Exhibit 99.3
LongPoint Minerals II, LLC and Subsidiary
Unaudited Consolidated Financial Statements
as of March 31, 2023
and for the three months ended March 31, 2023 and 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | PAGE |
| | |
| Consolidated Balance Sheets – March 31, 2023 and December 31, 2022 | 2 |
| | |
| Consolidated Statements of Operations – For the Three Months Ended March 31, 2023 and 2022 | 3 |
| | |
| Consolidated Statements of Members’ Equity – For the Three Months Ended March 31, 2023 and 2022 | 4 |
| | |
| Consolidated Statements of Cash Flows – For the Three Months Ended March 31, 2023 and 2022 | 5 |
| | |
| Notes to Consolidated Financial Statements | 6 |
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
| | | March 31,
2023 | | | December 31,
2022 | |
| ASSETS | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 34,668 | | | $ | 16,453 | |
| Accrued oil and gas sales and other | | | 8,107 | | | | 11,516 | |
| Prepaid expenses and other current assets | | | 15 | | | | 30 | |
| Total current assets | | | 42,790 | | | | 27,999 | |
| Property and Equipment, at cost: | | | | | | | | |
| Oil and gas, on the basis of full cost method of accounting: | | | | | | | | |
| Proved properties | | | 301,833 | | | | 297,164 | |
| Unproved properties | | | 331,548 | | | | 336,217 | |
| Accumulated depletion | | | (37,121 | ) | | | (34,500 | ) |
| Total oil and gas properties, net | | | 596,260 | | | | 598,881 | |
| | | | | | | | | |
| Total Assets | | $ | 639,050 | | | $ | 626,880 | |
| LIABILITIES AND MEMBERS’ EQUITY | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 1,574 | | | $ | 1,664 | |
| | | | | | | | | |
| Commitments and Contingencies (Note 2) | | | | | | | | |
| | | | | | | | | |
| Members’ Equity: | | | | | | | | |
| Members’ equity, net of placement fees of $13,893 for both periods | | | 637,476 | | | | 625,216 | |
| | | | | | | | | |
| Total Liabilities and Members’ Equity | | $ | 639,050 | | | $ | 626,880 | |
See accompanying notes to these consolidated financial statements.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
| | | For the Three Months Ended
March 31, | |
| | | 2023 | | | 2022 | |
| Revenues: | | | | | | | | |
| Oil and gas sales | | $ | 17,852 | | | $ | 20,772 | |
| Lease bonuses | | | 16,825 | | | | 31 | |
| Total revenues | | | 34,677 | | | | 20,803 | |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | |
| Transportation and transmission | | | 713 | | | | 687 | |
| Severance and other taxes | | | 1,060 | | | | 1,165 | |
| Depletion | | | 2,621 | | | | 2,422 | |
| General and administrative | | | 1,103 | | | | 1,103 | |
| Total operating expenses | | | 5,497 | | | | 5,377 | |
| | | | | | | | | |
| Operating income | | | 29,180 | | | | 15,426 | |
| | | | | | | | | |
| Other Income (Expense): | | | | | | | | |
| Financing costs | | | (65 | ) | | | - | |
| Other income, net | | | 135 | | | | 307 | |
| Total other income, net | | | 70 | | | | 307 | |
| Income Before texas margin tax | | | 29,250 | | | | 15,733 | |
| Texas margin tax expense | | | 121 | | | | 53 | |
| Net income | | $ | 29,129 | | | $ | 15,680 | |
See accompanying notes to these consolidated financial statements.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(unaudited, in thousands)
| | | CLASS A | | | CLASS B | | | Total | |
| Balances, January 1, 2022 | | $ | 2,288 | | | $ | 627,537 | | | $ | 629,825 | |
| Net income | | | 55 | | | | 15,625 | | | | 15,680 | |
| Members’ distributions | | | (50 | ) | | | (14,120 | ) | | | (14,170 | ) |
| | | | | | | | | | | | | |
| Balances, March 31, 2022 | | $ | 2,293 | | | $ | 629,042 | | | $ | 631,335 | |
| | | | | | | | | | | | | |
| Balances, January 1, 2023 | | $ | 2,272 | | | $ | 622,944 | | | $ | 625,216 | |
| | | | | | | | | | | | | |
| Net income | | | 102 | | | | 29,027 | | | | 29,129 | |
| Members’ distributions | | | (59 | ) | | | (16,810 | ) | | | (16,869 | ) |
| | | | | | | | | | | | | |
| Balances, March 31, 2023 | | $ | 2,315 | | | $ | 635,161 | | | $ | 637,476 | |
See accompanying notes to these consolidated financial statements.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| | | For the Three Months Ended
March 31, | |
| | | 2023 | | | 2022 | |
| Cash Flows from Operating Activities: | | | | | | | | |
| Net income | | $ | 29,129 | | | $ | 15,680 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Depletion | | | 2,621 | | | | 2,422 | |
| Effect of changes in current assets and liabilities: | | | | | | | | |
| Accrued oil and gas sales, and other | | | 3,409 | | | | (2,381 | ) |
