Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - PLAINS EXPLORATION & PRODUCTION CO | d256815d8k.htm |
Exhibit 99.1
PLAINS EXPLORATION & PRODUCTION COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On October 28, 2011, Plains Exploration & Production Company (“PXP”) and Plains Offshore Operations Inc., a wholly owned subsidiary of PXP (“Plains Offshore”) entered into a securities purchase agreement, (the “Securities Purchase Agreement”), with Energy Fund XV, L.P., Energy Fund XV-A, L.P., Energy Fund XV-B, L.P. and Energy XV Blocker (Plains), LLC, all of whom are affiliated with EIG Global Energy Partners, (collectively, the “EIG Funds”). Pursuant to the Securities Purchase Agreement, Plains Offshore will issue and sell to the EIG Funds, in a private placement transaction under Section 4(2) of the Securities Act of 1933, as amended, at an aggregate purchase price of $450 million (i) 450,000 shares of its 8.0% Convertible Preferred Stock, par value $0.001 per share and (ii) non-detachable warrants to purchase, in the aggregate, up to 9,121,000 shares of its common stock, par value $0.001 per share, with an exercise price of $20.00 per share. PXP will contribute, directly or indirectly through its subsidiaries, all right, title and interest of PXP in and to its oil and natural gas properties and assets located in the United States Gulf of Mexico in water depths of 500 feet or more including the Lucius oil field and the Phobos prospect to Plains Offshore. The contribution by PXP is referred to as the “Deepwater Assets Contribution.” The transaction is expected to close in November 2011.
As of September 30, 2011, PXP is the issuer of $600 million of 7 3/4% Senior Notes due 2015, $565 million of 10% Senior Notes due 2016, $500 million of 7% Senior Notes due 2017, $400 million of 7 5/8% Senior Notes due 2018, $400 million of 8 5/8% Senior Notes due 2019, $300 million of 7 5/8% Senior Notes due 2020 and $600 million of 6 5/8% Senior Notes due 2021, which are jointly and severally guaranteed on a full and unconditional basis by certain of PXP’s existing domestic subsidiaries (referred to as “Guarantor Subsidiaries”). Certain of PXP’s subsidiaries do not guarantee the Senior Notes (referred to as “Non-Guarantor Subsidiaries”).
The unaudited pro forma condensed consolidating financial statements include financial information relating to:
| • | PXP, or the Issuer; |
| • | the Guarantor Subsidiaries on a combined basis; |
| • | the Non-Guarantor Subsidiaries on a combined basis; |
| • | elimination entries to consolidate the Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries; and |
| • | PXP on a consolidated basis. |
The assets associated with the Deepwater Assets Contribution are reported in the Issuer column, and Plains Offshore is reported as one of PXP’s Non-Guarantor Subsidiaries in PXP’s unaudited pro forma condensed consolidating financial statements.
The unaudited pro forma condensed consolidating statement of income for the year ended December 31, 2010 also reflects the transfer of the Eagle Ford Shale oil and gas properties from the Non-Guarantor Subsidiaries to the Issuer, assuming such transfer occurred on January 1, 2010. During the first half of 2011, the reverse like-kind exchange arrangements related to PXP’s Eagle Ford Shale properties, established pursuant to Internal Revenue Code Section 1031 were concluded prior to the completion of a like-kind exchange involving any disposition of PXP properties. As a result, the related Eagle Ford Shale properties were transferred from PXP Operations LLC, which was reported as a Non-Guarantor Subsidiary, to PXP as Issuer, and the outstanding notes between PXP Operations LLC and PXP were settled. The unaudited pro forma condensed consolidating statement of income for the year ended December 31, 2010 has been retrospectively adjusted to reflect the unwind of this reverse like-kind exchange arrangement involving PXP Operations LLC.
The unaudited pro forma condensed consolidating balance sheet at September 30, 2011, and the unaudited pro forma condensed consolidating statements of income for the nine months ended September 30, 2011 and the year ended December 31, 2010, were prepared based on PXP’s historical condensed consolidating balance sheet at September 30, 2011 and PXP’s historical condensed consolidating statements of income for such periods. The unaudited pro forma condensed consolidating balance sheet at September 30, 2011 assumes that the Deepwater Assets Contribution occurred on September 30, 2011. The unaudited pro forma condensed consolidating statements of income for the nine
months ended September 30, 2011 and for the year ended December 31, 2010 are adjusted to reflect this transaction as if it occurred on January 1, 2010. The unaudited pro forma condensed consolidating statements of income do not purport to represent what PXP’s results of operations would have been if the transaction had occurred on January 1, 2010. PXP believes the assumptions used herein provide a reasonable basis for presenting the significant effects directly attributable to the Deepwater Assets Contribution.
