $ | 4,413,586 | | $ | (283,307 | ) | $ | 4,130,279 | |
Liabilities and Unitholders’ Capital | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued expenses | | $ | 225,764 | | $ | (7,597 | )(c) | $ | 218,167 | |
Derivative instruments | | 158,415 | | — | | 158,415 | |
Other current liabilities | | 24,381 | | (14 | )(c) | 24,367 | |
Total current liabilities | | 408,560 | | (7,611 | ) | 400,949 | |
Noncurrent liabilities: | | | | | | | |
Credit facility | | 1,665,000 | | (302,500 | )(b) | 1,362,500 | |
Term loan | | 400,000 | | (150,000 | )(b) | 250,000 | |
Derivative instruments | | 190,348 | | — | | 190,348 | |
Other noncurrent liabilities | | 37,440 | | (7,654 | )(c) | 29,786 | |
Total noncurrent liabilities | | 2,292,788 | | (460,154 | ) | 1,832,634 | |
Unitholders’ capital: | | | | | | | |
Units issued and outstanding | | 2,319,616 | | 1,274 | (c) | 2,320,890 | |
Accumulated loss | | (607,378 | ) | 183,184 | (d) | (424,194 | ) |
| | 1,712,238 | | 184,458 | | 1,896,696 | |
Total liabilities and unitholders’ capital | | $ | 4,413,586 | | $ | (283,307 | ) | $ | 4,130,279 | |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
2
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008
| | Linn Energy
Historical | | Mid-Continent
Assets IV
Historical | | Acquisition
Pro Forma
Adjustments | | Appalachian
Basin Sale
Pro Forma
Adjustments | | Linn Energy
Pro Forma | |
| | (in thousands, except per unit amounts) | |
Revenues: | | | | | | | | | | | |
Oil, gas and natural gas liquid sales | | $ | 195,516 | | $ | 9,273 | | $ | — | | $ | (19,644 | )(e) | $ | 185,145 | |
Loss on oil and gas derivatives | | (268,794 | ) | — | | — | | — | | (268,794 | ) |
Natural gas marketing revenues | | 4,147 | | — | | — | | (1,331 | )(e) | 2,816 | |
Other revenues | | 665 | | — | | — | | — | | 665 | |
| | (68,466 | ) | 9,273 | | — | | (20,975 | ) | (80,168 | ) |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
Operating expenses | | 41,838 | | 3,308 | | 19 | (k) | (4,644 | )(f) | 40,521 | |
Natural gas marketing expenses | | 3,994 | | — | | — | | (1,407 | )(f) | 2,587 | |
General and administrative expenses | | 20,014 | | — | | — | | (739 | )(f) | 19,275 | |
Data license expenses | | 2,428 | | — | | — | | — | | 2,428 | |
Depreciation, depletion and amortization | | 50,470 | | — | | 1,304 | (j) | (5,621 | )(g) | 46,153 | |
| | 118,744 | | 3,308 | | 1,323 | | (12,411 | ) | 110,964 | |
| | (187,210 | ) | 5,965 | | (1,323 | ) | (8,564 | ) | (191,132 | ) |
| | | | | | | | | | | |
Other income and (expenses), net | | (71,940 | ) | — | | (3,274 | )(l) | 7,401 | (h) | (68,176 | ) |
| | | | | | (363 | )(m) | | | | |
Income (loss) before income taxes | | (259,150 | ) | 5,965 | | (4,960 | ) | (1,163 | ) | (259,308 | ) |
Income tax provision | | (209 | ) | — | | — | | — | (i) | (209 | ) |
Net income (loss) | | $ | (259,359 | ) | $ | 5,965 | | $ | (4,960 | ) | $ | (1,163 | ) | $ | (259,517 | ) |
Net loss per unit: | | | | | | | | | | | |
Units – basic | | $ | (2.28 | ) | | | | | | | $ | (2.28 | ) |
Units – diluted | | $ | (2.28 | ) | | | | | | | $ | (2.28 | ) |
Weighted average units outstanding: | | | | | | | | | | | |
Units – basic | | 113,757 | | | | | | | | 113,757 | |
Units – diluted | | 113,757 | | | | | | | | 113,757 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
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LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007
| | Linn Energy
Historical | | Mid-
Continent
Assets IV
Historical | | Mid-
Continent
Assets III
Historical | | Mid-
Continent
Assets I
Historical | | Acquisitions
Pro Forma
Adjustments | | Appalachian
Basin Sale
Pro Forma
Adjustments | | Linn Energy
Pro Forma | |
| | (in thousands, except per unit amounts) | |
Revenues: | | | | | | | | | | | | | | | |
Oil, gas and natural gas liquid sales | | $ | 39,204 | | $ | 9,418 | | $ | 73,500 | | $ | 4,021 | | $ | — | | $ | (15,637 | )(e) | $ | 110,506 | |
