Exhibit 99.2
Jones Energy, Inc.
Unaudited pro forma condensed consolidated
financial statements
Introduction
The following unaudited pro forma condensed consolidated financial statements of Jones Energy, Inc. as of September 30, 2013 and for the nine-month period ended September 30, 2013, are derived from the historical financial statements of Jones Energy, Inc.
These unaudited pro forma condensed consolidated financial statements include the following adjustments: (a) changes to debt and cash accounts as a result of borrowings on long-term debt to fund the acquisition of 92 producing oil and gas wells and associated acreage from Sabine Mid-Continent, LLC (the “Sabine Acquisition”), which was completed during the fourth quarter of 2013, and (b) purchase accounting adjustments in connection with the Sabine Acquisition. The Sabine Acquisition was accounted for as a business combination using the acquisition method of accounting. Accordingly, the preliminary purchase price of the acquisition (as adjusted at closing) was allocated to the assets acquired based upon management’s preliminary estimates of fair value. The determination of fair value is dependent upon valuations as of the acquisition date and the final adjustments to the purchase price, which when they occur may result in an adjustment to the value of the acquired properties reflected in the pro forma condensed consolidated financial statements. Any such adjustment may be material.
The pro forma adjustments are based upon currently available information and certain estimates and assumptions. Actual effects of the transactions may differ from the pro forma adjustments. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects directly attributable to the transactions as contemplated and that the assumptions underlying the pro forma adjustments are factually supportable. The unaudited pro forma condensed consolidated statement of operations does not include the effects of non-recurring items.
The pro forma adjustments have been prepared as if the Sabine Acquisition had taken place on September 30, 2013, in the case of the unaudited pro forma condensed consolidated balance sheet, and as if the Sabine Acquisition had taken place on January 1, 2013, in the case of the unaudited pro forma condensed consolidated statement of operations for the nine-month period ended September 30, 2013. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the notes accompanying such unaudited pro forma financial statements and with the historical audited financial statements of Jones Energy, Inc. and related notes.
The unaudited pro forma condensed consolidated financial statements give pro forma effect to the following adjustments:
· The Sabine Acquisition which has been accounted for as a business combination using the acquisition method (revenues, lease operating expenses and production taxes have been included in relation to the acquisition);
· changes in the carrying value of oil and gas properties and asset retirement obligations to reflect their estimated fair value and changes in depreciation, depletion, and amortization related to the Sabine Acquisition; and
· changes in accretion related to the Sabine Acquisition.
In connection with the closing of the Sabine Acquisition, approximately $24 million of the purchase price was placed in escrow. The escrowed amount represented the allocated value of certain Sabine properties that had unresolved title defects. In the event Sabine cures the title defects identified for any property, an amount equal to the allocated value of that property will be released to Sabine from the escrow account. In the event Sabine is unable to cure the identified title defects for any property, the Company will reconvey the affected property to Sabine and the Company will receive a payment from the escrow account equal to the allocated value of the reconveyed property. The financial statements for the Sabine Acquisition presented herein assume that Sabine will cure all identified title defects and the Company will not reconvey any of the properties. No pro forma adjustment was made for the amount in escrow.
The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the Sabine Acquisition been consummated on the dates or for the periods presented.
The unaudited pro forma condensed consolidated financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated.
Jones Energy, Inc.
Unaudited pro forma condensed consolidated balance sheet
As of September 30, 2013
(In thousands) | | Historical
Jones
Energy,
Inc. | | Pro forma
adjustments
(Note 2) | | Pro forma
Jones
Energy,
Inc. | |
Assets | | | | | | | |
Current assets | | | | | | | |
Cash | | $ | 23,055 | | $ | — | (a) | $ | 23,055 | |
Accounts receivable, net | | | | | | | |
Oil and gas sales | | 52,766 | | — | | 52,766 | |
Joint interest owners | | 23,280 | | — | | 23,280 | |
Other | | 818 | | — | | 818 | |
Other current assets | | 1,687 | | — | | 1,687 | |
Commodity derivative assets | | 14,681 | | — | | 14,681 | |
Total current assets | | 116,287 | | — | | 116,287 | |
Oil and gas properties, net, at cost under the successful efforts method | | 1,080,054 | | 194,320 | (b) | 1,274,374 | |
Other property, plant and equipment, net | | 2,479 | | — | | 2,479 | |
Commodity derivative assets | | 26,591 | | — | | 26,591 | |
Deferred tax assets | | 359 | | — | | 359 | |
Other assets | | 15,345 | | — | | 15,345 | |
Total assets | | $ | 1,241,115 | | $ | 194,320 | | $ | 1,435,435 | |
Liabilities and Stockholders’ / Members’ Equity | | | | | | | |
Current liabilities | | | | | | | |
Trade accounts payable | | $ | 58,516 | | $ | — | | $ | 58,516 | |
Oil and gas sales payable | | 63,858 | | — | | 63,858 | |
Accrued liabilities | | 7,796 | | — | | 7,796 | |
Deferred tax liabilities | | 17 | | — | | 17 | |
Asset retirement obligations | | 174 | | — | | 174 | |
Commodity derivative liabilities | | 10,424 | | — | | 10,424 | |
Total current liabilities | | 140,785 | | — | | 140,785 | |
Long-term debt | | 438,000 | | 193,496 | (a) | 631,496 | |
Deferred revenue | | 14,886 | | — | | 14,886 | |
Commodity derivative liabilities | | 511 | | — | | 511 | |
Asset retirement obligations | | 10,025 | | 824 | (b) | 10,849 | |
Deferred tax liabilities | | 2,138 | | — | | 2,138 | |
Total liabilities | | 606,345 | | 194,320 | | 800,665 | |
Class A common stock | | 13 | | — | | 13 | |
Class B common stock | | 37 | | — | | 37 | |
Additional paid-in-capital | | 172,652 | | — | | 172,652 | |
Retained earnings | | (821 | ) | — | | (821 | ) |
Stockholders’ / members’ equity | | 171,881 | | — | | 171,881 | |
Non-controlling interest | | 462,889 | | — | | 462,889 | |
Total stockholders’ / members’ equity | | 634,770 | | — | | 634,770 | |
Total liabilities and stockholders’ / members’ equity | | $ | 1,241,115 | | $ | 194,320 | | $ | 1,435,435 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Jones Energy, Inc.
