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8-K/A - FORM 8-K/A - QR Energy, LP | d370911d8ka.htm |
EX-99.2 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET OF THE PARTNERSHIP - QR Energy, LP | d370911dex992.htm |
EX-23.1 - CONSENT OF KPMG - QR Energy, LP | d370911dex231.htm |
EXHIBIT 99.1
Independent Auditors Report
The Board of Directors
QR Energy, LP:
We have audited the accompanying Statement of Revenues and Direct Operating Expenses Acquired Prize Properties (the Statement) for the year ended December 31, 2011. This Statement is the responsibility of QR Energy, LPs management. Our responsibility is to express an opinion on the Statement based on our audit.
We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Statement. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in note 1. The presentation is not intended to be a complete presentation of the Acquired Prize Properties.
In our opinion, the Statement referred to above presents fairly, in all material respects, the Revenues and Direct Operating Expenses Acquired Prize Properties for the year ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
(signed) KPMG LLP
Houston, TX
June 29, 2012
ACQUIRED PRIZE PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
Three Months Ended March 31, 2012 |
Three Months Ended March 31, 2011 |
Year Ended December 31, 2011 |
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(Unaudited) | (Unaudited) | |||||||||||
Revenues |
$ | 10,067 | $ | 8,642 | $ | 35,198 | ||||||
Direct operating expenses |
3,627 | 3,280 | 13,097 | |||||||||
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Excess of revenues over direct operating expenses |
$ | 6,440 | $ | 5,362 | $ | 22,101 | ||||||
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The accompanying notes are an integral part of the Statements of Revenues and Direct Operating Expenses
Acquired Prize Properties
Notes to the Statements of Revenues and Direct Operating Expenses
1. | Properties and Basis of Presentation |
The accompanying statements present the revenues and direct operating expenses of working interests in oil and natural gas producing properties acquired by QRE Operating, LLC, a wholly owned subsidiary of QR Energy, LP (QR Energy or the Partnership) on April 20, 2012 from Prize Petroleum, LLC and Prize Pipeline, LLC (collectively Prize) for $226 million, subject to customary closing conditions and adjustments. The properties are referred to herein as the Acquired Prize Properties.
The accompanying statements of revenues and direct operating expenses are presented on an accrual basis of accounting and were derived from Prizes historical financial records. Revenues and direct operating expenses relate to the Partnerships acquired net revenue and working interests in the Acquired Prize Properties. Oil, natural gas and natural gas liquids revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Revenues are reported net of overriding and other royalties due to third parties. Direct operating expenses include lease and well repairs, production taxes, gathering and transportation, maintenance, utilities, payroll and other direct operating expenses.
During the periods presented, the Acquired Prize Properties were not accounted for as a separate entity or division of Prize and are not indicative of the financial condition or results of operations of the Acquired Prize Properties going forward. Certain costs such as depreciation, depletion and amortization, accretion of asset retirement obligations, general and administrative expenses, interest expense and corporate income taxes were not allocated to the individual properties, and therefore not included as direct operating expenses.
Historical financial statements reflecting financial position, results of operations and cash flows required by accounting principles generally accepted in the United States of America are not presented as such information is not available on an individual property basis, nor is it practicable to obtain such information in these circumstances. Accordingly, the statement of revenues and direct operating expenses is presented in lieu of the financial statements required under Rule 3-01 and Rule 3-02 of the Securities and Exchange Commissions Regulation S-X. The results set forth in these financial statements may not be representative of future operations.
2. | Unaudited Interim Financial Information |
The accompanying statements of revenues and direct operating expenses for the three months ended March 31, 2011 and 2012 are unaudited. The unaudited interim statements of revenues and direct operating expenses have been derived from Prizes historical financial records and prepared on the same basis as the annual statement of revenues and direct operating expenses. In the opinion of management, such unaudited interim statements reflect all adjustments necessary to fairly state the excess of revenue over direct operating expenses of the Acquired Properties for the three months ended March 31, 2011 and 2012.
3. | Subsequent Events |
In accordance with Accounting Standards Codification (ASC) 855, management has evaluated subsequent events through June 29, 2012, the date the accompanying statements of revenues and direct operating expenses were available to be issued. There were no material subsequent events that required recognition or additional disclosure in the accompanying statements of revenues and direct operating expenses.
