Attached files
Exhibit 99.4
RM Resources, LLC
Unaudited Financial Statements
March 31, 2012
RM Resources, LLC
Index
March 31, 2012
Page(s) | ||||
Financial Statements (Unaudited) |
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Statements of Financial Position |
2 | |||
Statements of Operations |
3 | |||
Statements of Cash Flows |
4 | |||
Notes to Financial Statements |
57 |
RM Resources, LLC
Statements of Financial Position
March 31, 2012 and December 31, 2011 (Unaudited)
(in thousands) | March 31, 2012 | December 31, 2011 | ||||||
Assets |
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Current assets |
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Cash and cash equivalents |
$ | 2,220 | $ | 1,605 | ||||
Accounts receivable, net |
1,787 | 1,989 | ||||||
Other |
47 | 47 | ||||||
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Total current assets |
4,054 | 3,641 | ||||||
Property and equipment, net |
4,376 | 4,139 | ||||||
Other assets |
121 | 121 | ||||||
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Total assets |
$ | 8,551 | $ | 7,901 | ||||
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Liabilities and Members Equity |
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Current liabilities |
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Accounts payable |
$ | 719 | $ | 469 | ||||
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Total current liabilities |
719 | 469 | ||||||
Asset retirement obligations |
555 | 550 | ||||||
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Total liabilities |
1,274 | 1,019 | ||||||
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Members Equity |
7,277 | 6,882 | ||||||
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Total liabilities and members equity |
$ | 8,551 | $ | 7,901 | ||||
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The accompanying notes are an integral part of these financial statements.
2
RM Resources, LLC
Statements of Operations
Three Months Ended March 31, 2012 and 2011 (Unaudited)
Three Months Ended | ||||||||
(in thousands) | March 31, | |||||||
2012 | 2011 | |||||||
Operating revenues |
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Service revenues |
$ | 1,381 | $ | 1,396 | ||||
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Total operating revenues |
1,381 | 1,396 | ||||||
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Operating expenses |
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Fuel, supplies and maintenance |
378 | 274 | ||||||
Depreciation and amortization |
76 | 42 | ||||||
Selling and administrative |
325 | 248 | ||||||
Insurance costs |
18 | 8 | ||||||
Communication and utilities |
35 | 25 | ||||||
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Total operating expenses |
832 | 597 | ||||||
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Operating income |
549 | 799 | ||||||
Other income |
(1 | ) | | |||||
Interest expense |
5 | 4 | ||||||
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Net income |
$ | 545 | $ | 795 | ||||
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The accompanying notes are an integral part of these financial statements.
3
RM Resources, LLC
Statements of Cash Flows
Three Months Ended March 31, 2012 and 2011 (Unaudited)
(in thousands) | Three Months Ended March 31, |
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2012 | 2011 | |||||||
Cash flows from operating activities |
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Net income |
$ | 545 | $ | 796 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization |
76 | 42 | ||||||
Changes in assets and liabilities |
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Accounts receivables |
203 | 266 | ||||||
Accounts payable |
249 | 172 | ||||||
Asset retirement obligations |
5 | 4 | ||||||
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Net cash provided by operating activities |
1,078 | 1,280 | ||||||
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Cash flows from investing activities |
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Capital expenditures |
(313 | ) | (540 | ) | ||||
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Net cash used in investing activities |
(313 | ) | (540 | ) | ||||
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Cash flows from financing activities |
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Member distributions |
(150 | ) | (680 | ) | ||||
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Net cash used in financing activities |
(150 | ) | (680 | ) | ||||
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Net increase in cash and cash equivalents |
615 | 60 | ||||||
Cash and cash equivalents |
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Beginning of period |
1,605 | 688 | ||||||
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End of period |
$ | 2,220 | $ | 748 | ||||
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The accompanying notes are an integral part of these financial statements.
4
RM Resources, LLC
Notes to Financial Statements (Unaudited)
March 31, 2012
1. | Nature of Business and Operations |
RM Resources, LLC, located in Medora, North Dakota, (the Company or RM), operates four salt water injection disposal wells within the Bakken Shale. All four of the wells are considered to be Type II wells in accordance with the Environmental Protection Agency (EPA) Title 40 Regulation. Type II wells inject nonhazardous fluids associated with oil and natural gas production. Most of the injected fluid is salt water (brine), which is brought to the surface in the process of producing (extracting) oil and gas. In addition, brine and other fluids are injected to enhance (improve) oil and gas production.
The Company is owned by three members, each with equal interests, rights, preferences and privileges.
2. | General |
The financial statements presented herein have been prepared in conformity with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited 2011 financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of only normal reoccurring adjustments, that are deemed necessary for fair presentation.