The unaudited pro forma condensed consolidating financial statements should be read in conjunction with PXP’s Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Report on Form 10-Q for the period ended September 30, 2011.
2
PLAINS EXPLORATION & PRODUCTION COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AT SEPTEMBER 30, 2011
(in thousands of dollars)
| Issuer | Non-Guarantor Subsidiaries | Intercompany Eliminations | ||||||||||||||||||||||||||||||||||||||||||
| Historical | Adjustments (Note 1) |
Pro Forma | Guarantor Subsidiaries |
Historical | Adjustments (Note 1) |
Pro Forma | Historical | Adjustments (Note 1) |
Pro Forma | Consolidated | ||||||||||||||||||||||||||||||||||
| ASSETS |
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| Current Assets |
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| Cash and cash equivalents |
$ | 10,964 | $ | — | $ | 10,964 | $ | 6 | $ | 494 | $ | — | $ | 494 | $ | — | $ | — | $ | — | $ | 11,464 | ||||||||||||||||||||||
| Accounts receivable and other current assets |
229,751 | (273 | )(A) | 229,478 | 167,652 | 134 | 273 | (A) | 407 | (3,928 | ) | — | (3,928 | ) | 393,609 | |||||||||||||||||||||||||||||
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| 240,715 | (273 | ) | 240,442 | 167,658 | 628 | 273 | 901 | (3,928 | ) | — | (3,928 | ) | 405,073 | |||||||||||||||||||||||||||||||
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| Property and Equipment, at cost |
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| Oil and natural gas properties -full cost method |
5,192,875 | (1,210,220 | )(A) | 3,982,655 | 9,417,460 | 59,475 | 1,210,220 | (A) | 1,269,695 | — | — | — | 14,669,810 | |||||||||||||||||||||||||||||||
| Other property and equipment |
50,427 | — | 50,427 | 42,719 | 49,128 | — | 49,128 | — | — | — | 142,274 | |||||||||||||||||||||||||||||||||
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| 5,243,302 | (1,210,220 | ) | 4,033,082 | 9,460,179 | 108,603 | 1,210,220 | 1,318,823 | — | — | — | 14,812,084 | |||||||||||||||||||||||||||||||||
| Less allowance for depreciation, depletion, amortization and impairment |
(2,556,108 | ) | 258,285 | (A) | (2,297,823 | ) | (6,278,118 | ) | (59,475 | ) | (992,871 | )(A,B) | (1,052,346 | ) | 2,256,691 | 734,586 | (C) | 2,991,277 | (6,637,010 | ) | ||||||||||||||||||||||||
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| 2,687,194 | (951,935 | ) | 1,735,259 | 3,182,061 | 49,128 | 217,349 | 266,477 | 2,256,691 | 734,586 | 2,991,277 | 8,175,074 | |||||||||||||||||||||||||||||||||
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| Investment in and Advances to Affiliates |
4,671,600 | 594,822 | (A) | 5,266,422 | (1,946,689 | ) | (71,222 | ) | — | (71,222 | ) | (2,653,689 | ) | (594,822 | )(C) | (3,248,511 | ) | — | ||||||||||||||||||||||||||
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| Other Assets |
456,455 | — | 456,455 | 547,385 | — | — | — | — | — | — | 1,003,840 | |||||||||||||||||||||||||||||||||
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| $ | 8,055,964 | $ | (357,386 | ) | $ | 7,698,578 | $ | 1,950,415 | $ | (21,466 | ) | $ | 217,622 | $ | 196,156 | $ | (400,926 | ) | $ | 139,764 | $ | (261,162 | ) | $ | 9,583,987 | |||||||||||||||||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current Liabilities |
$ | 429,950 | $ | (50,418 | )(A) | $ | 379,532 | $ | 188,749 | $ | 2,301 | $ | 50,418 | (A) | $ | 52,719 | $ | (3,928 | ) | $ | — | $ | (3,928 | ) | $ | 617,072 | ||||||||||||||||||
| Long-Term Debt |
3,783,938 | — | 3,783,938 | — | — | — | — | — | — | — | 3,783,938 | |||||||||||||||||||||||||||||||||
| Other Long-Term Liabilities |
196,399 | (12,229 | )(A) | 184,170 | 63,724 | — | 12,229 | (A) | 12,229 | — | — | — | 260,123 | |||||||||||||||||||||||||||||||
| Deferred Income Taxes |