Unaudited pro forma condensed
consolidated statement of operations
Nine month period ended September 30, 2013
(In thousands) | | Historical
Jones
Energy,
Inc. | | Historical
Sabine
properties | | Pro forma
adjustments
(Note 3) | | Pro forma
Jones
Energy,
Inc. | |
Operating revenues | | | | | | | | | |
Oil and gas sales | | $ | 188,184 | | $ | 39,923 | | $ | — | | $ | 228,107 | |
Other revenues | | 673 | | — | | — | | 673 | |
Total operating revenues | | 188,857 | | 39,923 | | — | | 228,780 | |
Operating costs and expenses | | | | | | | | | |
Lease operating | | 19,308 | | 3,898 | | — | | 23,206 | |
Production taxes | | 9,103 | | 2,189 | | — | | 11,292 | |
Exploration | | 1,458 | | — | | — | | 1,458 | |
Depletion, depreciation and amortization | | 82,552 | | — | | 17,900 | (a) | 100,452 | |
Impairment of oil and gas properties | | — | | — | | — | | — | |
Accretion of discount | | 434 | | — | | 44 | (b) | 478 | |
General and administrative | | 25,611 | | — | | — | | 25,611 | |
Total operating expenses | | 138,466 | | 6,087 | | 17,944 | | 162,497 | |
Operating income (loss) | | 50,391 | | 33,836 | | (17,944 | ) | 66,283 | |
Other income (expense) | | | | | | | | | |
Interest expense | | (22,712 | ) | — | | (3,541 | )(c) | (26,253 | ) |
Net gain on commodity derivatives | | 4,444 | | — | | — | | 4,444 | |
Gain (loss) on sales of assets | | (30 | ) | — | | — | | (30 | ) |
Other income (expense), net | | (18,298 | ) | — | | (3,541 | ) | (21,839 | ) |
Income (loss) before income tax | | 32,093 | | 33,836 | | (21,485 | ) | 44,444 | |
Income tax provision | | (93 | ) | — | | 4,503 | (d) | 4,410 | |
Net income (loss) | | $ | 32,186 | | $ | 33,836 | | $ | (25,988 | ) | $ | 40,034 | |
Net income (loss) attributable to non-controlling interest | | 33,007 | | — | | (83 | )(e) | 32,924 | |
Net income (loss) attributable to Jones Energy, Inc. | | $ | (821 | ) | $ | 33,836 | | $ | (25,905 | ) | $ | 7,110 | |
Earnings (loss) per share (f) | | | | | | | | | |
Basic | | $ | (0.07 | ) | | | | | $ | 0.57 | |
Diluted | | $ | (0.07 | ) | | | | | $ | 0.57 | |
Weighted average shares outstanding | | | | | | | | | |
Basic | | 12,500 | | | | | | 12,500 | |
Diluted | | 12,500 | | | | | | 12,503 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Notes to unaudited pro forma condensed consolidated financial statements
1. Basis of presentation
The historical financial information is derived from our historical financial statements. The pro forma adjustments have been prepared as if the Sabine Acquisition had taken place on September 30, 2013, in the case of the unaudited pro forma condensed consolidated balance sheet, and as if the Sabine Acquisition had taken place on January 1, 2013, in the case of the unaudited pro forma condensed consolidated statement of operations for the nine-month period ended September 30, 2013. The adjustments are based on currently available information and certain estimates and assumptions and therefore the actual effects of these transactions will differ from the pro forma adjustments.
