Exhibit 99.1
Unaudited Pro Forma Financial Information of Eagle Rock Energy Partners, L.P.
The unaudited pro forma condensed consolidated financial statements have been prepared for illustrative purposes only to reflect the pro forma impact to Eagle Rock Energy Partners, L.P. (the "Partnership") of the contribution of its Midstream Business (the "Contribution") to Regency Energy Partners LP ("Regency"). The following unaudited pro forma condensed consolidated balance sheet as of March 31, 2014, and the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2014 and the year ended December 31, 2013, should be read in conjunction with: (1) the March 31, 2014 unaudited historical financial statements of the Partnership, including the related notes, filed with the SEC on Form 10-Q on May 2, 2014 and (2) the December 31, 2013 audited historical financial statements of the Partnership, including the related notes, filed with the SEC on Form 10-K on March 3, 2014.
The following unaudited pro forma condensed consolidated balance sheet as of March 31, 2014, is presented to illustrate the estimated effects of the proposed Contribution as if the transaction had occurred on March 31, 2014. The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2014 and for the year ended December 31, 2013 are presented to illustrate the estimated effects of the proposed Contribution as if the transaction had occurred on January 1, 2013.
The following unaudited pro forma condensed financial statements are based on certain assumptions made by the Partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors the Partnership believes are appropriate under the circumstances, many of which are beyond the control of the Partnership, and are intended for informational purposes only and are not necessarily indicative of the financial position or results of operations that would have occurred if the Contribution had been consummated on the dates indicated or of the financial position or results of operations of the Partnership in the future. Actual results may differ materially from the estimates and assumptions used, and the following unaudited pro forma condensed consolidated financial statements do not purport to project the future financial position or operating results of the Partnership following the consummation of the Contribution. The pro forma adjustments and assumptions are described in Note 3 in the accompanying notes to the unaudited pro forma condensed consolidated financial statements.
EAGLE ROCK ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2014
(In thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | |
| | Eagle Rock Energy Partners, L.P. | | Midstream Business | | Pro Forma Adjustments for the Contribution | | Pro Forma March 31, 2014 |
| ASSETS | | | | | | | |
| CURRENT ASSETS: | | | | | | | |
| Cash and cash equivalents | $ | 5,623 |
| | $ | — |
| | $ | 520,000 |
| (a) | $ | 4,672 |
|
| | | | | | (10,700 | ) | (a) | |
| | | | | | (15,251 | ) | (b) | |
| | | | | | (495,000 | ) | (c) | |
| Accounts receivable | 165,852 |
| | (136,966 | ) | | | | 28,886 |
|
| Risk management assets | 5,740 |
| | (2,606 | ) | | | | 3,134 |
|
| Prepayments and other current assets | 12,601 |
| | (410 | ) | | | | 12,191 |
|
| Total current assets | 189,816 |
| | (139,982 | ) | | (951 | ) | | 48,883 |
|
| PROPERTY, PLANT AND EQUIPMENT -Net | 1,838,925 |
| | (993,973 | ) | | | | 844,952 |
|
| INTANGIBLE ASSETS -Net | 104,149 |
| | (100,930 | ) | | | | 3,219 |
|
| DEFERRED TAX ASSET | 2,224 |
| | (51 | ) | | 51 |
| (d) | 2,224 |
|
| RISK MANAGEMENT ASSETS | 1,451 |
| | (129 | ) | | | | 1,322 |
|
| OTHER ASSETS | 18,753 |
| | (16,513 | ) | | 200,000 |
| (a) | 204,795 |
|
| | | | | | 2,555 |
| (e) | |
| TOTAL | $ | 2,155,318 |
| | $ | (1,251,578 | ) | | $ | 201,655 |
| | $ | 1,105,395 |
|
| | | | | | | | |