128,893 | (294,739 | )(A) | (165,846 | ) | 294,341 | (1,580 | ) | 44,039 | (A) | 42,459 | 984,416 | 250,700 | (C) | 1,235,116 | 1,406,070 | ||||||||||||||||||||||||||||
| Stockholders’ Equity |
3,516,784 | — | 3,516,784 | 1,403,601 | (22,187 | ) | 110,936 | (A) | 88,749 | (1,381,414 | ) | (110,936 | )(C) | (1,492,350 | ) | 3,516,784 | ||||||||||||||||||||||||||||
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| $ | 8,055,964 | $ | (357,386 | ) | $ | 7,698,578 | $ | 1,950,415 | $ | (21,466 | ) | $ | 217,622 | $ | 196,156 | $ | (400,926 | ) | $ | 139,764 | $ | (261,162 | ) | $ | 9,583,987 | |||||||||||||||||||
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The accompanying notes are an integral part of the financial statements.
3
PLAINS EXPLORATION & PRODUCTION COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
(in thousands of dollars)
| Issuer | Non-Guarantor Subsidiaries | Intercompany Eliminations | ||||||||||||||||||||||||||||||||||||||||||
| Historical | Adjustments (Note 1) |
Pro Forma |
Guarantor Subsidiaries |
Historical | Adjustments (Note 1) |
Pro Forma |
Historical | Adjustments (Note 1) |
Pro Forma |
Consolidated | ||||||||||||||||||||||||||||||||||
| Revenues |
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| Oil sales |
$ | 917,523 | $ | (922 | )(D) | $ | 916,601 | $ | 192,705 | $ | — | $ | 922 | (D) | $ | 922 | $ | — | $ | — | $ | — | $ | 1,110,228 | ||||||||||||||||||||
| Gas sales |
10,244 | — | 10,244 | 321,242 | — | — | — | — | — | — | 331,486 | |||||||||||||||||||||||||||||||||
| Other operating revenues |
771 | — | 771 | 4,462 | — | — | — | — | — | — | 5,233 | |||||||||||||||||||||||||||||||||
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| 928,538 | (922 | ) | 927,616 | 518,409 | — | 922 | 922 | — | — | — | 1,446,947 | |||||||||||||||||||||||||||||||||
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| Costs and Expenses |
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| Production costs |
251,292 | — | 251,292 | 146,841 | — | — | — | — | — | — | 398,133 | |||||||||||||||||||||||||||||||||
| General and administrative |
58,682 | (561 | )(D) | 58,121 | 35,928 | 354 | 561 | (D) | 915 | — | — | — | 94,964 | |||||||||||||||||||||||||||||||
| Depreciation, depletion, amortization |
(14,822 | )(E) | ||||||||||||||||||||||||||||||||||||||||||
| and accretion |
156,040 | (268 | )(D) | 140,950 | 197,279 | — | 268 | (D) | 268 | 112,753 | 14,822 | (I) | 127,575 | 466,072 | ||||||||||||||||||||||||||||||
| Impairment of oil and gas properties |
— | — | — | 314,258 | — | 488,664 | (F) | 488,664 | (314,258 | ) | (488,664 | )(I) | (802,922 | ) | — | |||||||||||||||||||||||||||||
| Other operating loss (income) |
184 | — | 184 | (841 | ) | — | — | — | — | — | — | (657 | ) | |||||||||||||||||||||||||||||||
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| 466,198 | (15,651 | ) | 450,547 | 693,465 | 354 | 489,493 | 489,847 | (201,505 | ) | (473,842 | ) | (675,347 | ) | 958,512 | ||||||||||||||||||||||||||||||
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| Income (Loss) from Operations |
462,340 | 14,729 | 477,069 | (175,056 | ) | (354 | ) | (488,571 | ) | (488,925 | ) | 201,505 | 473,842 | 675,347 | 488,435 | |||||||||||||||||||||||||||||
| Other (Expense) Income |
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| Equity in earnings of subsidiaries |
(56,403 | ) | (9,574 | )(G) | (65,977 | ) | — | — | — | — | 56,403 | 9,574 | (I) | 65,977 | — | |||||||||||||||||||||||||||||
| Interest expense |
(1,277 | ) | — | (1,277 | ) | (109,541 | ) | (2,323 | ) | — | (2,323 | ) | — | — | — | (113,141 | ) | |||||||||||||||||||||||||||
| Gain on mark-to-market derivative contracts |
93,467 | — | 93,467 | — | — | — | — | — | — | — | 93,467 | |||||||||||||||||||||||||||||||||