| Prepaid expenses and other current assets | | | 15 | | | | 13 | |
| Accounts payable and accrued expenses | | | (90 | ) | | | 230 | |
| Net cash provided by operating activities | | | 35,084 | | | | 15,964 | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Member distributions | | | (16,869 | ) | | | (14,170 | ) |
| Net cash used in financing activities | | | (16,869 | ) | | | (14,170 | ) |
| Net Increase In Cash and Cash Equivalents | | | 18,215 | | | | 1,794 | |
| Cash and Cash Equivalents, beginning of period | | | 16,453 | | | | 13,790 | |
| Cash and Cash Equivalents, end of period | | $ | 34,668 | | | $ | 15,584 | |
See accompanying notes to these consolidated financial statements.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Business and Summary of Significant Accounting Policies: |
Business – LongPoint Minerals II, LLC and its wholly owned subsidiary, Cherry Creek Minerals, LLC (collectively, the “Company” or “LongPoint II”) is a Colorado Limited Liability Company focused on acquiring mineral and royalty interests primarily in the Mid-Continent and Permian Basins.
LongPoint II does not have employees but rather entered into a “Services Agreement” with LongPoint Operating, LLC (“LongPoint Operating”) to provide all requisite management, technical and administrative support services. LongPoint Operating is a holding company which is owned by the Chief Executive Officer of LongPoint II. LongPoint Operating has entered into a Services Agreement with FourPoint Energy, LLC (“FourPoint”) to provide the services required under the LongPoint II/ LongPoint Operating Services Agreement. FourPoint employs the necessary people to perform the services required under the Services Agreement. During the three months ended March 31, 2023 and 2022, LongPoint II was assessed an agreed upon balance of General and Administrative costs by FourPoint as payment for the services provided.
Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These consolidated interim financial statements (the “financial statements)” reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective interim periods. Certain information and note disclosures normally included in the Company's annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted from these financial statements, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended December 31, 2022. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated annual financial statements for the year ended December 31, 2022.
Significant Accounting Policies – For a description of LongPoint II’s significant accounting policies, see Note 1 of the consolidated financial statements included in the Company’s 2022 audited financial statements. There have been no changes to the policies or the application of such policies during the three months ended March 31, 2023.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation – The accompanying financial statements are consolidated and include the accounts of the Company and its subsidiary. All intercompany amounts have been eliminated in consolidation.
Disaggregation of Income
The following table disaggregates the Company’s total oil and gas sales by product type:
| | | | For the Three Months
Ended March 31, | |
| | | | 2023 | | | 2022 | |
| | Gas sales | | $ | 3,720 | | | $ | 5,371 | |
| | Oil sales | | | 10,642 | | | | 11,188 | |
| | Natural gas liquids sales | | | 3,490 | | | | 4,213 | |
| | Oil and gas sales | | | 17,852 | | | | 20,772 | |
Concentrations of Credit Risk – The Company regularly has cash in a single financial institution which exceeds federal depository insurance limits. The Company places such deposits with high credit quality institutions and has not experienced any credit losses. The Company is subject to credit risk related to oil and gas receivables due from operators related to sale of hydrocarbons produced from properties in which LongPoint II owns a mineral or overriding royalty interest. For the three-month period ended March 31, 2023, 14%, 13% and 13% of LongPoint II’s oil and gas revenues related to the operations of ConocoPhillips Company, Apache Corporation and CP Exploration III Operating LLC, respectively. No other operators provided more than 10% of the Company’s revenues during the period. For the three months ended March 31, 2022, 13%, 11% and 11% of LongPoint II’s oil and gas revenues related to the operations of CP Exploration III Operating LLC, Continental Resources, Inc. and EOG Resources, Inc., respectively. No other operators provided more than 10% of the Company’s revenues during the period.