| LIABILITIES AND MEMBERS’ EQUITY | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | |
| Accounts payable | $ | 202,693 |
| | $ | (151,306 | ) | | $ | — |
| | $ | 51,387 |
|
| Accrued liabilities | 42,442 |
| | (20,821 | ) | | 15,623 |
| (f) | 21,993 |
|
| | | | | | (15,251 | ) | (b) | |
| Income taxes payable | — |
| | — |
| | | | — |
|
| Risk management liabilities | 15,334 |
| | (6,984 | ) | | 3,092 |
| (g) | 11,442 |
|
| Total current liabilities | 260,469 |
| | (179,111 | ) | | 3,464 |
| | 84,822 |
|
| LONG-TERM DEBT | 1,269,433 |
| | (931,739 | ) | | 386,306 |
| (h) | 229,000 |
|
| | | | | | (495,000 | ) | (c) | |
| ASSET RETIREMENT OBLIGATIONS | 46,269 |
| | (8,734 | ) | | | | 37,535 |
|
| DEFERRED TAX LIABILITY | 38,164 |
| | (5,501 | ) | | 5,501 |
| (d) | 38,164 |
|
| RISK MANAGEMENT LIABILITIES | 878 |
| | (1,298 | ) | | 670 |
| (g) | 250 |
|
| OTHER LONG-TERM LIABILITIES | 5,258 |
| | (1,259 | ) | | 648 |
| (d) | 4,647 |
|
| COMMITMENTS AND CONTINGENCIES | | | | | | | |
| MEMBERS’ EQUITY | 534,847 |
| | (123,936 | ) | | 123,936 |
| (i) | 710,977 |
|
| | | | | | 176,130 |
| (j) | |
| TOTAL | $ | 2,155,318 |
| | $ | (1,251,578 | ) | | $ | 201,655 |
| | $ | 1,105,395 |
|
See notes to unaudited pro forma condensed consolidated financial statements.
EAGLE ROCK ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2014
(In thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | |
| | Eagle Rock Energy Partners, L.P. | | Midstream Entities | | Pro Forma Adjustments for the Contribution | | Pro Forma for the Three Months Ended March 31, 2014 |
| REVENUE: | | | | | | | |
| Natural gas, natural gas liquids, oil, condensate, sulfur and helium sales | $ | 340,465 |
| | $ | (285,377 | ) | | (4 | ) | (k) | $ | 55,084 |
|
| Gathering, compression, processing and treating services | 22,397 |
| | (22,397 | ) | | | | — |
|
| Commodity risk management losses, net | (14,944 | ) | | 4,911 |
| | | | (10,033 | ) |
| Other revenue | 156 |
| | (4 | ) | | | | 152 |
|
| Total revenue | 348,074 |
| | (302,867 | ) | | (4 | ) | | 45,203 |
|
| COSTS AND EXPENSES: | | | | | | | |
| Cost of natural gas and natural gas liquids | 244,973 |
| | (245,717 | ) | | 744 |
| (k) | — |
|
| Operations and maintenance | 34,671 |
| | (23,173 | ) | | | | 11,498 |
|
| Taxes other than income | 5,667 |
| | (1,876 | ) | | | | 3,791 |
|
| General and administrative | 21,391 |
| | (13,680 | ) | | 6,880 |
| (l) | 14,591 |
|
| Impairment and other | 2,097 |
| | (2,097 | ) | | | | — |
|
| Depreciation, depletion, and amortization | 40,508 |
| | (20,102 | ) | | | | 20,406 |
|
| Total costs and expenses | 349,307 |
| | (306,645 | ) | | 7,624 |
| | 50,286 |
|
| OPERATING LOSS | (1,233 | ) | | 3,778 |
| | (7,628 | ) | | (5,083 | ) |
| OTHER INCOME (EXPENSE): | | | | | | | |
| Interest expense, net | (17,986 | ) | | 15,025 |
| | (3,054 | ) | (m) | (2,414 | ) |
| | | | | | 3,601 |
| (n) | |
| Interest rate risk management losses, net | (290 | ) | | 143 |
| | (143 | ) | (o) | (290 | ) |
| Other income (expense), net | (7 | ) | | 8 |
| | 3,917 |
| (p) | 3,918 |
|
| Total other expense | (18,283 | ) | | 15,176 |
| | 4,321 |
| | 1,214 |
|
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX | (19,516 | ) | | 18,954 |
| | (3,307 | ) | | (3,869 | ) |
| INCOME TAX BENEFIT | (953 | ) | | (183 | ) | | 213 |
| (q) | (923 | ) |
| LOSS FROM CONTINUING OPERATIONS | $ | (18,563 | ) | | $ | 19,137 |
| | $ | (3,520 | ) | | $ | (2,946 | ) |
| | | | | | | | |
| LOSS FROM CONTINUING OPERATIONS PER COMMON UNIT - BASIC AND DILUTED: | | | | | | | |
| Loss from continuing operations per unit: | | | | | | | |
| Common units - Basic and diluted | (0.12 | ) | | | | | | (0.02 | ) |
| Weighted average units outstanding (in thousands): | | | | | | | |
| Common units - Basic and diluted | 156,644 |
| | | | | | 156,644 |
|
See notes to unaudited pro forma condensed consolidated financial statements.