| Loss on investment measured at fair value |
(284,929 | ) | — | (284,929 | ) | — | — | — | — | — | — | — | (284,929 | ) | ||||||||||||||||||||||||||||||
| Other income (expense) |
1,053 | — | 1,053 | 1,959 | (63 | ) | — | (63 | ) | — | — | — | 2,949 | |||||||||||||||||||||||||||||||
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| Income (Loss) Before Income Taxes |
214,251 | 5,155 | 219,406 | (282,638 | ) | (2,740 | ) | (488,571 | ) | (491,311 | ) | 257,908 | 483,416 | 741,324 | 186,781 | |||||||||||||||||||||||||||||
| Income tax (expense) benefit |
(106,676 | ) | (5,155 | )(H) | (111,831 | ) | 109,353 | 1,025 | 171,000 | (H) | 172,025 | (82,908 | ) | (165,845 | )(I) | (248,753 | ) | (79,206 | ) | |||||||||||||||||||||||||
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| Net Income (Loss) |
$ | 107,575 | $ | — | $ | 107,575 | $ | (173,285 | ) | $ | (1,715 | ) | $ | (317,571 | ) | $ | (319,286 | ) | $ | 175,000 | $ | 317,571 | $ | 492,571 | $ | 107,575 | ||||||||||||||||||
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The accompanying notes are an integral part of the financial statements.
4
PLAINS EXPLORATION & PRODUCTION COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2010
(in thousands of dollars)
| Issuer | Non-Guarantor Subsidiaries | |||||||||||||||||||||||||||||||||||
| Historical | Eagle Ford Shale Adjustments (Note 1) |
Adjustments (Note 1) |
Pro Forma | Guarantor Subsidiaries |
Historical | Eagle Ford Shale Adjustments (Note 1) |
Adjustments (Note 1) |
Pro Forma | ||||||||||||||||||||||||||||
| Revenues |
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| Oil sales |
$ | 947,552 | $ | 5,162 | (J) | $ | — | $ | 952,714 | $ | 190,046 | $ | 5,162 | $ | (5,162 | )(J) | $ | — | $ | — | ||||||||||||||||
| Gas sales |
67,578 | 202 | (J) | — | 67,780 | 331,827 | 202 | (202 | )(J) | — | — | |||||||||||||||||||||||||
| Other operating revenues |
884 | — | — | 884 | 1,344 | — | — | — | — | |||||||||||||||||||||||||||
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| 1,016,014 | 5,364 | — | 1,021,378 | 523,217 | 5,364 | (5,364 | ) | — | — | |||||||||||||||||||||||||||
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| Costs and Expenses |
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| Production costs |
295,611 | 674 | (J) | — | 296,285 | 155,617 | 674 | (674 | )(J) | — | — | |||||||||||||||||||||||||
| General and administrative |
87,743 | 11 | (J) | (711 | )(D) | 87,043 | 48,322 | 372 | (11 | )(J) | 711 | (D) | 1,072 | |||||||||||||||||||||||
| Depreciation, depletion, amortization |
(17,703 | )(E) | ||||||||||||||||||||||||||||||||||
| and accretion |
234,660 | 1,602 | (J) | (144 | )(D) | 218,415 | 161,006 | 2,749 | (2,749 | )(J) | 144 | (D) | 144 | |||||||||||||||||||||||
| Impairment of oil and gas properties |
— | — | — | — | 266,442 | 59,475 | — | 4,161 | (F) | 63,636 | ||||||||||||||||||||||||||
| Legal recovery |
— | — | — | — | (8,423 | ) | — | — | — | — | ||||||||||||||||||||||||||
| Other operating income |
(988 | ) | — | — | (988 | ) | (3,142 | ) | — | — | — | — | ||||||||||||||||||||||||
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| 617,026 | 2,287 | (18,558 | ) | 600,755 | 619,822 | 63,270 | (3,434 | ) | 5,016 | 64,852 | ||||||||||||||||||||||||||
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| Income (Loss) from Operations |
398,988 | 3,077 | 18,558 | 420,623 | (96,605 | ) | (57,906 | ) | (1,930 | ) | (5,016 | ) | (64,852 | ) | ||||||||||||||||||||||
| Other (Expense) Income |
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| Equity in earnings of subsidiaries |
(104,430 | ) | (3,689 | )(J) | (12,063 | )(G) | (120,182 | ) | (68 | ) | — | — | — | — | ||||||||||||||||||||||
| Interest expense |
(84 | ) | — | — | (84 | ) | (104,383 | ) | (2,246 | ) | — | — | (2,246 | ) | ||||||||||||||||||||||
