EXHIBIT 99.3
ENERGY PARTNERS, LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On January 20, 2005, Energy Partners, Ltd. (the Company or EPL) closed
the acquisition of properties and reserves onshore in south Louisiana (the
Acquired Properties) from Castex Energy 1995, L.P. and Castex Energy, Inc.
(Castex) for $146.0 million in cash, after adjustments for the exercise of
preferential rights by third parties and preliminary closing adjustments. The
properties acquired include nine fields, four of which were producing at the
time of the closing through 14 wells, with estimated proved reserves of
approximately 51.2 Bcfe. Also included were interests in 22 exploratory
prospects scheduled to be drilled in 2005.
The following unaudited pro forma condensed consolidated financial
information has been prepared by management utilizing the Company's historical
consolidated financial statements and the historical statement of revenues and
direct operating expenses of the Acquired Properties for the year ended December
31, 2004 with respect to the operating data and as of December 31, 2004 with
respect to the balance sheet data. The unaudited pro forma condensed
consolidated statement of operations gives effect to the acquisition of the
Acquired Properties as if the transaction had occurred on January 1, 2004. The
transaction and the related adjustments are described in the accompanying notes.
The unaudited pro forma condensed consolidated financial information is
presented for illustrative purposes only, and does not purport to be indicative
of the results that would actually have occurred if the transaction 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. The following unaudited pro forma condensed
consolidated financial information should be read in conjunction with the
Company's historical consolidated financial statements and the notes thereto and
the combined statement of revenues and direct operating expenses of certain oil
and natural gas properties acquired and the notes thereto. The unaudited pro
forma condensed consolidated financial information, in the opinion of
management, reflects all adjustments necessary to present fairly the date for
the period presented.
ENERGY PARTNERS, LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2004
(IN THOUSANDS)
<Table>
<Caption>
ACQUIRED
EPL PROPERTIES PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 93,537 $ -- (a) (86,007) $ 7,530
Accounts receivable ........................................... 64,941 -- 64,941
Other current assets .......................................... 4,191 -- 4,191
----------- ----------- -------------
Total current assets ........................................ 162,669 -- 76,662
Property and equipment .......................................... 769,331 -- (a) 146,281 915,612
Less accumulated depreciation, depletion and amortization ....... (304,997) -- (304,997)
----------- ----------- -------------
Net property and equipment .................................. 464,334 -- 610,615
Other assets .................................................... 20,675 -- 20,675
----------- ----------- -------------
$ 647,678 $ -- $ 707,952
=========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................... $ 80,642 $ -- $ 80,642
Fair value of commodity derivative instruments ................. 1,749 -- 1,749
Current maturities of long-term debt ........................... 108 -- 108
----------- ----------- -------------
Total current liabilities .................................... 82,499 -- 82,499
Long-term debt ................................................... 150,109 -- (a) 60,000 210,109
Asset retirement obligation ...................................... 45,064 -- (a) 274 45,338
Other ............................................................ 54,957 -- 54,957
Stockholders' equity:
Preferred stock ................................................ 33,504 -- 33,504
Common stock ................................................... 367 -- 367
Additional paid-in capital ..................................... 296,460 -- 296,460
Accumulated other comprehensive loss ........................... (1,119) -- (1,119)
Retained earnings .............................................. 43,215 -- 43,215
Treasury stock ................................................. (57,378) -- (57,378)
----------- ----------- -------------
Total stockholders' equity ................................... 315,049 -- 315,049
----------- ----------- -------------
$ 647,678 $ -- $ 707,952
=========== =========== =============
</Table>
ENERGY PARTNERS, LTD.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
ACQUIRED
EPL PROPERTIES PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
Revenue:
Oil and natural gas ............................................ $ 294,531 $ 20,203 $ 314,734
Other .......................................................... 679 -- 679
----------- ----------- -----------
295,210 20,203 315,413
Costs and expenses:
Lease operating expenses ....................................... 40,617 2,487 43,104
Taxes, other than on earnings .................................. 9,263 800 10,063
Exploration expenditures ....................................... 35,935 -- 35,935
Depreciation, depletion and amortization ....................... 92,353 -- (b) 8,497 100,850
General and administrative ..................................... 30,974 -- 30,974
----------- ----------- -----------
Total costs and expenses ..................................... 209,142 3,287 220,926
----------- ----------- -----------
Income from operations ........................................... 86,068 16,916 94,487
----------- ----------- -----------
Other income (expense):
Interest income .............................................. 1,219 -- 1,219
Interest expense ............................................. (14,355) -- (c) (1,287) (15,642)
----------- ----------- -----------
(13,136) -- (14,423)
----------- ----------- -----------
Income before income taxes ............................ 72,932 16,916 80,064
Income taxes ..................................................... (26,516) -- (d) (2,307) (28,823)
----------- ----------- -----------
Net income ............................................ 46,416 16,916 51,241
----------- ----------- -----------
Less dividends on preferred stock
and accretion ................................................. (3,399) -- (3,399)
----------- ----------- -----------
Net income available to common stockholders ............ $ 43,017 $ 16,916 $ 47,842
=========== =========== ===========
Basic earnings per share ......................................... $ 1.31 $ 1.46
=========== ===========
Diluted earnings per share ....................................... $ 1.20 $ 1.33
=========== ===========
Weighted average common shares used in Computing income per share:
Basic ..................................................... 32,861 32,861
Incremental common shares ................................. 5,788 5,788
----------- -----------
Diluted ................................................... 38,649 38,649
=========== ===========
</Table>
ENERGY PARTNERS, LTD.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated financial information
has been adjusted to reflect the following:
a. The fair value of the Acquired Properties based on a
preliminary purchase price of $146.0 million before final
closing adjustments. The purchase price was funded using
borrowings of $60.0 million from the Company's bank credit
facility and the remainder was from cash on hand. In
addition, this entry reflects the present value of asset
retirement obligations assumed and a corresponding asset of
approximately $274,000;
b. Incremental depreciation, depletion, and amortization expense
of $8.5 million, using the units-of-production method,
resulting from the acquisition of the Acquired Properties
including accretion expense related to the asset retirement
obligation on the Acquired Properties of $20,616;
c. Interest expense associated with debt of $60.0 million
incurred under the Company's bank credit facility to fund the
purchase price before consideration of final closing
adjustments. The applicable average interest rate on the bank
credit facility was approximately 2.15%;
d. A pro forma income tax provision, assuming a 36% rate.
