MAGNUM HUNTER RESOURCES CORP - FORM 8-K - EX-99.3 - UNAUDITED PRO FORMA COMBINED FINANCIAL DATA - May 13, 2011

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8-K - MAGNUM HUNTER RESOURCES CORPORATION - MAGNUM HUNTER RESOURCES CORPmagnum_8k-051311.htm
EX-99.1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF NGAS RESOURCES, INC. - MAGNUM HUNTER RESOURCES CORPmagnum_8k-ex9901.htm
EX-99.2 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF NULOCH RESOURCES INC. - MAGNUM HUNTER RESOURCES CORPmagnum_8k-ex9902.htm
EXHIBIT 99.3
 
 
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following Unaudited Pro Forma Combined Financial Data are derived from the consolidated financial statements of Magnum Hunter and certain historical financial data in respect of various assets acquired by Magnum Hunter.  The Unaudited Pro Forma Combined Balance Sheet of Magnum Hunter as of March 31, 2011 has been prepared assuming the NGAS Resources and NuLoch Resources acquisitions and all necessary ancillary transactions had been consummated on March 31, 2011.  The Unaudited Pro Forma Combined Income Statement for the three months ended March 31, 2011 has been prepared assuming the NGAS Resources and NuLoch Resources acquisitions and all necessary ancillary transactions had been consummated as of January 1, 2011.  The pro forma adjustments set forth on the attached Unaudited Pro Forma Combined Balance Sheet and Unaudited Pro Forma Combined Income Statements reflect the following as if they occurred on the dates hereinabove set forth:
 
 
(1)
NGAS Resources and NuLoch Resources Acquisitions.  The NGAS Resources acquisition as described in the Arrangement Agreement dated December 23, 2010, and the NuLoch Resources acquisition as described in the Arrangement Agreement dated January 19, 2011.
 
(2)
Incurrence of indebtedness under the new revolving credit facility to be entered into and as described in the commitment letter from Bank of Montreal dated January 13, 2011 for both the NGAS Resources and NuLoch Resources acquisitions.
 
(3)
Issuance of common stock upon the closing date of the NGAS Resources and NuLoch Resources acquisitions.
 
(4)
Payment of change of control compensation in the NGAS Resources and NuLoch Resources acquisitions.
 
The Unaudited Pro Forma Balance Sheet reflects the preliminary adjustments to record the estimated fair values of the assets and liabilities acquired in the acquisitions of NGAS Resources and NuLoch Resources.  The final entries, and the resulting effect on Magnum Hunter’s balance sheet as well as items in Magnum Hunter’s Income Statements, may differ based on the actual determination of the fair values of the assets acquired and liabilities assumed.

Transaction costs related to these acquisitions will be recorded as expenses in the periods in which these costs are incurred.  These expenses are not included in the Unaudited Pro Forma Combined Income Statements.

The Unaudited Pro Forma Combined Financial Data should be read in conjunction with the notes thereto and with the consolidated financial statements of Magnum Hunter and the notes thereto as filed in Magnum Hunter's Form 10-Q.

The Unaudited Pro Forma Combined Financial Data are not indicative of the financial position or results of operations of Magnum Hunter which would actually have occurred if the transactions described above had occurred at the dates presented or which may be obtained in the future.  In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, changes in prices paid for oil and natural gas, future acquisitions, drilling activity and other factors.

The unaudited Pro Forma Combined Financial Data includes financial information received from NGAS Resources and NuLoch Resources and such financial information has been accepted and incorporated as presented without independent verification of such financial information.

 
 
 

 
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of March 31, 2011
(in thousands, except share and per-share data)
 
 
ASSETS
   Magnum Hunter Historical    
NGAS
Resources
Historical
     NuLoch Resources Historical (CAN $)        
NGAS Resources Pro Forma Adjustments
       NuLoch Resources Conversion to US GAAP and USD Adjustments      
 NuLoch Resources Pro Forma Adjustments
     Combined Pro Forma for Magnum Hunter, NGAS Resources, and NuLoch Resources  
CURRENT ASSETS:
                                                
Cash and cash equivalents
   $ 3,836     $ 1,908     $ 909       $ -     (3) $ 26       $ -     $ 6,679  
Accounts receivable
     16,048       4,536       6,629         -     (3)   (247 )       -       26,966  
Notes receivable
     -       5,125       -     (1)   (5,125 )       -         -       -  
Prepaids and other current assets
     1,246       561       350         -     (3)   10         -       2,167  
Total current assets
     21,130       12,130       7,888         (5,125 )       (211 )       -       35,812  
                                                               
PROPERTY AND EQUIPMENT (Net of Accumulated Depletion and Depreciation):
                                        