EAGLE ROCK ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2013
(In thousands, except per unit amounts)
|
| | | | | | | | | | | | | | | |
| | Eagle Rock Energy Partners, L.P. | | Midstream Business | | Pro Forma Adjustments for the Contribution | | Pro Forma For the Year Ended December 31, 2013 |
| REVENUE: | | | | | | | |
| Natural gas, natural gas liquids, oil, condensate, sulfur and helium sales | $ | 1,129,333 |
| | $ | (967,949 | ) | | 39,224 |
| (k) | $ | 200,608 |
|
| Gathering, compression, processing and treating services | 83,659 |
| | (83,659 | ) | | | | — |
|
| Commodity risk management losses, net | (18,533 | ) | | 14,596 |
| | | | (3,937 | ) |
| Other revenue | 820 |
| | (119 | ) | | | | 701 |
|
| Total revenue | 1,195,279 |
| | (1,037,131 | ) | | 39,224 |
| | 197,372 |
|
| COSTS AND EXPENSES: | | | | | | | |
| Cost of natural gas and natural gas liquids | 790,618 |
| | (829,661 | ) | | 39,043 |
| (k) | — |
|
| Operations and maintenance | 135,205 |
| | (93,779 | ) | | | | 41,426 |
|
| Taxes other than income | 20,270 |
| | (7,342 | ) | | | | 12,928 |
|
| General and administrative | 81,214 |
| | (51,227 | ) | | 28,294 |
| (l) | 58,281 |
|
| Impairment and other | 214,286 |
| | — |
| | | | 214,286 |
|
| Depreciation, depletion, and amortization | 167,170 |
| | (77,726 | ) | | | | 89,444 |
|
| Total costs and expenses | 1,408,763 |
| | (1,059,735 | ) | | 67,337 |
| | 416,365 |
|
| OPERATING LOSS | (213,484 | ) | | 22,604 |
| | (28,113 | ) | | (218,993 | ) |
| OTHER INCOME (EXPENSE): | | | | | | | |
| Interest expense, net | (68,762 | ) | | 58,273 |
| | (9,716 | ) | (m) | (6,419 | ) |
| | | | | | 13,786 |
| (r) | |
| Interest rate risk management losses, net | (1,104 | ) | | 541 |
| | (541 | ) | (o) | (1,104 | ) |
| Other income (expense), net | 257 |
| | (287 | ) | | 15,296 |
| (s) | 15,266 |
|
| Total other expense | (69,609 | ) | | 58,527 |
| | 18,825 |
| | 7,743 |
|
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX | (283,093 | ) | | 81,131 |
| | (9,288 | ) | | (211,250 | ) |
| INCOME TAX BENEFIT | (5,114 | ) | | (77 | ) | | (3,643 | ) | (q) | (8,834 | ) |
| LOSS FROM CONTINUING OPERATIONS | $ | (277,979 | ) | | $ | 81,208 |
| | $ | (5,645 | ) | | $ | (202,416 | ) |
| | | | | | | | |
| LOSS FROM CONTINUING OPERATIONS PER COMMON UNIT - BASIC AND DILUTED: | | | | | | | |
| Loss from continuing operations per unit: | | | | | | | |
| Common units - Basic and diluted | (1.79 | ) | | | | | | (1.33 | ) |
| Weighted average units outstanding (in thousands): | | | | | | | |
| Common units - Basic and diluted | 153,562 |
| | | | | | 153,562 |
|
See notes to unaudited pro forma condensed consolidated financial statements.