| Debt extinguishment costs |
(1,189 | ) | — | — | (1,189 | ) | — | — | — | — | — | |||||||||||||||||||||||||
| Gain on mark-to-market derivative contracts |
(60,695 | ) | — | — | (60,695 | ) | — | — | — | — | — | |||||||||||||||||||||||||
| Loss on investment measured at fair value |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Other income (expense) |
976 | — | — | 976 | 13,486 | (71 | ) | — | — | (71 | ) | |||||||||||||||||||||||||
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| Income (Loss) Before Income Taxes |
233,566 | (612 | ) | 6,495 | 239,449 | (187,570 | ) | (60,223 | ) | (1,930 | ) | (5,016 | ) | (67,169 | ) | |||||||||||||||||||||
| Income tax (expense) benefit |
(130,301 | ) | 612 | (J) | (6,495 | )(H) | (136,184 | ) | 50,995 | 3,270 | (1,043 | )(J) | 1,756 | (H) | 3,983 | |||||||||||||||||||||
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| Net Income (Loss) |
$ | 103,265 | $ | — | $ | — | $ | 103,265 | $ | (136,575 | ) | $ | (56,953 | ) | $ | (2,973 | ) | $ | (3,260 | ) | $ | (63,186 | ) | |||||||||||||
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| Intercompany Eliminations | ||||||||||||||||||||
| Eagle Ford Shale | ||||||||||||||||||||
| Adjustments | Adjustments | |||||||||||||||||||
| Historical | (Note 1) | (Note 1) | Pro Forma | Consolidated | ||||||||||||||||
| Revenues |
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| Oil sales |
$ | — | $ | — | $ | — | $ | — | $ | 1,142,760 | ||||||||||
| Gas sales |
— | — | — | — | 399,607 | |||||||||||||||
| Other operating revenues |
— | — | — | — | 2,228 | |||||||||||||||
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| — | — | — | — | 1,544,595 | ||||||||||||||||
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| Costs and Expenses |
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| Production costs |
— | — | — | — | 451,902 | |||||||||||||||
| General and administrative |
— | — | — | — | 136,437 | |||||||||||||||
| Depreciation, depletion, amortization |
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| and accretion |
152,703 | 1,147 | 17,703 | (I) | 171,553 | 551,118 | ||||||||||||||
| Impairment of oil and gas properties |
(266,442 | ) | — | (4,161 | )(I) | (270,603 | ) | 59,475 | ||||||||||||
| Legal recovery |
— | — | — | — | (8,423 | ) | ||||||||||||||
| Other operating income |
— | — | — | — | (4,130 | ) | ||||||||||||||
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| (113,739 | ) | 1,147 | 13,542 | (99,050 | ) | 1,186,379 | ||||||||||||||
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| Income (Loss) from Operations |
113,739 | (1,147 | ) | (13,542 | ) | 99,050 | 358,216 | |||||||||||||
| Other (Expense) Income |
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| Equity in earnings of subsidiaries |
104,498 | 3,689 | 12,063 | 120,250 | — | |||||||||||||||
| Interest expense |
— | — | — | — | (106,713 | ) | ||||||||||||||
| Debt extinguishment costs |
— | — | — | — | (1,189 | ) | ||||||||||||||
| Gain on mark-to-market derivative contracts |
— | — | — | — | (60,695 | ) | ||||||||||||||
| Loss on investment measured at fair value |
— | — | — | — | — | |||||||||||||||
| Other income (expense) |
— | — | — | — | 14,391 | |||||||||||||||
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| Income (Loss) Before Income Taxes |
218,237 | 2,542 | (1,479 | ) | 219,300 | 204,010 | ||||||||||||||
| Income tax (expense) benefit |
(24,709 | ) | 431 | 4,739 | (I) | (19,539 | ) | (100,745 | ) | |||||||||||
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| Net Income (Loss) |
$ | 193,528 | $ | 2,973 | $ | 3,260 | $ | 199,761 | $ | 103,265 | ||||||||||
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The accompanying notes are an integral part of the financial statements.