Oil and natural gas properties, successful efforts accounting
     227,958       172,449       119,222     (1)   (59,463 )   (3)   (12,216 )   (2)   362,781       810,731  
Equipment and other fixed assets
     56,816       9,263       318      (1)   1,440     (3)   9         -       67,846  
Total property and equipment, net
     284,774       181,712       119,540         (58,023 )       (12,207 )       362,781       878,577  
                                                               
OTHER ASSETS:
                                                              
Other assets
     578       259       -         -         -         -       837  
Deferred financing costs, net of amortization
     2,330       463       -     (1)   (439 )       -         -       2,354  
Deferred tax asset
     -       -       4,491         -     (3)   4,063     (2)   (8,554 )     -  
Total assets
   $ 308,812     $ 194,564     $ 131,919       $ (63,587 )     $ (8,355 )     $ 354,227     $ 917,580  
                                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY                                                          
CURRENT LIABILITIES:
                                                              
Accounts payable
   $ 25,646     $ 4,411     $ 12,139       $ -     (3) $ 344       $ -     $ 42,540  
Accrued liabilities
     946       3,292       11,235     (1)   426     (3)   318     (2)   11,130       27,347  
Revenue payable
     4,314       -       -         -         -         -       4,314  
Current portion of notes payable
     7,145       45,145       -     (1)   (45,145 )       -         -       7,145  
Warrant liability
     -       -       -     (1)   1,746         -         -       1,746  
Dividend payable
     46       -       -         -                           46  
Derivative liability
     3,436       93       -     (1)   (93 )       -         -       3,436  
Total current liabilities
     41,533       52,941       23,374         (43,066 )       662         11,130       86,574  
                                                               
Deferred compensation
     -       868       -     (1)   (868 )       -         -       -  
Deferred income tax
     -       8,410       -     (1)   (8,410 )       -     (2)   121,848       121,848  
Payable on sale of partnership
     641               -         -         -         -       641  
Notes payable, less current portion
     35,798       5,883       6,102     (1)   58,860     (3)   173         -       106,816  
Asset retirement obligation
     4,571       2,360       1,417         -     (3)   40         -       8,388  
Derivative liability
     692       -       -         -         -         -       692  
Other long-term liabilities
     38       1,895       -     (1)   (1,895 )       -         -       38  
Total liabilities
     83,273       72,357       30,893         4,621         875         132,978       324,997  
                                                               
COMMITMENTS AND CONTINGENCIES
                                                        
                                                               
REDEEMABLE PREFERRED STOCK:
                                                              
Series C Cumulative Perpetual Preferred Stock
     100,000       -       -         -         -         -       100,000  
                                                               
SHAREHOLDERS’ EQUITY:
                                                              
Shareholders' equity
     124,057       122,207       101,026     (1)   (68,208 )   (3)   (9,230 )   (2)   221,249       491,101  
Non-controlling interest
     1,482       -       -         -         -         -       1,482  
Total Equity
     125,539       122,207       101,026         (68,208 )       (9,230 )       221,249       492,583  
Total liabilities and shareholders' equity
   $ 308,812     $ 194,564     $ 131,919       $ (63,587 )     $ (8,355 )     $ 354,227     $ 917,580  
 
See accompanying notes to Unaudited Pro Forma Combined Financial Data
 
2
 

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Three months Ended March 31, 2011
(in thousands, except shares and per share data)
 
   
Magnum Hunter Historical
    
NGAS Resources Historical
    
NuLoch Resources Historical
(CAN $)
  
NGAS Resources Pro Forma Adjustments
    
NuLoch Resources Conversion to US GAAP & USD Adjustments
    
NuLoch Resources Pro Forma Adjustments
    
Combined Pro Forma for Magnum Hunter, NGAS Resources, and NuLoch Resources
  
REVENUE:
                                                    
Oil and gas sales
   $ 13,961     $ 5,322     $ 5,418       $ -        (3) $ 347         $ -     $ 25,048  
Field operations and other
     1,360       3,631       -         -           -           -       4,991  
Total revenue
     15,321       8,953       5,418         -           347           -       30,039  
                                                                   
EXPENSES:
                                                                  
Lease operating expenses
     2,997       3,711       1,309         -        (3)   (248 )         -       7,769  
Severance taxes and marketing
     995       -       -         -        (3)   539           -       1,534  
Exploration
     315       -       -         -        (3)   36           -       351  
Field operations
     1,156       2,092       -         -           -           -       3,248  
Depreciation, depletion and accretion
     5,530       3,294       2,979     (4)   (1,998 )      (3)   (1,587 )     (9)   103       8,321  
General and administrative
     6,857       2,917       2,419         -        (3)   712           -       12,905  
Total expenses
     17,850       12,014       6,707         (1,998 )         (548 )         103       34,128  
                                                                   