Loss on oil and gas derivatives | | (60,441 | ) | — | | — | | — | | — | | — | | (60,441 | ) |
Natural gas marketing revenues | | 1,778 | | — | | — | | — | | — | | (1,778 | )(e) | — | |
Other revenues | | 2,090 | | — | | 6,000 | | — | | — | | — | | 8,090 | |
| | (17,369 | ) | 9,418 | | 79,500 | | 4,021 | | — | | (17,415 | ) | 58,155 | |
Expenses: | | | | | | | | | | | | | | | |
Operating expenses | | 12,456 | | 3,224 | | 17,000 | | 1,626 | | 230 | (k) | (4,255 | )(f) | 30,281 | |
Natural gas marketing expenses | | 1,347 | | — | | — | | — | | — | | (1,347 | )(f) | — | |
General and administrative expenses | | 10,621 | | — | | — | | — | | — | | (526 | )(f) | 10,095 | |
Depreciation, depletion and amortization | | 11,851 | | — | | — | | — | | 30,903 | (j) | (5,607 | )(g) | 37,147 | |
| | 36,275 | | 3,224 | | 17,000 | | 1,626 | | 31,133 | | (11,735 | ) | 77,523 | |
| | (53,644 | ) | 6,194 | | 62,500 | | 2,395 | | (31,133 | ) | (5,680 | ) | (19,368 | ) |
Other income and (expenses), net | | (10,571 | ) | — | | — | | — | | (19,791 | )(l) | 4,826 | (h) | (27,403 | ) |
| | | | | | | | | | (1,867 | )(m) | | | | |
Income (loss) before income taxes | | (64,215 | ) | 6,194 | | 62,500 | | 2,395 | | (52,791 | ) | (854 | ) | (46,771 | ) |
Income tax provision | | (3,632 | ) | — | | — | | — | | — | | — | (i) | (3,632 | ) |
Net income (loss) | | $ | (67,847 | ) | $ | 6,194 | | $ | 62,500 | | $ | 2,395 | | $ | (52,791 | ) | $ | (854 | ) | $ | (50,403 | ) |
Net loss per unit: | | | | | | | | | | | | | | | |
Units – basic | | $ | (1.35 | ) | | | | | | | | | | | $ | (1.00 | ) |
Units – diluted | | $ | (1.35 | ) | | | | | | | | | | | $ | (1.00 | ) |
Class C units – basic | | $ | (1.35 | ) | | | | | | | | | | | $ | (1.00 | ) |
Class C units – diluted | | $ | (1.35 | ) | | | | | | | | | | | $ | (1.00 | ) |
Weighted average units outstanding: | | | | | | | | | | | | | | | |
Units – basic | | 45,456 | | | | | | | | | | | | 45,456 | |
Units – diluted | | 45,456 | | | | | | | | | | | | 45,456 | |
Class C units – basic | | 4,894 | | | | | | | | | | | | 4,894 | |
Class C units – diluted | | 4,894 | | | | | | | | | | | | 4,894 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
4
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007
| | Linn Energy
Historical | | Mid-
Continent
Assets IV
Historical | | Mid-
Continent
Assets III
Historical | | Mid-
Continent
Assets I
Historical | | Acquisitions
Pro Forma
Adjustments | | Appalachian
Basin Sale
Pro Forma
Adjustments | | Linn Energy
Pro Forma | |
| | (in thousands, except per unit amounts) | |
Revenues: | | | | | | | | | | | | | | | |
Oil, gas and natural gas liquid sales | | $ | 318,226 | | $ | 85,031 | | $ | 196,000 | | $ | 4,021 | | $ | — | | $ | (62,299 | )(e) | $ | 540,979 | |
Loss on oil and gas derivatives | | (345,537 | ) | — | | — | | — | | — | | — | | (345,537 | ) |
Natural gas marketing revenues | | 15,537 | | — | | — | | — | | — | | (3,948 | )(e) | 11,589 | |
Other revenues | | 4,537 | | — | | 20,000 | | — | | — | | — | | 24,537 | |
| | (7,237 | ) | 85,031 | | 216,000 | | 4,021 | | — | | (66,247 | ) | 231,568 | |
Expenses: | | | | | | | | | | | | | | | |
Operating expenses | | 88,527 | | 32,764 | | 44,333 | | 1,626 | | 697 | (k) | (19,976 | )(f) | 147,971 | |
Natural gas marketing expenses | | 12,596 | | — | | — | | — | | — | | (3,496 | )(f) | 9,100 | |
General and administrative expenses | | 57,188 | | — | | — | | — | | — | | (2,455 | )(f) | 54,733 | |
Data license expenses | | 3,231 | | — | | — | | — | | — | | — | | 3,231 | |
Depreciation, depletion and amortization | | 97,964 | | — | | — | | — | | 85,800 | (j) | (27,079 | )(g) | 156,685 | |
| | 259,506 | | 32,764 | | 44,333 | | 1,626 | | 86,497 | | (53,006 | ) | 371,720 | |
| | (266,743 | ) | 52,267 | | 171,667 | | 2,395 | | (86,497 | ) | (13,241 | ) | (140,152 | ) |