PLAINS EXPLORATION & PRODUCTION COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Note 1—Basis of Presentation
On October 28, 2011, PXP and Plains Offshore entered into the Securities Purchase Agreement, with the EIG Funds. Pursuant to the Securities Purchase Agreement, Plains Offshore will issue and sell to the EIG Funds, in a private placement transaction under Section 4(2) of the Securities Act of 1933, as amended, at an aggregate purchase price of $450 million (i) 450,000 shares of its 8.0% Convertible Preferred Stock, par value $0.001 per share and (ii) non-detachable warrants to purchase, in the aggregate, up to 9,121,000 shares of its common stock, par value $0.001 per share, with an exercise price of $20.00 per share. PXP will contribute, directly or indirectly through its subsidiaries, all right, title and interest of PXP in and to its oil and natural gas properties and assets located in the United States Gulf of Mexico in water depths of 500 feet or more including the Lucius Oil Field and the Phobos prospect to Plains Offshore. The transaction is expected to close in November 2011.
As of September 30, 2011, PXP is the issuer of $600 million of 7 3/4% Senior Notes due 2015, $565 million of 10% Senior Notes due 2016, $500 million of 7% Senior Notes due 2017, $400 million of 7 5/8% Senior Notes due 2018, $400 million of 8 5/8% Senior Notes due 2019, $300 million of 7 5/8% Senior Notes due 2020 and $600 million of 6 5/8% Senior Notes due 2021, which are jointly and severally guaranteed on a full and unconditional basis by certain of PXP’s existing domestic subsidiaries (referred to as “Guarantor Subsidiaries”). Certain of PXP’s subsidiaries do not guarantee the Senior Notes (referred to as “Non-Guarantor Subsidiaries”).
The unaudited pro forma condensed consolidating financial statements include financial information relating to:
| • | PXP, or the Issuer; |
| • | the Guarantor Subsidiaries on a combined basis; |
| • | the Non-Guarantor Subsidiaries on a combined basis; |
| • | elimination entries to consolidate the Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries; and |
| • | PXP on a consolidated basis. |
The assets associated with the Deepwater Assets Contribution are reported in the Issuer column, and Plains Offshore is reported as one of PXP’s Non-Guarantor Subsidiaries in PXP’s unaudited pro forma condensed consolidating financial statements.
The unaudited pro forma condensed consolidating statement of income for the year ended December 31, 2010 also reflects the transfer of the Eagle Ford Shale oil and gas properties from the Non-Guarantor Subsidiaries to the Issuer, assuming such transfer occurred on January 1, 2010. During the first half of 2011, the reverse like-kind exchange arrangements related to PXP’s Eagle Ford Shale properties, established pursuant to Internal Revenue Code Section 1031 were concluded prior to the completion of a like-kind exchange involving any disposition of PXP properties. As a result, the related Eagle Ford Shale properties were transferred from PXP Operations LLC, which was reported as a Non-Guarantor Subsidiary, to PXP as Issuer, and the outstanding notes between PXP Operations LLC and PXP were settled. The unaudited pro forma condensed consolidating statement of income for the year ended December 31, 2010 has been retrospectively adjusted to reflect the unwind of this reverse like-kind exchange arrangement involving PXP Operations LLC.