EAGLE ROCK ENERGY PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The historical information for Eagle Rock Energy Partners, L.P. is derived from the historical financial statements of the Partnership. The historical information for the Midstream Business is derived from the Partnership's historical midstream business segment and includes certain allocations of assets, liabilities, revenues and expenses to present the Midstream Business as if it were a stand-alone entity. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2014 is presented to illustrate the estimated effects of the Contribution as if the Contribution had occurred on March 31, 2014. The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2014 and for the year ended December 31, 2013 are presented to illustrate the estimated effects of the Contribution as if the Contribution had occurred on January 1, 2013.
Pursuant to the Contribution Agreement, the Partnership will contribute to Regency its historical midstream business segment, a portion of its corporate segment relating to the midstream business segment and the commodity risk management gains and losses attributable to the midstream business segment’s production, and general and administrative expenses solely attributable to the midstream business segment.
NOTE 2. Preliminary Divestiture Price
The divestiture price of $1.27 billion has been calculated as follows (in thousands, except per unit amounts):
|
| | | | |
Value of common units issued (1) | | $ | 200,000 |
|
Exchange of Senior Notes (2) | | 550,000 |
|
Cash (2) | | 520,000 |
|
| Total consideration received | | $ | 1,270,000 |
|
__________________________
| |
| (1) | The total number of Regency common units to be received by Eagle Rock is 8,245,859, which was determined by dividing $200 million by the volume weighted average price of Regency's common units for the 10 trading days prior to the announcement of the transaction on December 23, 2013. |
| |
| (2) | Assumes that all of Eagle Rock's senior unsecured notes will be exchanged as part of the Contribution. |
NOTE 3. Pro Forma Adjustments and Assumptions
The unaudited pro forma condensed consolidated financial statements have been adjusted to reflect:
| |
| (a) | The Contribution of the Midstream Business to Regency for total consideration of $1.27 billion less estimated expenses of approximately $10.7 million. |
| |
| (b) | The use of a portion of the net proceeds from the Contribution used to pay the accrued interest on the senior unsecured notes. |
| |
| (c) | The use of all remaining net proceeds from the Contribution to repay outstanding debt under the revolving credit facility which bears interest primarily based on a LIBOR rate plus the applicable margin. |
| |
| (d) | The reversal of deferred tax assets and liabilities related to the assets, liabilities and operations of the Midstream Business. |
| |
| (e) | The reversal of deferred financing costs related to the Partnership's revolving credit facility allocated to the Midstream Business. |
| |
| (f) | The reversal of accrued interest related to the senior unsecured notes and revolving credit facility allocated to the Midstream Business. |
(g) The reversal of interest rate swaps allocated to the Midstream Business.
(h) The reversal of the Partnership's outstanding balance under its revolving credit facility allocated to the Midstream Business.