Other income and (expenses), net | | (94,033 | ) | — | | — | | — | | (65,554 | )(l) | 22,614 | (h) | (143,350 | ) |
| | | | | | | | | | (6,377 | )(m) | | | | |
Income (loss) before income taxes | | (360,776 | ) | 52,267 | | 171,667 | | 2,395 | | (158,428 | ) | 9,373 | | (283,502 | ) |
Income tax provision | | (3,573 | ) | — | | — | | — | | — | | — | (i) | (3,573 | ) |
Net income (loss) | | $ | (364,349 | ) | $ | 52,267 | | $ | 171,667 | | $ | 2,395 | | $ | (158,428 | ) | $ | 9,373 | | $ | (287,075 | ) |
Net loss per unit: | | | | | | | | | | | | | | | |
Units – basic | | $ | (5.29 | ) | | | | | | | | | | | $ | (4.17 | ) |
Units – diluted | | $ | (5.29 | ) | | | | | | | | | | | $ | (4.17 | ) |
Weighted average units outstanding: | | | | | | | | | | | | | | | |
Units – basic | | 68,916 | | | | | | | | | | | | 68,916 | |
Units – diluted | | 68,916 | | | | | | | | | | | | 68,916 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
5
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
| | Linn Energy
Historical | | Appalachian
Basin Sale
Pro Forma
Adjustments | | Linn Energy
Pro Forma | |
| | (in thousands, except per unit amounts) | |
Revenues: | | | | | | | |
Oil, gas and natural gas liquid sales | | $ | 80,393 | | $ | (59,021 | )(e) | $ | 21,372 | |
Gain on oil and gas derivatives | | 103,308 | | — | | 103,308 | |
Natural gas marketing revenues | | 5,598 | | (5,598 | )(e) | — | |
Other revenues | | 1,759 | | — | | 1,759 | |
| | 191,058 | | (64,619 | ) | 126,439 | |
Expenses: | | | | | | | |
Operating expenses | | 18,099 | | (12,176 | )(f) | 5,923 | |
Natural gas marketing expenses | | 4,862 | | (4,862 | )(f) | — | |
General and administrative expenses | | 39,993 | | (1,401 | )(f) | 38,592 | |
Depreciation, depletion and amortization | | 24,173 | | (18,194 | )(g) | 5,979 | |
| | 87,127 | | (36,633 | ) | 50,494 | |
| | 103,931 | | (27,986 | ) | 75,945 | |
Other income and (expenses), net | | (28,148 | ) | 17,685 | (h) | (10,463 | ) |
Income before income taxes | | 75,783 | | (10,301 | ) | 65,482 | |
Income tax benefit | | 3,402 | | — | (i) | 3,402 | |
Net income | | $ | 79,185 | | $ | (10,301 | ) | $ | 68,884 | |
Net income per unit: | | | | | | | |
Units – basic | | $ | 2.64 | | | | $ | 2.29 | |
Units – diluted | | $ | 2.61 | | | | $ | 2.27 | |
Class B units – basic | | $ | 2.64 | | | | $ | 2.29 | |
Class B units – diluted | | $ | 2.61 | | | | $ | 2.27 | |
Weighted average units outstanding: | | | | | | | |
Units – basic | | 28,281 | | | | 28,281 | |
Units – diluted | | 30,385 | | | | 30,385 | |
Class B units – basic | | 1,737 | | | | 1,737 | |
Class B units – diluted | | 1,737 | | | | 1,737 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
6
LINN ENERGY, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
| | Linn Energy
Historical | | Appalachian
Basin Sale
Pro Forma
Adjustments | | Linn Energy
Pro Forma | |
| | (in thousands, except per unit amounts) | |
Revenues: | | | | | | | |
Oil, gas and natural gas liquid sales | | $ | 44,645 | | $ | (44,645 | )(e) | $ | — | |
Loss on oil and gas derivatives | | (76,193 | ) | — | | (76,193 | ) |
Natural gas marketing revenues | | 4,722 | | (4,722 | )(e) | — | |
Other revenues | | 345 | | — | | 345 | |
| | (26,481 | ) | (49,367 | ) | (75,848 | ) |
Expenses: | | | | | | | |
Operating expenses | | 7,356 | | (7,356 | )(f) | — | |
Natural gas marketing expenses | | 4,401 | | (4,401 | )(f) | — | |
General and administrative expenses | | 3,332 | | (586 | )(f) | 2,746 | |
Depreciation, depletion and amortization | | 7,294 | | (7,141 | )(g) | 153 | |
| | 22,383 | | (19,484 | ) | 2,899 | |
| | (48,864 | ) | (29,883 | ) | (78,747 | ) |
Other income and (expenses), net | | (7,413 | ) | 7,562 | (h) | 149 | |
Loss before income taxes | | (56,277 | ) | (22,321 | ) | (78,598 | ) |
Income tax provision | | (74 | ) | — | (i) | (74 | ) |