The unaudited pro forma condensed consolidating balance sheet at September 30, 2011, and the unaudited pro forma condensed consolidating statements of income for the nine months ended September 30, 2011 and the year ended December 31, 2010, were prepared based on PXP’s historical condensed consolidating balance sheet at September 30, 2011 and PXP’s historical condensed consolidating statements of income for such periods. The unaudited pro forma condensed consolidating balance sheet at September 30, 2011 assumes that the Deepwater Assets Contribution occurred on September 30, 2011. The unaudited pro forma condensed consolidating statements of income for the nine
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months ended September 30, 2011 and for the year ended December 31, 2010 are adjusted to reflect this transaction as if it occurred on January 1, 2010. The unaudited pro forma condensed consolidating statements of income do not purport to represent what PXP’s results of operations would have been if the transaction had occurred on January 1, 2010. PXP believes the assumptions used herein provide a reasonable basis for presenting the significant effects directly attributable to the Deepwater Assets Contribution.
The unaudited pro forma condensed consolidating financial statements should be read in conjunction with PXP’s Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Report on Form 10-Q for the period ended September 30, 2011.
Pro Forma Adjustments
| The | unaudited pro forma condensed consolidating balance sheet includes the following adjustments: |
| (A) | Reflects the contribution by the Issuer to the Non-Guarantor Subsidiaries of accounts receivable and other current assets, oil and gas properties and related allowance for depreciation, depletion, amortization and impairment, current liabilities and other long-term liabilities and deferred income taxes associated with certain oil and gas properties located in the United States Gulf of Mexico in water depths of 500 feet or more. The Non-Guarantor Subsidiaries column reflects an increase in stockholders’ equity and the Issuer column reflects an increase in investment in and advances to affiliate as a result of the contribution. |
| (B) | Reflects additional non-cash impairment of oil and gas properties as a result of the contribution of the properties to the Non-Guarantor Subsidiaries. We follow the full cost method of accounting for our oil and gas properties, which requires that we perform a recurring ceiling limitation on a quarterly basis. The contribution of the oil and gas properties from the Issuer to the Non-Guarantor Subsidiaries included properties subject to amortization that were subject to the ceiling limitation. The Non-Guarantor Subsidiaries have no associated proved reserves, resulting in a non-cash impairment charge of $734.6 million. |
| (C) | Reflects elimination entries required to reflect the consolidation of the effects from the contribution of oil and gas properties by the Issuer to the Non-Guarantor Subsidiaries. |
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The unaudited pro forma condensed consolidating statements of income include the following adjustments:
| (D) | Reflects the Issuer’s reversal of revenues and expenses and the Non-Guarantors’ recording of revenues and expense attributable to the contributed properties. |
| (E) | Reflects the Issuer’s adjustment to historical depreciation, depletion and amortization expense, or DD&A, as a result of the Deepwater Assets Contribution. The Issuer’s pro forma DD&A is calculated using the unit-of-production method based on the oil and gas property costs, reserve volumes and future development and abandonment costs. The Issuer’s pro forma DD&A rate averaged $11.01 per BOE for the nine months ended September 30, 2011 and $11.70 per BOE for the year ended December 31, 2010. |
| (F) | Reflects additional non-cash impairment of oil and gas properties as a result of the contribution of the properties to the Non-Guarantor Subsidiaries. We follow the full cost method of accounting for our oil and gas properties. The contribution of the oil and gas properties from the Issuer to the Non-Guarantor Subsidiaries included properties subject to amortization that were subject to the required quarterly ceiling limitation. The Non-Guarantor Subsidiaries have no associated proved reserves, resulting in a non-cash impairment charge of $488.7 million for the nine months ended September 30, 2011 and $4.2 million for the year ended December 30, 2010. |
| (G) | Reflects the effect of the Non-Guarantor Subsidiaries’ pro forma income statement adjustments on the Issuer’s equity earnings of subsidiaries. |
| (H) | Reflects the adjustment to income tax expense resulting from the Issuer’s contribution of the properties to the Non-Guarantor Subsidiaries at 35%, the federal statutory rate. |
| (I) | Reflects elimination entries for the consolidation of the effects from the Deepwater Assets Contribution by the Issuer to the Non-Guarantor Subsidiaries. |
| (J) | Reflects the transfer of the Eagle Ford Shale oil and gas properties from the Non-Guarantor Subsidiaries to the Issuer. |
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