3. | Service Revenues |
The components of service revenues are as follows for the three months ended March 31 (in thousands):
2012 | 2011 | |||||||
(unaudited) | ||||||||
Water revenue |
$ | 1,365 | $ | 1,304 | ||||
Junk oil revenue |
16 | 92 | ||||||
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$ | 1,381 | $ | 1,396 | |||||
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4. | Accounts Receivable |
Accounts receivable consisted of the following at (in thousands):
March 31, 2012 | December 31, 2011 | |||||||
(unaudited) | ||||||||
Trade accounts receivable |
$ | 1,802 | $ | 2,004 | ||||
Less: Allowance for doubtful accounts |
(15 | ) | (15 | ) | ||||
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$ | 1,787 | $ | 1,989 | |||||
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RM Resources, LLC
Notes to Financial Statements (Unaudited)
March 31, 2012
The activity in the allowance for doubtful accounts is as follows (in thousands):
Balance at December 31, 2010 |
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Adjustment to bad debt expense |
(15 | ) | ||
Write-offs, net of recoveries |
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Balance at December 31, 2011 |
(15 | ) | ||
Adjustment to bad debt expense |
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Write-offs, net of recoveries |
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Balance at March 31, 2012 (unaudited) |
$ | (15 | ) | |
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5. | Property and Equipment |
Property and equipment consisted of the following at (in thousands):
March 31, 2012 | December 31, 2011 | |||||||
(unaudited) | ||||||||
Disposal wells and improvements |
$ | 4,934 | $ | 4,621 | ||||
Accumulated depreciation |
(558 | ) | (482 | ) | ||||
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Property and equipment, net |
$ | 4,376 | $ | 4,139 | ||||
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Depreciation expense was approximately $0.08 million and $0.04 million for the three months ended March 31, 2012 and 2011, respectively.
6. | Asset Retirement Obligations |
Asset retirement obligations at the Company relate to the costs of future well closings. These costs include equipment, supplies and labor to plug the well and reclaim the property. As of March 31, 2012 and December 31, 2011, the Company has approximately $4.4 million and $4.1 million, respectively, of assets requiring an asset retirement obligation reserve.
The following table presents the rollforward of the asset retirement obligation liability for the three months ended March 31, 2012 (in thousands):
Balance at December 31, 2010 |
360 | |||
2011 additions |
190 | |||
2011 retirements |
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Balance at December 31, 2011 |
550 | |||
2012 additions |
5 | |||
2012 retirements |
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Balance at March 31, 2012 (unaudited) |
$ | 555 | ||
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6
RM Resources, LLC
Notes to Financial Statements (Unaudited)
March 31, 2012
7. | Transactions With Related Parties |
During the three month periods ended March 31, 2012 and 2011, the Company recognized approximately $1.2 million and $0.2 million, respectively, of revenues from Wylie Bice Trucking, LLC (WBT), whose owner is also 33% member in RM Resources. Of this total, approximately, $0.7 million and $0.04 million was included in accounts receivable as of March 31, 2012 and March 31, 2011, respectively. The revenue was generated as WBT injected flowback and production water into disposal wells owned by the Company.
During the three months ended March 31, 2012, the Company paid approximately $0.1 million in management fees to Rodne Consulting, LLC (RC), which is owned by Dean Rodne, a 33% member in the Company.
8. | Commitments and Contingencies |
Litigation
The Company is involved in various legal proceedings that have arisen in the ordinary course of business. In the opinion of the Companys management, all such proceedings are adequately covered by insurance or, if not so covered, should not materially result in any liability which would have a material adverse effect on the financial position, results of operations or cash flows of the Company.
9. | Subsequent Events |
On May 7, 2012, the Companys members entered into an asset purchase agreement with QC Environmental Services, Inc. to sell the operating assets and rights of the Company for $31.7 million, plus potential additional consideration of $7.6 million if certain future operating and performance criteria are satisfied. On June 1, 2012, this sale was consummated for an adjusted purchase price of $31.4 million.
The North Dakota Industrial Commission (NDIC) Oil & Gas Division issued rule changes to the regulations established over drilling and production of oil which became effective April 1, 2012. In these rule changes, it was noted that rule # 43-02-03-19.5 prohibited the use of a reserve pit on most wells unless the wells drilled above the depth of 5,000 feet or for disposal wells in the Dakota Group formation.
One of RM Resources primary revenue streams is pit disposal water. The prohibition of disposal reserve pits at well sites will reduce the number of barrels being disposed. The Company does not expect a significant decline in disposal revenues as the wells are still viable for disposal of other types of disposal water such as production, chemical, and flow-back water.
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