Net loss | | $ | (56,351 | ) | $ | (22,321 | ) | $ | (78,672 | ) |
Net loss per unit: | | | | | | | |
Units – basic | | $ | (2.75 | ) | | | $ | (3.83 | ) |
Units – diluted | | $ | (2.75 | ) | | | $ | (3.83 | ) |
Weighted average units outstanding: | | | | | | | |
Units – basic | | 20,518 | | | | 20,518 | |
Units – diluted | | 20,518 | | | | 20,518 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
7
LINN ENERGY, LLC
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Appalachian Basin Sale
In April 2008, Linn Energy entered into an agreement with XTO to sell all of its interests in certain oil and gas properties in the Appalachian Basin for cash consideration equal to $600.0 million, subject to customary closing adjustments. Linn Energy received a cash down payment of $60.0 million in April 2008 and plans to use net proceeds from the sale to reduce indebtedness. Linn Energy anticipates closing the sale in July 2008, subject to the prior satisfaction of customary closing conditions. There can be no assurance that all of the conditions to closing will be satisfied.
If the sale of oil and gas properties in the Appalachian Basin had occurred on March 31, 2008, the aggregate sales price of approximately $600.0 million, less estimated transaction costs of $5.2 million and an estimated net effective date adjustment of approximately $14.7 million, would have resulted in a net gain of approximately $183.2 million.
2. Acquisitions
The acquisition of assets, referred to as the Mid-Continent IV Assets, from Lamamco Drilling Company, or Lamamco, was completed on January 31, 2008, effective October 1, 2007, for a contract price of $552.2 million.
The acquisition of assets, referred to as the Mid-Continent III Assets, from Dominion Resources, Inc., or Dominion, was completed on August 31, 2007, effective July 1, 2007, for a contract price of $2.05 billion.
The acquisition of assets, referred to as the Mid-Continent I Assets, from Stallion Energy LLC, acting as general partner of Cavallo Energy, LP, or Cavallo, was completed on February 1, 2007, effective January 1, 2007, for a contract price of $415.0 million.
Linn Energy’s historical results of operations will or do include the results of the Mid-Continent IV Assets, Mid-Continent III Assets and the Mid-Continent I Assets effective February 1, 2008, September 1, 2007 and February 1, 2007, respectively.
3. Basis of Presentation
Balance Sheet
The unaudited pro forma condensed consolidated balance sheet at March 31, 2008 is derived from the historical consolidated financial statements of Linn Energy, and gives effect to the Appalachian Basin sale as if the transaction had occurred on March 31, 2008.
Statements of Operations
The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2008 is derived from the:
· historical consolidated financial statements of Linn Energy; and
· historical statements of revenues and direct operating expenses of the Mid-Continent IV Assets from January 1, 2008 to the date the acquisition was completed.
The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2007 and the year ended December 31, 2007 are derived from the:
· historical consolidated financial statements of Linn Energy;
· historical statements of revenues and direct operating expenses of the Mid-Continent IV Assets from January 1, 2007 to the date the acquisition was completed;
· historical statements of revenues and direct operating expenses of the Mid-Continent III Assets from January 1, 2007 to the date the acquisition was completed; and
· historical statements of revenues and direct operating expenses of Mid-Continent I Assets from January 1, 2007 to the date the acquisition was completed.
8
The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2006 and 2005 are derived from the historical consolidated financial statements of Linn Energy.