LOSS FROM OPERATIONS
     (2,529 )     (3,061 )     (1,289 )       1,998           895           (103 )     (4,089 )
                                                                   
OTHER INCOME AND (EXPENSE):
                                                                  
Interest income
     3       127       19     (5)   (127 )         -           -       22  
Interest expense
     (790 )     (2,350 )     (33 )   (6)   1,853           -       (10)   (71 )     (1,391 )
Gain (Loss) on derivative contracts
     (3,342 )     (32 )     -     (7)   32           -           -       (3,342 )
Other, net
     -       130       -         -           -           -       130  
                                                                   
Net loss from continuing operations before income taxes and non controlling interest
     (6,658 )     (5,186 )     (1,303 )       3,756           895           (174 )     (8,670 )
                                                                   
Income tax benefit
     -       1,124       230     (8)   (1,124 )      (3)   (971 )     (11)   741       -  
                                                                   
Net (income) loss attributable to non-controlling interest
     (32 )     -       -         -           -           -       (32 )
                                                                   
Net loss attributable to Magnum Hunter from continuing operations
     (6,690 )     (4,062 )     (1,073 )       2,632           (76 )         567       (8,702 )
Income from discontinued operations
     -       -       -         -           -           -       -  
                                                                   
Net loss
     (6,690 )     (4,062 )     (1,073 )       2,632           (76 )         567       (8,702 )
                                                                   
Dividends on preferred stock
     (2,608 )     -       -         -           -           -       (2,608 )
                                                                   
Net loss attributable to common shareholders
   $ (9,298 )   $ (4,062 )   $ (1,073 )     $ 2,632         $ (76 )       $ 567     $ (11,310 )
                                                                   
Loss per common share
                                                                  
Basic and diluted
   $ (0.12 )                                                     $ (0.09 )
                                                                   
Weighted average number of common shares outstanding
                                                                  
Basic and diluted
     75,642,091                     (12)   7,015,245                   (12)   42,872,980       125,530,316  
 
See accompanying notes to Unaudited Pro Forma Combined Financial Data
 
3
 
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

1)
To record the acquisition of NGAS Resources’ assets for an estimated purchase price of $122.5 million.  The estimated purchase price includes the shares of common stock of Magnum Hunter that were issued to shareholders of NGAS Resources, payment to a third-party to restructure an “out-of-market” gas gathering and transportation agreement, the assumption of the senior credit facility of NGAS Resources, the assumption of certain notes payable related to equipment included in the transaction, and the payoff in cash of the remaining NGAS Resources 6% Convertible Notes. The acquisition is accounted for under the purchase method of accounting.  All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment.  The following table summarizes the assets acquired, liabilities assumed, and purchase price paid:

Fair value of total purchase price:
  
(in thousands, except share data)
  
6,633,783 shares of common stock at $7.99 per share
   $ 53,004  
Senior credit facility assumed
     33,282  
NGAS Resources 6% Convertible notes to be paid off in cash at closing
     13,683  
Contract payment in cash
     10,575  
Other long-term debt assumed
     6,146  
381,462 shares of common stock issued for change in control payments at $7.99 per share
     3,048  
Tax on change of control payments paid in cash
     1,057  
Common stock warrants and options
     1,746  
Total
   $ 122,541  
         
Amounts recognized for assets acquired and liabilities assumed:
        
Working capital
   $ 953  
Bonds and deposits
     259  
Oil and gas properties
     112,986  
Equipment and other fixed assets
     10,703  
Asset retirement obligation
     (2,360 )
Total
   $ 122,541  
         
Working capital acquired:
        
Cash
   $ 1,908  
Accounts receivable
     4,536  
Prepaid expenses
     561  
Accounts payable
     (4,411 )
Accrued liabilities
     (1,545 )
Transaction closing costs
     (96 )
Total working capital acquired
   $ 953  
 
The pro forma adjustment to accrued liabilities includes the transaction costs incurred by Magnum Hunter of $2.1 million.

 
4
 

2)
To record the acquisition of NuLoch Resources’ assets for an estimated purchase price of $445.4 million.  The estimated purchase price includes the estimated shares of common stock of Magnum Hunter to be issued to shareholders of NuLoch Resources and the deferred tax liability resulting from the acquisition. The acquisition is accounted for under the purchase method of accounting.  All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment.  The following table summarizes the assets acquired, liabilities assumed, and purchase price paid:

Fair value of total purchase price:
  
(in thousands, except share data)
  
42,872,980 shares of common stock at $7.40 per share
   $ 317,260  
Debt assumed
     6,275  
Deferred tax
     121,848  
Total
   $ 445,383  
         
Amounts recognized for assets acquired and liabilities assumed:
        
Working capital
   $ (23,274 )
Oil and gas properties
     469,787  
Equipment and other fixed assets
     327  
Asset retirement obligation
     (1,457 )
Total
   $ 445,383  
         
Working capital acquired:
        
Cash
   $ 935  
Accounts receivable
     6,382  
Prepaid expenses
     360  
Transaction closing costs
     (6,915 )
Accounts payable
     (12,483 )
Accrued liabilities
     (11,553 )
    Total working capital acquired
   $ (23,274 )
 
The pro forma adjustment to accrued liabilities includes transaction costs incurred by Magnum Hunter of $4.2 million.
         
