Attached files
file | filename |
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8-K - FORM 8-K - Crestwood Midstream Partners LP | h80626e8vk.htm |
EX-23.1 - EX-23.1 - Crestwood Midstream Partners LP | h80626exv23w1.htm |
EX-99.1 - EX-99.1 - Crestwood Midstream Partners LP | h80626exv99w1.htm |
Exhibit 99.2
UNAUDITED CRESTWOOD MIDSTREAM PARTNERS LP PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
References to we, us or our, refer to Crestwood Midstream Partners LP and its subsidiaries
(CMLP). On February 18, 2011, Crestwood Midstream Partners LP and Frontier Gas Services, LLC
(Frontier Gas) entered into a Purchase and Sale Agreement (the Transaction Agreement). Pursuant
to the Transaction Agreement, CMLP has agreed to purchase certain midstream assets in the Fayetteville
Shale (the Fayetteville assets) and the Granite Wash plays (the
Granite Wash assets) from Frontier
Gas (collectively, the Frontier Gas Acquisition or the Frontier Assets). Under the terms of the
Transaction Agreement, the aggregate purchase price in connection with the Frontier Gas Acquisition
will be approximately $338 million, with an additional $15 million to be paid to Frontier Gas if
certain operational objectives are met within six months of the closing date. The final purchase
price is payable in cash and CMLP expects to finance the purchase through a combination of equity
and debt as described below.
Frontier Gas, headquartered in Tulsa, Oklahoma, is a privately-held midstream energy services
company engaged in the gathering, compression, processing, treating and marketing of natural gas
and natural gas liquids.
The Fayetteville assets consist of approximately 127 miles of high pressure and low pressure
gathering pipelines in Arkansas with capacity of approximately 510 MMcfd, treating capacity of
approximately 165 MMcfd and approximately 35,000 hp of compression. The Fayetteville assets
interconnect with multiple interstate pipelines which serve the Fayetteville Shale and are
supported by long-term, fixed-fee contracts with producers who have dedicated approximately 100,000
acres in the core of the Fayetteville Shale to Frontier Gas. These
contracts have initial terms that extend through 2020 with a five
year extension.
The Granite Wash
assets consist of a 28 mile pipeline system and a 36 MMcfd cryogenic processing
plant in the Texas Panhandle. This area has emerged as a liquids-rich natural gas play
with active drilling programs and the Granite Wash assets are supported by long-term
contracts.
We plan to install a second processing plant with 60 MMcfd of capacity to support growth in
volumes from this
region by the end of 2011.
In connection with the consummation of the Frontier Gas Acquisition, we anticipate entering
into the following additional financing transactions:
| the issuance of approximately 6.2 million units of new Class C limited partner interests, issued at a price of $24.50 per unit to certain institutional investors through a private placement transaction, resulting in gross proceeds of approximately $153 million; and |
| the incurrence of $200 million aggregate principal amount of indebtedness. |
For purposes of the unaudited pro forma condensed consolidated financial statements, these
additional financing transactions are part of the Frontier Gas
Acquisition.
Consummation of the Frontier Gas Acquisition is subject to a number of conditions, including
the absence of any material adverse effect on Frontier Gas and the receipt of certain regulatory
approvals.
Upon closing of the Frontier Gas Acquisition, the assets, liabilities and operations of the
Frontier Assets, except for certain working capital, other liabilities and members equity, will be
acquired by CMLP. The acquisition will be accounted for using the purchase method of accounting.
The final purchase price allocation is pending the finalization of appraisal valuations of certain
tangible and intangible assets acquired, which may result in an adjustment to the preliminary
purchase price allocation.
The unaudited pro forma condensed consolidated financial statements present the impact on our
financial position and results of operations of our acquisition of the Frontier Assets. The
unaudited pro forma condensed consolidated financial statements as of and for the year ended
December 31, 2010 have been prepared based on
certain pro forma adjustments to the financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2010 and are qualified in their entirety by reference to
such historical consolidated financial statements and related notes contained therein. The
unaudited pro forma condensed consolidated financial statements should be read in conjunction with
the accompanying notes.
The unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 has been
prepared as if the Frontier Gas Acquisition occurred on that date. The unaudited pro forma
condensed consolidated statement of income for the year ended December 31, 2010 has been prepared
as if the Frontier Gas Acquisition occurred on January 1, 2010.
