Attached files
Exhibit 99.2
REX ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009 AND
SIX MONTHS ENDED JUNE 30, 2010
Introduction
On September 30, 2010, Rex Energy Corporation (the “Company”) completed the previously announced Marcellus Shale joint venture transaction with Summit as contemplated by the Participation and Exploration Agreement (the “Closing”). After final adjustments made during the due diligence period, Rex sold approximately 13,000 net acres and a partial interest in certain producing Marcellus Shale wells and associated mid-stream assets. At Closing, Sumitomo paid approximately $99.5 million in cash to Rex, including a reimbursement for leasing expenses incurred to date in the amount of approximately $7.6 million. Additionally, the cash payment included a reimbursement for drilling related expenses incurred to date in the amount of approximately $7.5 million, which was applied against the drilling carry. As of the Closing, the remaining drilling carry balance was approximately $51.2 million, which will be used to cover 80% of Rex’s costs to drill and complete additional Marcellus Shale wells within the areas of mutual interest.
The adjustments presented in the unaudited pro forma Consolidated Balance Sheet are based on currently available information and certain estimates and assumptions. Therefore, actual results may differ from the pro forma adjustments. However, management believes that the estimates and assumptions used provide a reasonable basis for presenting the significant effects of the transaction. Management also believes the pro forma adjustments give appropriate effect to the estimates and assumptions and are applied in conformity with U.S. generally accepted accounting principles.
The following unaudited pro forma consolidated financial statements and accompanying notes present the financial statements of the company assuming the transaction occurred as of June 30, 2010 with respect to the Consolidated Balance Sheet and as of January 1, 2009 with respect to the Consolidated Statements of Operations for the six months ended June 30, 2010 and the year ended December 31, 2009.
REX ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
($ in Thousands, Except Per Share Data)
| June 30, 2010 | ||||||||||||
| Rex Energy Corporation Historical |
Pro Forma Adjustments |
Rex Energy Corporation Pro Forma |
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| ASSETS |
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| Current Assets |
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| Cash and Cash Equivalents |
$ | 13,378 | $ | 44,229 | (a) | $ | 57,607 | |||||
| Accounts Receivable |
8,068 | — | 8,068 | |||||||||
| Short-Term Derivative Instruments |
3,943 | — | 3,943 | |||||||||
| Inventory, Prepaid Expenses and Other |
1,553 | (17 | ) (b) | 1,536 | ||||||||
| Total Current Assets |
26,942 | 44,212 | 71,154 | |||||||||
| Property and Equipment (Successful Efforts Method) |
||||||||||||
| Evaluated Oil and Gas Properties |
226,235 | (7,758 | ) (c) | 218,477 | ||||||||
| Unevaluated Oil and Gas Properties |
112,876 | (56,989 | ) (c) | 55,887 | ||||||||
| Other Property and Equipment |
41,441 | (1,309 | ) (c) | 40,132 | ||||||||
| Wells and Facilities in Progress |
42,280 | (16,124 | ) (b)(c) | 26,156 | ||||||||
| Pipelines |
5,162 | (1,748 | ) (b) | 3,414 | ||||||||
| Total Property and Equipment |
427,994 | (83,928 | ) | 344,066 | ||||||||
| Less: Accumulated Depreciation, Depletion and Amortization |
(84,884 | ) | 1,280 | (b)(c) | (83,604 | ) | ||||||
| Net Property and Equipment |
343,110 | (82,648 | ) | 260,462 | ||||||||