2. Unaudited pro forma condensed consolidated balance sheet adjustments and assumptions
The adjustments are based on currently available information and certain estimates and assumptions and therefore the actual effects of these transactions will differ from the pro forma adjustments. A description of these transactions and adjustments is provided as follows:
(a) Represents the net adjustment to cash and long-term debt related to borrowings under the senior credit facility and the acquisition of the Sabine assets, calculated as follows (in thousands):
Borrowings on long-term debt | | $ | 193,496 | |
Purchase of Sabine oil and gas assets | | (193,496 | ) |
Pro forma net adjustment to cash | | $ | — | |
(b) Represents Sabine oil and gas properties acquired and asset retirement obligations (“ARO”) assumed, calculated as follows (in thousands):
Acquisition of oil and gas properties | | $ | 194,320 | |
ARO | | (824 | ) |
Total purchase price | | $ | 193,496 | |
3. Unaudited pro forma condensed consolidated statements of operations adjustments and assumptions
The adjustments are based on currently available information and certain estimates and assumptions and therefore the actual effects of these transactions will differ from the pro forma adjustments. A description of these transactions and adjustments is provided as follows:
(a) Reflects the estimated pro forma adjustment to depreciation, depletion and amortization due to the fair value adjustments to the property, plant and equipment acquired in the Sabine Acquisition (in thousands, except volume and rate):
| | Nine months
ended
September 30,
2013 | |
Pro forma production volume (MBoe) | | 5,501 | |
Pro forma depreciation, depletion and amortization rate per Boe | | $ | 18.146 | |
Total pro forma depreciation, depletion and amortization of oil and gas properties | | $ | 99,820 | |
Less: Historical depreciation, depletion and amortization of oil and gas properties | | (81,920 | ) |
Pro forma net adjustment to depreciation, depletion and amortization | | $ | 17,900 | |
(b) Reflects the estimated pro forma adjustment to accretion expense due to the fair value adjustment to the ARO assumed in the Sabine Acquisition (in thousands):
| | Nine months
ended
September 30,
2013 | |
Pro forma accretion of asset retirement obligation | | $ | 478 | |
Less: Historical accretion of ARO | | (434 | ) |
Pro forma adjustment to accretion of ARO | | $ | 44 | |
(c) Reflects the estimated pro forma adjustment to interest expense, resulting from the increase in debt to fund the acquisition (thousands):
| | Nine months
ended
September 30,
2013 | |
Historical interest expense | | $ | 22,712 | |
Interest expense related to incremental debt | | 3,541 | |
Pro forma interest expense | | 26,253 | |
Less: historical interest expense | | (22,712 | ) |
Pro forma adjustment to interest expense | | $ | 3,541 | |
(d) Reflects the net adjustment to income tax benefit, calculated as follows (in thousands):
| | Nine months
ended
September 30,
2013 | |
Tax impact of predecessor conversion to C corporation (i) | | $ | 3,288 | |
Tax impact of Sabine acquisition adjustments - C corporation (ii) | | 1,113 | |
Tax impact of Sabine acquisition adjustments – TX Franchise Tax (ii) | | 102 | |
Net pro forma adjustment to income tax provision | | $ | 4,503 | |
(i) Adjustment related to the reorganization transactions that took place in connection with our initial public offering, whereby we became a tax paying corporation, as applied to historical financial information of our predecessor, Jones Energy Holdings, LLC (JEH LLC).
(ii) Adjustment for the tax impact of the above noted pro forma adjustments reflecting tax benefit assuming pro forma income is taxable as if the corporate organizational structure was in place for the periods reflected above.
(e) Reflects the allocation of net income attributable to the predecessors’ interest in JEH LLC remaining after the reorganization transactions that took place in connection with our initial public offering.
(f) Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to controlling interests by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share takes into account the dilutive effect of potential common stock issued by the Company in conjunction with stock awards that have been granted to directors and employees. On September 4, 2013 (the “grant date”), the Company granted to its directors restricted shares of Class A common stock, which vest on the first anniversary of the grant date. In accordance with ASC 260, Earnings Per Share, awards of nonvested shares shall be considered outstanding as of the grant date for purposes of computing diluted EPS even though their exercise is contingent upon vesting. The following is a calculation of the basic and diluted weighted-average number of shares of Class A common stock outstanding and EPS for the nine months ended September 30, 2013.
| | Nine months ended September 30,
2013 | |
| | Historical Jones
Energy, Inc. | | Pro forma
Jones Energy,
Inc. | |
Income (numerator): | | | | | |
Net income (loss) attributable to controlling interests | | $ | (821 | ) | $ | 7,110 | |
Weighted average shares (denominator): | | | | | |
Basic | | 12,500 | | 12,500 | |
Diluted | | 12,500 | | 12,503 | |
Earnings (loss) per share: | | | | | |
Basic | | $ | (0.07 | ) | $ | 0.57 | |
Diluted | | $ | (0.07 | ) | $ | 0.57 | |