2. SUPPLEMENTAL PRO FORMA INFORMATION ON OIL AND NATURAL GAS OPERATIONS --
(UNAUDITED)
The following pro forma supplemental information concerning the
Company's proved oil and natural gas reserves is presented pursuant to the
disclosure requirements of Statement of Financial Accounting Standards No. 69
"Disclosures About Oil and Gas Producing Activities." The following tables set
forth the changes in the net quantities of oil and natural gas reserves of the
Company and the Acquired Properties and the combined reserves on a pro forma
basis giving effect to the acquisition as if it had occurred on January 1, 2004.
There are numerous uncertainties inherent in estimating the quantities of proved
reserves and projecting future rates of production and timing of development
expenditures. The following reserve data represents estimates only and should
not be construed as being exact:
PROVED OIL AND NATURAL GAS RESERVES
<Table>
<Caption>
CRUDE OIL (Mbbls)
ACQUIRED
EPL PROPERTIES PRO FORMA
------ ---------- ---------
(IN THOUSANDS)
Proved reserves at January 1, 2004 .................... 27,414 902 28,316
Extensions, discoveries and other additions ......... 3,231 337 3,568
Revisions ........................................... 1,296 70 1,366
Production .......................................... (3,171) (117) (3,288)
------ ---- ------
Proved reserves at December 31, 2004 .................. 28,770 1,192 29,962
====== ===== ======
</Table>
<Table>
<Caption>
NATURAL GAS (Mmcf)
ACQUIRED
EPL PROPERTIES PRO FORMA
------ ---------- ---------
(IN THOUSANDS)
Proved reserves at January 1, 2004 .................... 134,404 34,674 169,078
Extensions, discoveries and other additions ......... 67,049 12,935 79,984
Revisions ........................................... (21,570) (749) (22,319)
Production .......................................... (30,048) (2,306) (32,354)
------- ------ -------
Proved reserves at December 31, 2004 .................. 149,835 44,554 194,389
======= ====== =======
</Table>
ENERGY PARTNERS, LTD.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION--(CONTINUED)
The following table sets forth the components of the changes in the
Standardized Measure of discounted future net cash flows from proved oil and
natural gas reserves of the Company, the Acquired Properties and on a combined
pro forma basis for the year ended December 31, 2004. Cash flows relating to the
Acquired Properties are based on our evaluation of reserves and on information
provided by Castex. The information should be viewed only as a form of
standardized disclosure concerning possible future cash flows that would result
under the assumptions used, but should not be viewed as indicative of fair
market value. Reference is made to the Company's financial statements for the
fiscal year ended December 31, 2004 included in its Form 10-K for a discussion
of the assumptions used in preparing the information presented. The December 31,
2004 computation for the Acquired Properties was based on period-end prices of
$6.60 per Mcf for natural gas and $42.46 per barrel for crude oil.
The standardized measure of discounted future net cash flows relating
to proved oil and natural gas reserves is as follows:
<Table>
<Caption>
ACQUIRED
EPL PROPERTIES PRO FORMA
----------- ----------- -----------
(IN THOUSANDS)
Future cash inflows .............................................................. $ 2,136,571 $ 354,137 $ 2,490,708
Future production costs ........................................................ (570,552) (42,990) (613,542)
Future development and abandonment costs ....................................... (294,936) (21,350) (316,286)
Future income tax expense ...................................................... (358,421) (53,426) (411,847)
----------- ----------- -----------
Future net cash flows after income taxes ......................................... 912,662 236,371 1,149,033
10% annual discount for estimated timing of cash flows ........................... (244,994) (73,198) (318,192)
----------- ----------- -----------
Standardized measure of discounted future net cash flows ......................... $ 667,668 $ 163,173 $ 830,841
=========== =========== ===========
</Table>
A summary of the changes in the standardized measure of discounted
future net cash flows applicable to proved oil and natural gas reserves is as
follows:
<Table>
<Caption>
ACQUIRED
EPL PROPERTIES PRO FORMA
----------- ----------- -----------
(IN THOUSANDS)
As of December 31, 2003 .......................................................... $ 529,415 $ 114,235 $ 643,650
Sales and transfers of oil and natural gas produced, net of production costs ..... (247,007) (16,916) (263,923)
Net changes in prices and production costs ....................................... 140,169 18,579 158,748
Extensions, discoveries and improved recoveries, net of future production costs .. 270,223 49,980 320,203
Revision of quantity estimates ................................................... (50,384) (1,339) (51,723)
Previously estimated development costs incurred during the period ................ 55,893 376 56,269
Changes in estimated future development costs .................................... (7,300) 3,670 (3,630)
Changes in production rates (timing) and other ................................... (8,819) 7,189 (1,630)
Accretion of discount ............................................................ 70,124 12,540 82,664
Net change in income taxes ....................................................... (84,646) (25,141) (109,787)
----------- ----------- -----------
Net increase ..................................................................... 138,253 48,938 187,191
----------- ----------- -----------
As of December 31, 2004 .......................................................... $ 667,668 $ 163,173 $ 830,841
=========== =========== ===========
</Table>