The pro forma adjustments are based upon currently available information and certain estimates
and assumptions. Therefore, actual adjustments will differ from the pro forma adjustments, and the
differences may be material. Management believes, however, that the assumptions provide a
reasonable basis for presenting the significant effects of the Frontier Gas Acquisition as
contemplated, and that the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements may not be indicative of the
results that actually would have occurred if we had owned the Frontier Assets during the periods
presented.
CRESTWOOD MIDSTREAM PARTNERS LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2010
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2010
(In thousands, except for unit amounts)
Crestwood | ||||||||||||||||||||
Crestwood | Midstream | |||||||||||||||||||
Midstream | Frontier Gas | Pro Forma | Partners LP | |||||||||||||||||
Partners LP | Services LLC | Adjustments | Pro Forma | |||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 2 | $ | 2,083 | $ | (2,083 | ) | (a) | $ | 2 | ||||||||||
346,500 | (b)(c) | |||||||||||||||||||
(338,000 | ) | (d) | ||||||||||||||||||
(8,500 | ) | (f) | ||||||||||||||||||
Accounts receivable |
1,679 | 11,328 | (11,328 | ) | (a) | 1,679 | ||||||||||||||
Accounts receivable - related party |
23,003 | | | 23,003 | ||||||||||||||||
Prepaid expenses and other |
1,052 | 899 | (899 | ) | (a) | 1,802 | ||||||||||||||
750 | (d)(e) | |||||||||||||||||||
Total current assets |
25,736 | 14,310 | (13,560 | ) | 26,486 | |||||||||||||||
Property, plant and equipment, net |
531,371 | 141,622 | (141,622 | ) | (a) | 715,342 | ||||||||||||||
183,971 | (d) | | ||||||||||||||||||
Intangible assets, net |
| 21,926 | (21,926 | ) | (a) | 121,200 | ||||||||||||||
121,200 | (d) | |||||||||||||||||||
Goodwill |
| | 52,160 | (d) | 52,160 | |||||||||||||||
Other assets |
13,520 | 1,009 | (1,009 | ) | (a) | 19,485 | ||||||||||||||
365 | (d)(e) | |||||||||||||||||||
5,600 | (c) | |||||||||||||||||||
Total assets |
$ | 570,627 | $ | 178,867 | $ | 185,179 | $ | 934,673 | ||||||||||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of capital leases |
$ | | $ | 2,468 | $ | (2,468 | ) | (a) | $ | 2,566 | ||||||||||
2,566 | (d)(e) | |||||||||||||||||||
Accounts payable - related party |
4,267 | 59 | (59 | ) | (a) | 4,267 | ||||||||||||||
Accrued additions to property,
plant and equipment |
11,309 | | | 11,309 | ||||||||||||||||
Accounts payable and other Total
current liabilities |
2,917 | 7,482 | (7,482 | ) | (a) | 2,917 | ||||||||||||||
18,493 | 10,009 | (7,443 | ) | 21,059 | ||||||||||||||||
Long-term debt |
283,504 | 6,000 | (6,000 | ) | (a) | 483,504 | ||||||||||||||
200,000 | (c) | |||||||||||||||||||
Capital leases |
| 6,377 | (6,377 | ) | (a) | 6,630 | ||||||||||||||
6,630 | (d)(e) | |||||||||||||||||||
Asset retirement obligations |
9,877 | | | 9,877 | ||||||||||||||||
Commitments and contingent liabilities |
| | 11,250 | (d) | 11,250 | |||||||||||||||
Partners capital |
||||||||||||||||||||
Partners capital |
| 156,481 | (156,481 | ) | (a) | | ||||||||||||||
Common unitholders |
258,069 | | (6,994 | ) | (f) | 251,075 | ||||||||||||||
Class C unitholders |
| | 152,100 | (b) | 150,700 | |||||||||||||||
(1,400 | ) | (f) | ||||||||||||||||||
General partner |
684 | | (105 | ) | (f) | 579 | ||||||||||||||
Total partners capital |
258,753 | 156,481 | (12,881 | ) | 402,353 | |||||||||||||||
$ | 570,627 | $ | 178,867 | $ | 185,179 | $ | 934,673 | |||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated
financial statements.