The unaudited pro forma condensed consolidated statements of operations give effect to the Appalachian Basin sale as if the transaction had occurred on January 1, 2005 and the acquisitions of the Mid-Continent IV Assets, Mid-Continent III Assets and Mid-Continent I Assets as if the acquisitions had occurred on January 1, 2007. The discontinued operations and acquisition transactions and the related adjustments are described in the accompanying notes. In the opinion of our management, all adjustments have been made that are necessary to present fairly, in accordance with Regulation S-X, the pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet and statements of operations are presented for illustrative purposes only, and do not purport to be indicative of the financial position or results of operations that would actually have occurred if the transactions described had occurred as presented in such statements or that may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2007 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.
The unaudited pro forma condensed consolidated balance sheet and statements of operations should be read in conjunction with the Company’s historical consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008. The pro forma statements should also be read in conjunction with the historical statements of revenues and direct operating expenses for the assets acquired from Lamamco, Dominion and Cavallo previously filed by the Company with the SEC.
4. Appalachian Basin Sale—Pro Forma Adjustments
Adjustments related to the pending sale of Appalachian Basin assets described in Note 1 are presented in the column “Appalachian Basin Sale Pro Forma Adjustments” in the accompanying pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet has been adjusted to reflect the sale of Appalachian Basin assets as follows:
a. reflects estimated net cash proceeds to be received upon closing of the sale of the Appalachian Basin assets
b. reflects the pay down of indebtedness required under our credit facility and term loan agreement, plus the pay down of other debt specifically relating to the Appalachian Basin assets, with estimated net proceeds from the sale of the Appalachian Basin assets
c. reflects the book value of the Appalachian Basin assets and liabilities and accelerated vesting of unit awards under severance and retention agreements for employees who work directly with our properties in the Appalachian Basin region
d. reflects the estimated gain on the sale of the Appalachian Basin assets
The unaudited pro forma condensed consolidated statements of operations have been adjusted to reflect the sale of Appalachian Basin assets, as if the sale occurred on January 1, 2005, as follows:
e. reflects elimination of the revenues of the Appalachian Basin assets
f. reflects elimination of the operating, natural gas marketing and general and administrative expenses of the Appalachian Basin assets
g. reflects elimination of depreciation, depletion and amortization of the Appalachian Basin assets
h. reflects estimated reduction in interest expense due to required and specifically identified use of net sale proceeds to repay outstanding indebtedness under our credit facility using average historical interest rates in effect during the periods presented
i. Linn Energy is treated as a partnership for federal and state income tax purposes. Certain of the subsidiaries that acquired the Mid-Continent IV Assets, Mid-Continent III Assets and Mid-Continent I Assets are also treated as partnerships for federal and state income tax purposes. Linn Operating, Inc., the subsidiary that recognizes revenues and expenses for the Appalachian Basin properties, is a Subchapter C-corporation and subject to federal and state income taxes; however, tax expense is impacted by certain allocations that are not reflected in the accompanying unaudited pro forma condensed consolidated financial statements. Accordingly, no recognition has been given to federal and state income taxes in the accompanying unaudited pro forma condensed consolidated financial statements. Such amounts would not be expected to be material to the pro forma results of operations or pro forma financial position.
9
5. Acquisitions—Pro Forma Adjustments
Adjustments related to the acquisitions described in Note 2 are presented in the column “Acquisition Pro Forma Adjustments” in the accompanying unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet at December 31, 2007 has been adjusted to reflect the acquisition of Mid-Continent IV Assets as follows:
The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2008 and the year ended December 31, 2007 have been adjusted to reflect the acquisition of Mid-Continent I Assets, Mid-Continent III Assets and Mid-Continent IV Assets as follows:
j. reflects incremental depreciation, depletion and amortization expense, using the units-of-production method, related to acquired oil and gas properties, and depreciation over estimated useful lives from three to 20 years using the straight-line method for acquired property, plant and equipment
k. reflects accretion expense related to asset retirement obligation on oil and gas properties acquired
l. reflects interest expense as follows:
· Mid-Continent IV Assets – associated with debt of approximately $535.5 million incurred to fund the purchase price; the assumed average interest rate was 7.34%
· Mid-Continent III Assets – associated with debt of approximately $545.2 million incurred to fund the purchase price; the assumed interest rate was 7.095%
· Mid-Continent I Assets – associated with debt of approximately $34.5 million incurred to fund the purchase price; the assumed interest rate was 6.635%
m. reflects incremental amortization of deferred financing fees associated with borrowings entered into to fund the acquisitions of the Mid-Continent IV Assets, Mid-Continent III Assets and Mid-Continent I Assets
6. Subsequent Event
In April 2008, we canceled (before the contract settlement date) hedge contracts on estimated future gas production primarily associated with the pending sale of properties in Appalachian Basin for a cost of $68.2 million.
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