Supplemental Oil and Gas Reserve Information (Unaudited)
Estimated Quantities of Proved Oil and Natural Gas Reserves
Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions (i.e., prices and costs) existing at the time the estimate was made. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made.
The following tables summarize the estimated quantities of oil and natural gas reserves of the Acquired Prize Properties as of December 31, 2011 estimated by Prizes petroleum engineers in accordance with the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) authoritative guidance, and the related summary of changes in estimated quantities of net remaining proved reserves during the year.
Oil | Gas | NGL | ||||||||||
(MBbl) | (MMcf) | (MBbl) | ||||||||||
Balance as of December 31, 2010 |
12,692 | 5,931 | 391 | |||||||||
Extensions |
337 | 108 | 13 | |||||||||
Revision of previous estimates |
(550 | ) | (1,889 | ) | 110 | |||||||
Production |
(355 | ) | (165 | ) | (13 | ) | ||||||
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Balance as of December 31, 2011 |
12,124 | 3,985 | 501 | |||||||||
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Proved developed reserves: |
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December 31, 2010 |
12,216 | 5,614 | 370 | |||||||||
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December 31, 2011 |
11,847 | 3,866 | 486 | |||||||||
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Proved undeveloped reserves: |
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December 31, 2010 |
476 | 317 | 21 | |||||||||
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December 31, 2011 |
277 | 119 | 15 | |||||||||
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Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following tables set forth the computation of the standardized measure of discounted future net cash flows (the Standardized Measure) relating to proved reserves and the changes in such cash flows of the Acquired Prize Properties in accordance with the FASB and SEC authoritative guidance related to disclosures about oil and gas producing activities. The Standardized Measure is the estimated net future cash inflows from proved reserves less estimated future production and development costs, estimated plugging and abandonment costs, and a discount factor. Production costs do not include depreciation, depletion and amortization of capitalized acquisition, exploration and development costs. Future cash inflows represent expected revenues from production of period-end quantities of proved reserves based on the 12-month average oil and gas index, calculated as the unweighted arithmetic average of the first day of the month price for each month during the year, as prescribed by ASC 932. Estimated future production costs related to period-end reserves are based on period-end costs. Such costs include, but are not limited to, production taxes and direct operating costs. Inflation and other anticipatory costs are not considered until the actual cost change takes effect. In accordance with the FASBs authoritative guidance, a discount rate of 10% is applied to the annual future net cash flows.
The average prices (adjusted for basis and quality differentials) related to proved reserves at December 31, 2011 for natural gas was $5.15 per Mcf and for oil was $95.16 per Bbl. Future cash inflows were reduced by estimated future development, and production costs based on year-end costs resulting in net cash flow before tax. Future income tax expense was computed by applying year end statutory tax rates to future pretax cash flows, less the tax basis of the properties involved.
The Standardized Measure is not intended to be representative of the fair market value of the proved reserves. The calculations of revenues and costs do not necessarily represent the amounts to be received or expended. Accordingly, the estimates of future net cash flows from proved reserves and the present value thereof may not be materially correct when judged against actual subsequent results. Further, since prices and costs do not remain static, and no price or cost changes have been considered, and future production and development costs are estimates to be incurred in developing and producing the estimated proved oil and gas reserves, the results are not necessarily indicative of the fair market value of estimated proved reserves, and the results may not be comparable to estimates disclosed by other oil and gas producers.
(In thousands) | ||||
Year Ended | ||||
December 31, | ||||
2011 | ||||
Future cash in flows |
$ | 1,209,150 | ||
Future production and development costs |
(556,881 | ) | ||
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Future net cash flows |
652,269 | |||
10% annual discount for estimated timing of cash flows |
(423,486 | ) | ||
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Standardized measure of discounted future net cash flows |
$ | 228,783 | ||
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Changes in the Standardized Measure of the Acquired Prize Properties are as follows:
(In thousands) | ||||
Year Ended | ||||
December 31, | ||||
2011 | ||||
Beginning of period |
$ | 191,340 | ||
Extensions |
9,596 | |||
Revisions of previous estimates |
(10,266 | ) | ||
Changes in future development cost, net |
(334 | ) | ||
Development cost incurred during the year that reduce future development costs |
387 | |||
Net change in prices |
61,307 | |||
Sales, net of production costs |
(21,588 | ) | ||
Changes in timing and other |
(20,793 | ) | ||
Accretion of discount |
19,134 | |||
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End of period |
$ | 228,783 | ||
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