| Other Assets – Net |
1,975 | 30,555 | (d) | 32,530 | ||||||||
| Intangible Assets – Net |
993 | — | 993 | |||||||||
| Investment in RW Gathering |
4,108 | 5,972 | (e) | 10,080 | ||||||||
| Long-Term Derivative Instruments |
3,179 | — | 3,179 | |||||||||
| Total Assets |
$ | 380,307 | $ | (1,909 | ) | $ | 378,398 | |||||
| LIABILITIES AND EQUITY |
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| Current Liabilities |
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| Accounts Payable |
$ | 10,287 | $ | 3,255 | (b)(f) | $ | 13,542 | |||||
| Accrued Expenses |
9,460 | (1 | ) (b) | 9,459 | ||||||||
| Short-Term Derivative Instruments |
2,108 | — | 2,108 | |||||||||
| Current Deferred Tax Liability |
345 | — | 345 | |||||||||
| Total Current Liabilities |
22,200 | 3,254 | 25,454 | |||||||||
| Senior Secured Line of Credit and Long-Term Debt |
15,035 | (15,000 | ) (g) | 35 | ||||||||
| Long-Term Deferred Tax Liability |
5,146 | 9,155 | (h) | 14,301 | ||||||||
| Other Deposits and Liabilities |
4,504 | — | 4,504 | |||||||||
| Future Abandonment Cost |
16,639 | (25 | ) (c) | 16,614 | ||||||||
| Total Liabilities |
63,524 | (2,616 | ) | 60,908 | ||||||||
| Owners’ Equity |
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| Common Stock, $.001 par value per share, 100,000,000 and 44,049,533 shares issued and outstanding on June 30, 2010. |
44 | — | 44 | |||||||||
| Additional Paid-In Capital |
373,520 | — | 373,520 | |||||||||
| Accumulated Deficit |
(72,632 | ) | 16,284 | (i) | (56,348 | ) | ||||||
| Rex Energy Owners’ Equity |
300,932 | 16,284 | 317,216 | |||||||||
| Noncontrolling Interests |
15,851 | (15,577 | ) (b) | 274 | ||||||||
| Total Owners’ Equity |
316,783 | 707 | 317,490 | |||||||||
| Total Liabilities and Owners’ Equity |
$ | 380,307 | $ | (1,909 | ) | $ | 378,398 | |||||
REX ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
($ in Thousands, Except Per Share Data)
| June 30, 2010 | ||||||||||||
| Rex Energy Corporation Historical |
Pro Forma Adjustments |
Rex Energy Corporation Pro Forma |
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| Operating Revenues: |
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| Oil and Natural Gas Sales |
$ | 32,048 | $ | (1,225 | ) (j) | $ | 30,823 | |||||
| Other Revenue |
396 | — | 396 | |||||||||
| Total Operating Revenues |
32,444 | (1,225 | ) | 31,219 | ||||||||
| Operating Expenses: |
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| Production and Lease Operating Expense |
11,711 | (261 | ) (k) | 11,450 | ||||||||
| General and Administrative |
8,735 | (113 | ) (l) | 8,622 | ||||||||
| Impairment Expense |
1,148 | (951 | ) (m) | 197 | ||||||||
| Gain on Disposal of Assets |
(7 | ) | — | (r) | (7 | ) | ||||||
| Exploration Expense |
3,446 | (770 | ) (n) | 2,676 | ||||||||
| Depletion, Depreciation, Amortization and Accretion |
10,232 | (518 | ) (o) | 9,714 | ||||||||
| Other Operating Expense |
566 | (69 | ) (b) | 497 | ||||||||
| Total Operating Expenses |
35,831 | (2,682 | ) | 33,149 | ||||||||
| Income (Loss) From Operations |
(3,387 | ) | 1,457 | (1,930 | ) | |||||||
| Other Income (Expense): |
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| Interest Income |
51 | (9 | ) (b) | 42 | ||||||||
| Interest Expense |
(331 | ) | 331 | (p) | — | |||||||
| Gain on Derivatives, net |
8,053 | — | 8,053 | |||||||||
| Other Expense |
(159 | ) | — | (159 | ) | |||||||
| Total Other Income |
7,614 | 322 | 7,936 | |||||||||
| Income from Continuing Operations Before Income Taxes |
4,227 | 1,779 | 6,006 | |||||||||
| Income Tax Expense |
(1,424 | ) | (599 | ) (q) | (2,023 | ) | ||||||