(in thousands)
  
                           
Deferred
  
         
Book
    
Tax
          
Asset
  
Deferred Income Tax Liability
  
Rate
    
Basis
    
Basis
    
Difference
    
(Liability)
  
 
                    
 
        
 PPE US
     38.0%     $ 315,093     $ 29,435     $ (285,658 )   $ (108,448 )
 PPE Canada
     25.0%       170,592       54,049       (116,543 )     (29,100 )
 NOL US
     38.0%               17,301       17,301       6,600  
 NOL Canada
     25.0%               36,386       36,386       9,100  
 Net Deferred Tax Liability
                           $ (348,514 )   $ (121,848 )


 
5
 

3)
To record the adjustment to NuLoch Resources’ historical financial statements prepared in accordance with Canadian GAAP and in Canadian dollars to United States GAAP and United States dollars.  The adjustment includes:

 
a.
To Convert Canadian GAAP full cost accounting to US GAAP successful efforts accounting for oil and gas properties. This has reduced the net book value (NBV) of property and equipment as all geological & geophysical costs and general & administrative costs capitalized under Canadian GAAP have been expensed to conform with US GAAP. The NBV has also decreased due to all unsuccessful exploratory wells being expensed. The resulting change in NBV of oil and gas properties along with the reduction of depletion on a field level basis resulted in lower depletion expense over the periods presented.

 
b.
To adjust NuLoch Resources for the conversion to US GAAP of an acquisition it completed in 2009. This adjustment resulted in the recording of additional fair value of oil and gas property and equipment of $8,969,000 and the value of shares issued increasing by $660,000 (Canadian GAAP value at announcement date vs US GAAP at closing date). These adjustments resulted in a future tax asset reduction of $2,242,000.

 
c.
To adjust for Canadian GAAP “Flow-through shares” for treatment under US GAAP. This resulted in an increase to additional paid in capital and a decrease in deferred tax asset.
 
 
d.
Due to the adjustments noted above, adjustments to income tax expense or benefit were made to statements presented.

 
e.
To convert NuLoch Resources’ balance sheet as of March 31, 2011 and income statement for the three months ended March 31, 2011 from Canadian dollars to United States dollars using the applicable conversion factors.
 
4)
To record the pro forma adjustment to NGAS Resources’ depletion and depreciation expense and refinancing costs amortized as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2011.  Depletion was calculated using the units of production method.
 
5)
To record the pro forma adjustment to NGAS Resources’ interest income on notes receivable as the result of restructuring a gas gathering and transportation agreement as if it had occurred January 1, 2011.
 
6)
To record the pro forma adjustment to NGAS Resources’ interest expense as the result of treating the acquisition of NGAS Resources and the payment of assumed debt using Magnum Hunter’s credit facility as if it had occurred January 1, 2011.

 
6
 

 
7)
To record the pro forma adjustment to NGAS Resources’ gain (loss) on derivative contracts as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2011.  The derivative loss reported by NGAS Resources was the result of the convertible feature on certain notes payable which will be paid at closing.
 
8)
To record the pro forma adjustment to NGAS Resources’ income tax benefit on its income statements as the result of treating the acquisition of NGAS Resources as if it had occurred January 1, 2011.  The deferred tax liability and income tax benefit on the NGAS Resources financial statements will be eliminated as the result of the fair market value adjustment to the oil and gas properties resulting from the acquisition.
 
9)
To record the pro forma adjustment to NuLoch Resources’ depletion and depreciation expense as the result of treating the acquisition of NuLoch Resources as if it had occurred January 1, 2011.  Depletion was calculated using the units of production method.
 
10)
To record the pro forma adjustment to NuLoch Resources’ interest expense as the result of treating the acquisition of Nuloch Resources and the payment of assumed debt using Magnum Hunter’s credit facility as if it had occurred January 1, 2011.
 
11)
To record the pro forma adjustment to NuLoch Resources’ income tax benefit as the result of treating the acquisition of NuLoch Resources as if it had occurred January 1, 2011.
 
12)
Acquisition shares were added to the weighted average number of common shares outstanding as if the shares were issued January 1, 2011.
 
 
 
 
 
 
 
 
 
 
 
 
 7

MAGNUM HUNTER RESOURCES CORP Reports