CRESTWOOD MIDSTREAM PARTNERS LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2010
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands, except for per unit amounts)
Crestwood | ||||||||||||||||||||
Crestwood | Midstream | |||||||||||||||||||
Midstream | Frontier Gas | Pro Forma | Partners LP | |||||||||||||||||
Partners LP | Services LLC | Adjustments | Pro Forma | |||||||||||||||||
Revenue |
||||||||||||||||||||
Gas sales |
$ | | $ | 21,225 | $ | | $ | 21,225 | ||||||||||||
Natural gas liquids sales |
| 18,155 | | 18,155 | ||||||||||||||||
Condensate sales |
| 520 | | 520 | ||||||||||||||||
Gathering
revenue - Quicksilver |
77,645 | | | 77,645 | ||||||||||||||||
Gathering revenue |
5,749 | 26,372 | | 32,121 | ||||||||||||||||
Processing
revenue - Quicksilver |
27,590 | | | 27,590 | ||||||||||||||||
Processing revenue |
2,606 | | | 2,606 | ||||||||||||||||
Total revenue |
113,590 | 66,272 | | 179,862 | ||||||||||||||||
Expenses |
||||||||||||||||||||
Gas purchases |
| 34,351 | | 34,351 | ||||||||||||||||
Operations and maintenance |
28,392 | 10,123 | | 38,515 | ||||||||||||||||
General and administrative |
14,967 | 3,738 | | 18,705 | ||||||||||||||||
Depreciation, amortization and accretion |
22,359 | 8,628 | 8,623 | (g) | 39,610 | |||||||||||||||
Total expenses |
65,718 | 56,840 | 8,623 | 131,181 | ||||||||||||||||
Operating income |
47,872 | 9,432 | (8,623 | ) | 48,681 | |||||||||||||||
Gain on business combination |
| 11,190 | | 11,190 | ||||||||||||||||
Other income |
| 85 | (85 | ) | (a) | | ||||||||||||||
Interest expense |
13,550 | 120 | 16,580 | (a)(h) | 30,250 | |||||||||||||||
Income before income taxes |
34,322 | 20,587 | (25,288 | ) | 29,621 | |||||||||||||||
Income tax provision (benefit) |
(550 | ) | | | (550 | ) | ||||||||||||||
Net income (loss) |
$ | 34,872 | $ | 20,587 | $ | (25,288 | ) | $ | 30,171 | |||||||||||
General partner interest in net income |
$ | 2,526 | $ | 2,365 | ||||||||||||||||
Limited partners interest in net income |
32,346 | 23,168 | ||||||||||||||||||
Class C partners interest in net income |
$ | | $ | 4,638 | ||||||||||||||||
Net income
per limited partner unit - basic |
$ | 1.11 | $ | 0.80 | ||||||||||||||||
Net income per limited partner unit -
diluted |
$ | 1.03 | $ | 0.74 | ||||||||||||||||
Weighted-average limited partner units
outstanding: |
||||||||||||||||||||
Basic |
29,070 | 29,070 | ||||||||||||||||||
Diluted |
31,316 | 37,559 |
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
Basis of Presentation
The unaudited pro forma condensed consolidated financial statements present the impact on our
financial position and results of operations as a result of our consummation of the Frontier Gas Acquisition. The
unaudited pro forma condensed consolidated financial statements as of and for the year ended
December 31, 2010 have been prepared based on certain pro forma adjustments to the financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 and are
qualified in their entirety by reference to such historical consolidated financial statements and
related notes contained therein. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the accompanying notes.
The unaudited pro forma condensed consolidated balance sheet as of December 31, 2010 has been
prepared as if the Frontier Gas Acquisition occurred on that date. The adjustments to the
unaudited pro forma condensed consolidated balance sheet give effect to events that are directly
attributable to the transaction, are factually supportable, and include those items that have a
continuing impact and also those that are nonrecurring. The unaudited pro forma condensed
consolidated statement of income for the year ended December 31, 2010 has been prepared as if the
Frontier Gas Acquisition occurred on January 1, 2010. The adjustments to the pro forma condensed
consolidated statement of income include those that are directly attributable to the transaction,
are factually supportable, and expected to have a continuing impact.
The pro forma adjustments are based upon currently available information and certain estimates
and assumptions. Therefore, actual adjustments will differ from the pro forma adjustments, and the
differences may be material. Management believes, however, that the assumptions provide a
reasonable basis for presenting the significant effects of the Frontier Gas Acquisition as
contemplated, and that the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements may not be indicative of
the results that actually would have occurred if we had owned the Frontier Assets during the
periods presented.