| Net Income |
2,803 | 1,180 | 3,983 | |||||||||
| Net Loss Attributable to Noncontrolling Interests |
120 | (113 | ) (b) | 7 | ||||||||
| Net Income Attributable to Rex Energy |
$ | 2,923 | $ | 1,067 | $ | 3,990 | ||||||
| Earnings per common share: |
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| Basic – income from continuing operations attributable to Rex common shareholders |
$ | 0.07 | $ | 0.09 | ||||||||
| Basic – weighted average shares of common stock outstanding |
43,082 | 43,082 | ||||||||||
| Diluted – income from continuing operations attributable to Rex common shareholders |
$ | 0.07 | $ | 0.09 | ||||||||
| Diluted – weighted average shares of common stock outstanding |
43,188 | 43,188 | ||||||||||
REX ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
($ in Thousands, Except Per Share Data)
| December 31, 2009 | ||||||||||||
| Rex Energy Corporation Historical |
Pro Forma Adjustments |
Rex Energy Corporation Pro Forma |
||||||||||
| Operating Revenues: |
||||||||||||
| Oil and Natural Gas Sales |
$ | 48,534 | $ | (939 | ) (j) | $ | 47,595 | |||||
| Other Revenue |
157 | — | 157 | |||||||||
| Total Operating Revenues |
48,691 | (939 | ) | 47,752 | ||||||||
| Operating Expenses: |
||||||||||||
| Production and Lease Operating Expense |
22,157 | (271 | ) (k) | 21,886 | ||||||||
| General and Administrative |
15,858 | (77 | ) (l) | 15,781 | ||||||||
| Impairment Expense |
1,625 | (1,173 | ) (m) | 452 | ||||||||
| Loss on Disposal of Assets |
427 | — | (r) | 427 | ||||||||
| Exploration Expense |
2,080 | (406 | ) (n) | 1,674 | ||||||||
| Depletion, Depreciation, Amortization and Accretion |
25,205 | (744 | ) (o) | 24,461 | ||||||||
| Total Operating Expenses |
67,352 | (2,671 | ) | 64,681 | ||||||||
| Income (Loss) From Operations |
(18,661 | ) | 1,732 | (16,929 | ) | |||||||
| Other Income (Expense): |
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| Interest Income |
7 | — | 7 | |||||||||
| Interest Expense |
(833 | ) | 833 | (p) | — | |||||||
| Loss on Derivatives, net |
(7,913 | ) | — | (7,913 | ) | |||||||
| Other Expense |
(170 | ) | — | (170 | ) | |||||||
| Total Other Income (Expense) |
(8,909 | ) | 833 | (8,076 | ) | |||||||
| Loss from Continuing Operations Before Income Taxes |
(27,570 | ) | 2,565 | (25,005 | ) | |||||||
| Income Tax Benefit |
11,002 | (1,023 | ) (q) | 9,979 | ||||||||
| Loss from Continuing Operations |
(16,568 | ) | 1,542 | (15,026 | ) | |||||||
| Income from Discontinued Operations, Net of Income Taxes |
323 | — | 323 | |||||||||
| Net Loss |
(16,245 | ) | 1,542 | (14,703 | ) | |||||||
| Net Loss Attributable to Noncontrolling Interests |
12 | — | 12 | |||||||||
| Net Loss Attributable to Rex Energy |
$ | (16,233 | ) | $ | 1,542 | $ | (14,691 | ) | ||||
| Earnings per common share: |
||||||||||||
| Basic and diluted – loss from continuing operations attributable to Rex common shareholders |
$ | (0.45 | ) | $ | (0.41 | ) | ||||||
| Basic and diluted – income from discontinued operations attributable to Rex common shareholders |
0.01 | 0.01 | ||||||||||
| Net loss attributable to Rex common shareholders |
$ | (0.44 | ) | $ | (0.40 | ) | ||||||
| Basic and diluted – weighted average shares of common stock outstanding |
36,806 | 36,806 | ||||||||||
REX ENERGY CORPORATION
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Basis of Presentation
The historical Consolidated Financial Statements as of June 30, 2010 are derived from and should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2009, filed on March 3, 2010, and Form 10-Q for the six months ended June 30, 2010, which was filed on August 4, 2010.
