Exhibit 99.2
Approach Resources Inc.
Unaudited Pro Forma Combined Balance Sheet
(In thousands)
Unaudited Pro Forma Combined Balance Sheet
(In thousands)
Unaudited Pro Forma Combined Balance Sheet
On February 28 2011, Approach Resources Inc. (together with our subsidiaries, “Approach,” the “Company,” “we,” “us” or “our”) acquired a 38.33% working interest in our Cinco Terry operating area from two non-operating partners for $76 million, subject to usual and customary post-closing adjustments (the “Working Interest Acquisition”). We were the operator of the properties prior to the Working Interest Acquisition.
The following pro forma combined balance sheet presents our historical financial position combined with the Working Interest Acquisition as if the acquisition and the financing for the acquisition had occurred on December 31, 2010, and includes adjustments which give effect to events that are directly attributable to the transaction and that are factually supportable, regardless of whether they have a continuing impact or are nonrecurring.
The pro forma combined balance sheet is not necessarily indicative of what our financial position actually would have been had we completed the acquisition at December 31, 2010. In addition, the pro forma combined balance sheet does not purport to project our future financial position.
The pro forma combined balance sheet should be read in conjunction with the:
• | Separate historical audited financial statements of Approach Resources Inc. included in our Annual Report on Form 10-K for the year ended December 31, 2010; and | ||
• | Separate historical audited statement of revenue and direct operating expenses for the year ended December 31, 2010, and notes to the historical summaries of revenue and direct operating expenses included in the Company’s Current Report on Form 8-K/A filed April 21, 2011. |
We prepared the pro forma combined balance sheet using the purchase method of accounting. Accordingly, our estimated cost for the Working Interest Acquisition of $76 million ($70 million, after purchase price adjustments), has been allocated to these assets acquired and liabilities assumed according to their estimated fair values at the date of acquisition.
See notes to unaudited pro forma combined balance sheet.
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Approach Resources Inc.
Unaudited Pro Forma Combined Balance Sheet
(In thousands)
(In thousands)
December 31, 2010 | ||||||||||||
Approach | ||||||||||||
Resources Inc. | ||||||||||||
Consolidated | Combined | |||||||||||
Historical | Pro Forma | Pro Forma | ||||||||||
Amounts | Adjustments | Amounts | ||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 23,465 | $ | (2,489 | ) | $ | 20,976 | |||||
Accounts receivable: | ||||||||||||
Joint interest owners | 8,319 | — | 8,319 | |||||||||
Oil and gas sales | 6,044 | — | 6,044 | |||||||||
Unrealized gain on commodity derivatives | 862 | — | 862 | |||||||||
Prepaid expenses and other current assets | 322 | — | 322 | |||||||||
Deferred income taxes — current | 2,318 | — | 2,318 | |||||||||
Total current assets | 41,330 | (2,489 | ) | 38,841 | ||||||||
PROPERTIES AND EQUIPMENT: | ||||||||||||
Oil and gas properties, at cost, using the successful efforts method of accounting | 474,917 | 70,036 | 544,953 | |||||||||
Furniture, fixtures and equipment | 1,077 | — | 1,077 | |||||||||
475,994 | 70,036 | 546,030 | ||||||||||
Less accumulated depletion, depreciation and amortization | (106,784 | ) | — | (106,784 | ) | |||||||
Net properties and equipment | 369,210 | 70,036 | 439,246 | |||||||||
OTHER ASSETS | 2,549 | — | 2,549 | |||||||||
Total assets | $ | 413,089 | $ | 67,547 | $ | 480,636 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Advances from non-operators | $ | 509 | $ | — | $ | 509 | ||||||
Accounts payable | 11,426 | — | 11,426 | |||||||||
Oil and gas sales payable | 5,534 | — | 5,534 | |||||||||
Accrued liabilities | 10,686 | — | 10,686 | |||||||||
Unrealized loss on commodity derivatives | 1,085 | — | 1,085 | |||||||||
Total current liabilities | 29,240 | — | 29,240 | |||||||||
NON-CURRENT LIABILITIES: | ||||||||||||
Long-term debt | — | 67,000 | 67,000 | |||||||||
Unrealized loss on commodity derivatives | 871 | — | 871 | |||||||||
Deferred income taxes | 44,616 | — | 44,616 | |||||||||
Asset retirement obligations | 5,416 | 547 | 5,963 | |||||||||
Total liabilities | 80,143 | 67,547 | 147,690 | |||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||
STOCKHOLDERS’ EQUITY : | ||||||||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized none outstanding | — | — | — | |||||||||
Common stock, $0.01 par value, 90,000,000 shares authorized, 28,226,890 and 20,959,285 issued and outstanding, respectively | 282 | — | 282 | |||||||||
Additional paid-in capital | 273,912 | — | 273,912 | |||||||||
Retained earnings | 58,986 | — | 58,986 | |||||||||
Accumulated other comprehensive loss | (234 | ) | — | (234 | ) | |||||||
Total stockholders’ equity | 332,946 | — | 332,946 | |||||||||
Total liabilities and stockholders’ equity | $ | 413,089 | $ | 67,547 | $ | 480,636 | ||||||
See notes to unaudited pro forma combined balance sheet.
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Notes to Unaudited Pro Forma Combined Balance Sheet
1. Description of Transaction and Basis of Presentation
On February 28, 2011, we acquired a 38.33% working interest in our Cinco Terry operating area from two non-operating partners for $76 million, subject to usual and customary post-closing adjustments. We were the operator of the properties prior to the Working Interest Acquisition.
The asset purchase has been accounted for as a purchase under generally accepted accounting principles (“GAAP”). The assets and liabilities of the Working Interest Acquisition are recorded at their respective fair values, and consolidated with our assets and liabilities upon completion of the acquisition. The results of operations of the Working Interest Acquisition will be consolidated with our existing operations beginning on March 1, 2011. Our financial statements issued after the completion of the acquisition will reflect these values, but will not be restated retroactively to reflect the historical financial position or results of operations of the Working Interest Acquisition.
2. Pro Forma Adjustments
Adjustments included in the column under the heading “Pro Forma Adjustments” reflects the Working Interest Acquisition as if it occurred on December 31, 2010. The following is a summary of the purchase price paid and its allocation (in thousands):
Purchase price: | ||||
Acquisition price(1) | $ | 76,000 | ||
Asset retirement obligations assumed | 547 | |||
Post-closing purchase price adjustments | (6,511 | ) | ||
Total | $ | 70,036 | ||
Allocation: | ||||
Wells, equipment and related facilities | $ | 50,874 | ||
Mineral interests in oil and gas properties | 19,162 | |||
Total | $ | 70,036 | ||
(1) | We funded $67 million through borrowings under our revolving credit facility, and the remaining amount was funded with cash on hand. |
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