The unaudited pro forma condensed consolidated financial statements reflect the Frontier Gas
Acquisition and the expected funding of the acquisition as follows:
| the issuance of approximately 6.2 million units of new Class C limited partner interests for net proceeds of $152.1 million to finance the Frontier Gas Acquisition; | ||
| the incurrence of indebtedness resulting in estimated net proceeds of $194.4 million to finance the Frontier Gas Acquisition; | ||
| the acquisition of substantially all the Frontier Assets; | ||
| the retention by Frontier Gas of working capital, other liabilities and members equity, with the exception of certain prepaid items and capital leases; and | ||
| the consideration paid to Frontier Gas at the closing of the Frontier Gas Acquisition consisting of $338 million in cash. |
Pro Forma Adjustments and Assumptions
(a) Reflects adjustments to eliminate Frontier Gas activity, cash and cash equivalents and
operating assets and liabilities.
(b) Reflects proceeds from the issuance of approximately 6.2 million Class C limited partner units
for $152.1 million to finance a portion of the Frontier Gas
Acquisition.
(c) Reflects proceeds of borrowings and related financing costs from the incurrence of indebtedness
of $194.4 million (assuming no OID) to finance a portion of the Frontier Gas Acquisition.
(d) Reflects the Frontier Gas Acquisition for $349.3 million, less $11.3 million to be paid to
Frontier Gas assuming certain operational objectives are met within six months of the closing date.
Under the terms of the Transaction Agreement, CMLP has agreed to pay to Frontier Gas up to an
additional $15 million if certain operational objectives
are met within six months of the closing
date. The $11.3 million payment was determined based on the estimated fair value of the contingent
liability associated with Frontier Gas achieving the operational objectives.
The
Frontier Gas Acquisition will be accounted for using the purchase method of accounting. The final purchase
price allocation is pending the finalization of appraisal valuations of certain tangible and
intangible assets acquired, which may result in an adjustment to the preliminary purchase price
allocation.
The preliminary purchase price allocation is as follows ($ in thousands):
Purchase price: | ||||
Cash |
$ | 338,000 | ||
Contingent consideration |
11,250 | |||
Total purchase price |
$ | 349,250 | ||
Preliminary purchase price allocation: |
||||
Prepaid expenses and other |
$ | 750 | ||
Property, plant and equipment |
183,971 | |||
Intangible assets |
121,200 | |||
Goodwill |
52,160 | |||
Other assets |
365 | |||
Total assets |
358,446 | |||
Current portion of capital leases |
2,566 | |||
Capital leases |
6,630 | |||
Total liabilities |
9,196 | |||
Purchase price |
$ | 349,250 | ||
(e) | Reflects the fair value of prepaid items and capital leases to be assumed by CMLP. | |
(f) | Reflects transaction costs associated with the Frontier Gas Acquisition. | |
(g) | Reflects the adjustment to recognize incremental depreciation and amortization expense resulting from the purchase of the Frontier Assets. | |
(h) | Reflects the increase in interest expense associated with the incremental debt incurred to finance a portion of the Frontier Gas Acquisition. The effect of a 0.125% variance in interest rates on pro forma interest expense would have been approximately $0.25 million annually. |
Pro Forma Net Income Per Limited Partner Unit
Our net income or loss is allocated to the general partner and the limited partners, in accordance
with their respective ownership percentages, after allocating Available Cash (as defined in the
partnership agreement) generated during the period in accordance with our partnership agreement.
Securities that meet the definition of a participating security are required to be considered for
inclusion in the computation of basic earnings per unit using the two-class method. Under the
two-class method, earnings per unit is
calculated as if all of the earnings for the period were distributed under the terms of the
partnership agreement, regardless of whether the general partner has discretion over the amount of
distributions to be made in any particular period, whether those earnings would actually be
distributed during a particular period from an economic or
practical perspective, or whether the
general partner has other legal or contractual limitations on its ability to pay distributions that
would prevent it from distributing all of the earnings for a particular period.
These required disclosures do not impact our overall net income or loss or other financial results;
however, in periods in which aggregate net income exceeds our Available Cash, it will have the
impact of reducing net income per limited partner unit.
Basic and diluted net income or loss per limited partner unit is calculated by dividing limited
partners interest in net income or loss, by the weighted-average number of outstanding limited
partner units during the period, assuming approximately 6.2 million units of new Class C limited
partner interests will be issued upon closing of the Frontier Gas Acquisition.