The pro forma adjustments in the accompanying Consolidated Balance Sheet have been prepared as if the Closing of the Marcellus Shale joint venture with Summit was completed on June 30, 2010. The pro forma adjustments in the accompanying Consolidated Statements of Operations have been prepared as if the Closing of the Marcellus Shale joint venture with Summit was completed on January 1, 2009. The pro forma Consolidated Financial Statements do not contend to be indicative of the financial position or results of the Company’s operations as of such dates or for such periods, nor are they necessarily indicative of future results.
At Closing, the Company sold 30% of its interest in Keystone Midstream Services, LLC (“Keystone Midstream”), which decreased Rex’s interest from 40% to 28%. As a result, Rex is no longer considered the primary beneficiary of Keystone Midstream and is no longer required to consolidate the financial results of the entity. As such, the pro forma financial statements give effect to the change from consolidation to equity method accounting for Keystone Midstream.
2. Pro Forma Adjustments and Assumptions
The unaudited pro forma Consolidated Financial Statements gives pro forma effect to the following:
| (a) | Reflects the cash received upon the Closing of the Marcellus Shale joint venture with Summit, excluding amounts anticipated to be held as restricted cash and amounts used to pay down debt obligations. This adjustment also gives effect to the anticipated deconsolidation of Keystone Midstream. |
| (b) | Reflects amounts previously consolidated in association with Keystone Midstream. |
| (c) | Reflects adjustments to assets and liabilities sold to Summit. |
| (d) | Reflects amounts held in restricted cash that were received at Closing and deposited into a like-kind exchange account. |
| (e) | Reflects the change to equity method accounting for Keystone Midstream in addition to the sale of a 20% interest in RW Gathering, LLC to Summit. |
| (f) | As a result of a closing on June 30, 2010, the Company would anticipate AMT tax due of approximately $824,000. |
| (g) | Reflects the repayment of outstanding debt under the Senior Credit Facility. |
| (h) | Reflects an increase in the Deferred Tax Liability as a result of the proceeds received from Summit. |
| (i) | Reflects a decrease in Accumulated Deficit due to gains recognized at Closing and adjustments to the tax provision. |
| (j) | Reflects Summit’s share of natural gas and natural gas liquids revenue for Marcellus Shale operations during the stated period. |
| (k) | Reflects Summit’s share of Production and Lease Operating Expense in the joint venture areas. Also includes additional lease operating expense recognized due to the change in equity method accounting for Keystone Midstream. |
| (l) | Reflects overhead fees paid by Summit to Rex in accordance with the joint operating agreement. Also represents decreases representative of the deconsolidation of Keystone Midstream. |
| (m) | Reflects the anticipated impact on impairment evaluations due to the lower cost basis of undeveloped acreage. |
| (n) | Reflects Summit share of geological and geophysical expenditures. |
| (o) | Decrease reflects the lower working and net revenue interest owned by Rex in Marcellus Shale wells jointly owned with Summit. |
| (p) | Reflects the anticipated impact on interest expense taking into account the cash received at Closing and in addition to the drilling carry to be funded by Summit. |
| (q) | Reflects the tax effect of the transaction with Summit calculated at the statutory rate in effect during the stated period. |
| (r) | No consideration has been given to the gain on sale expected to result from the Summit joint venture. The gain is expected to be nonrecurring and will be included in net income within 12 months succeeding the Closing. |