| |
| (i) | The reversal of the Midstream Business' equity balance. |
| |
| (j) | The gain realized on the Contribution. |
| |
| (k) | The reversal of intercompany eliminations for the three and twelve month periods presented. |
| |
| (l) | The reversal of general and administrative expenses allocated to the Midstream Business for the three and twelve month periods presented. |
| |
| (m) | The reversal of interest expense, including debt issuance costs, related to Partnership's revolving credit facility allocated to the Midstream Business for the three and twelve month periods presented. |
| |
| (n) | The reduction of interest expense from the net repayment of outstanding borrowings under the revolving credit facility as a result of the Contribution for the three months ended March 31, 2014. The reduction of interest expense associated with the repayment of outstanding debt of $495 million was calculated using an assumed rate of 2.91%, the interest rate related to the Partnership's revolving credit facility as of March 31, 2014. A 1/8 percentage change in the assumed interest rate would result in an adjustment of interest expense of approximately $0.2 million. |
| |
| (o) | The reversal of interest rate risk management losses allocated to the Midstream Business for the three and twelve month periods presented. |
| |
| (p) | Distributions received on the Regency units during the three months ended March 31, 2014, based on quarterly distributions paid of $0.475 for the quarter ended December 31, 2013. As it is the initial intention of the Partnership to retain the units received in the Contribution, the investment will be accounted for under the cost method, with the distributions recorded as income within the statement of operations. |
| |
| (q) | The reversal of income tax expense related to the assets, liabilities and operations of the Midstream Business for the three and twelve months presented. |
| |
| (r) | The reduction of interest expense from the net repayment of outstanding borrowings under the revolving credit facility as a result of the Contribution for the year ended December 31, 2013. The reduction of interest expense associated with the repayment of outstanding debt of $495 million was calculated using an assumed rate of 2.67%, the interest rate related to the Partnership's revolving credit facility as of December 31, 2013. A 1/8 percentage change in the assumed interest rate would result in an adjustment of interest expense of $0.6 million. |
| |
| (s) | Distributions received on the Regency units during the year ended December 31, 2013, based on quarterly distributions paid of $0.46, $0.46, $0.465 and $0.47 for the quarters ended December 31, 2012, March 31, 2013, June 30, 2013 and September 30, 2013, respectively. As it is the initial intention of the Partnership to retain the units received in the Contribution, the investment will be accounted for under the cost method, with the distributions recorded as income within the statement of operations. |
NOTE 4. Alternative Presentation
The unaudited pro forma condensed consolidated financial statements above assume that the full $550 million face value of the Partnership's senior unsecured notes will be exchanged into Regency notes as part of the Contribution. For any senior unsecured notes that are not exchanged for new Regency notes the Partnership will receive an amount of cash equal to 110% of the difference between $550 million and the face value of the senior unsecured notes exchanged. Should no senior notes be exchanged as part of the Contribution, the total consideration received would increase to $1.325 billion from $1.27 billion. The following would be the significant differences presented within the unaudited pro forma condensed consolidated financial statements assuming none of the Partnership's senior unsecured notes are exchanged.
Pro Forma Balance Sheet as of December 31, 2013
| |
| (1) | Cash would be $392 million, as it is assumed the additional cash proceeds would be used to pay-down all of the outstanding debt under the Partnership's revolving credit facility. |
| |
| (2) | Long-term debt would be $545 million. |
| |
| (3) | Equity would be $782 million, as the gain on the sale would increase due to the additional consideration received. |
Pro Forma Statement of Operations for the three months ended March 31, 2014
(1) Loss from continuing operations would be $13.6 million, as the reduction in interest expense would be $4.8 million.
(2) Basic and diluted net loss from continuing operations would be $0.09 per unit.
Pro Forma Statement of Operations for the year ended December 31, 2013
| |
| (1) | Loss from continuing operations would be $249.5 million, as the reduction in interest expense would be $15.3 million. |
| |
| (2) | Basic and diluted net loss from continuing operations would be $1.64 per unit. |
NOTE 5. Pro Forma Earnings Per Unit
Basic earnings per unit is computed by dividing the net income (loss) by the weighted average number of units outstanding during a period. To determine net income (loss) allocated to each class of ownership (common and restricted common units), the Partnership first allocates net income (loss) in accordance with the amount of distributions made for the quarter by each class, if any. The remaining net income is allocated to each class in proportion to the class weighted average number of units outstanding for a period, as compared to the weighted average number of units for all classes for the period, with the exception of net losses. Net losses are allocated to just the common units.