Fair Value of Financial Instruments – The Company’s financial instruments consist of cash equivalents and trade payables. The carrying value of these financial instruments are considered to be representative of their fair market value, due to the short-term maturity of these instruments.
Accounting for Oil and Gas Operations – The Company uses the full cost method of accounting for its oil and gas properties. Under this method, all costs related to acquisition, exploration and development of oil and gas properties are capitalized to the full cost pool. The Company’s oil and gas properties are comprised of only mineral and overriding royalty interests, as such, the Company has not incurred any exploration or development costs. Proceeds from the disposition of oil and gas properties are accounted for as adjustments to the full cost pool, with no gain or loss recognized unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depletion of capitalized costs of oil and gas properties is provided for using the units of production method based upon estimates of proved oil and gas reserves. In calculating depletion, the volume of proved oil and gas reserves and production is converted into a common unit of measure at the energy equivalent conversion rate of six thousand cubic feet of natural gas to one barrel of oil. Depletion expense for the three-month periods ended March 31, 2023 and 2022 was $2.6 million ($5.84 per barrel of oil equivalent) and $2.4 million ($6.10 per barrel of oil equivalent), respectively
Recently Adopted Accounting Standards - In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. In May 2019, ASU 2016-13 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses and ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. ASU 2016-13, as amended, applies to trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The Company adopted this update effective January 1, 2023. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity since it does not have a history of, or material exposure to, credit losses.
| 2. | Commitments and Contingencies: |
Legal Proceedings - The Company may from time to time be involved in various legal actions arising in the normal course of business or from activities associated with properties prior to their acquisition by the Company. In the opinion of management, the Company’s liability, if any, in these pending actions would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Lease Commitments – The Company is not subject to any lease commitments. As of March 31, 2023, all leases incurred in the ordinary course of business were held by FourPoint and LongPoint II receives the benefit of such leases under the “Services Agreement” with LongPoint Operating.
Capitalization and Distributions – LongPoint II is a Colorado limited liability company with membership interests owned by a group of investor members (the “Investor Members”) and LongPoint Holdings, LLC, a Colorado limited liability company (“Holdings”).
During the three months ended March 31, 2023 and 2022, the Company made distributions to the Investor Members and Holdings of $16.5 million and $13.8 million, respectively.
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The state of Oklahoma requires operators to withhold 5% of all production revenues associated with royalty interests held by non-residents of Oklahoma to be offset against state income taxes. Similarly, the state of New Mexico requires operators to withhold 4.9% of all production revenues associated with all interests held by non-residents. As LongPoint II is not subject to income taxes as a limited liability company, the tax liability associated with the operations of LongPoint II is the responsibility of the Investor Members and Holdings. As such, the balance of the state withholdings has been reflected as an equity distribution. The total distributions attributable to state withholdings in the three months ended March 31, 2023 and 2022 were $0.4 million for both periods.
| 4. | Related Party Transactions: |
LongPoint II incurred total fees of $0.9 million related to the Services Agreement with LongPoint Operating during both three-month periods ended March 31, 2023 and 2022. These fees are reflected in “General and administrative” line in the statements of operations. At March 31, 2023 and December 31, 2022, $0.3 million was due to LongPoint Operating, at each period and is reflected in “Accounts payable and accrued expenses” in the accompanying balance sheets.
NorthPoint, an entity owned by an officer of the Company, owns or has certain rights to (i) third party software, (ii) propriety information and data and (iii) furniture, fixtures and equipment and other personal property located at the current office space utilized by FourPoint Energy. The Company has entered into a Usage Agreement with NorthPoint for the use of these assets. LongPoint incurred $0.1 million of fees related to the Usage Agreement in both of the three-month periods ended March 31, 2023 and 2022. No balance was due to NorthPoint at March 31, 2023 and December 31, 2022.
The Company has evaluated events through August 1, 2023, the date these financial statements were issued. In April and May 2023, the Company issued distributions of $16.8 million and $17.9 million, respectively, to the Investor Members and Holdings.
In May 2023, the Committee of Managers launched a process to market the mineral and royalty assets of LongPoint II for sale. As a result of the marketing process, in July 2023 the Committee of Managers informed management that it had selected an offer from a bidder for total cash consideration of $455.0 million for all of the issued and outstanding membership interests of Cherry Creek Minerals, LLC. Cherry Creek Minerals, LLC holds all of the mineral and royalty interests of the Company. The purchase agreement with respect to the transaction is anticipated to be executed in early August 2023.
