EXHIBIT 99.3

 

bREITBurn Energy Partners L.P.

 

	Page
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2012	1
Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 2012	2
Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2011	3
Notes to Unaudited Pro Forma Combined Financial Statements	4

  

 

BreitBurn Energy Partners L.P. and Subsidiaries

Unaudited Pro Forma Combined Balance Sheet

As of September 30, 2012

 

		BreitBurn								BreitBurn
		Energy				Pro Forma				Energy
		Partners L.P.				Adjustments				Partners L.P.
Thousands of dollars		Historical				(Note 3)				Pro Forma
ASSETS
Current assets
Cash		$	4,374			$	-			$	4,374
Accounts and other receivables, net			69,788				-				69,788
Derivative instruments			39,375				-				39,375
Related party receivables			1,916				-				1,916
Inventory			3,516				-				3,516
Prepaid expenses			3,378				-				3,378
Total current assets			122,347				-				122,347
Equity investments			7,135				-				7,135
Property, plant and equipment
Oil and gas properties			2,987,032				97,971	(a)			3,085,003
Other assets			14,123				-				14,123
			3,001,155				97,971				3,099,126
Accumulated depletion and depreciation			(627,842	)			-				(627,842	)
Net property, plant and equipment			2,373,313				97,971				2,471,284
Other long-term assets
Derivative instruments			46,029				-				46,029
Other long-term assets			30,156								30,156
Total assets		$	2,578,980			$	97,971			$	2,676,951
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	33,896			$	-			$	33,896
Derivative instruments			5,200				-				5,200
Revenue and royalties payable			17,173				-				17,173
Salaries and wages payable			10,156				-				10,156
Accrued interest payable			28,512				-				28,512
Accrued liabilities			20,423				-				20,423
Total current liabilities			115,360				-				115,360
Credit facility			23,000				38,266	(b)			61,266
Senior notes, net			755,696				-				755,696
Deferred income taxes			2,300				-				2,300
Asset retirement obligation			86,499				4,014	(a)			90,513
Derivative instruments			2,016				-				2,016
Other long-term liabilities			4,697				-				4,697
Total liabilities			989,568				42,280				1,031,848
Commitments and contingencies
Equity
Partners' equity			1,589,412				55,691	(b)			1,645,103
Noncontrolling interest			-				-				-
Total equity			1,589,412				55,691				1,645,103
Total liabilities and equity		$	2,578,980			$	97,971			$	2,676,951

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

 

BreitBurn Energy Partners L.P. and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

For the Nine Months Ended September 30, 2012

 

		BreitBurn												BreitBurn
		Energy				AEO Assets				Pro Forma				Energy
		Partners L.P.				Historical				Adjustments				Partners L.P.
Thousands of dollars, except per unit amounts		Historical				(Note 4)				(Note 4)				Pro Forma
Revenues and other income items
Oil, natural gas and natural gas liquid sales		$	300,688			$	22,102	(a)		$	-			$	322,790
Gain on commodity derivative instruments, net			1,865				-				-				1,865
Other revenue, net			2,848				-				-				2,848
Total revenues and other income items			305,401				22,102				-				327,503
Operating costs and expenses
Operating costs			142,203				4,535	(a)			-				146,738
Depletion, depreciation and amortization			109,068				-				5,771	(d)			114,839
General and administrative expenses			40,321				-				-				40,321
Loss on sale of assets			222				-				-				222
Total operating costs and expenses			291,814				4,535				5,771				302,120
Operating income (loss)			13,587				17,567				(5,771	)			25,383
Interest expense, net of capitalized interest			43,231				-				568	(e)			43,799
Loss on interest rate swaps			926				-				-				926
Other expense, net			36				-				-				36
Income (loss) before taxes			(30,606	)			17,567				(6,339	)			(19,378	)
Income tax benefit			(201	)			-				-				(201	)
Net income (loss)			(30,405	)			17,567				(6,339	)			(19,177	)
Less: Net income attributable to noncontrolling interest			(62	)			-				-				(62	)
Net income (loss) attributable to the partnership		$	(30,467	)		$	17,567			$	(6,339	)		$	(19,239	)
Basic net loss per unit		$	(0.44	)										$	(0.27	)
Diluted net loss per unit		$	(0.44	)										$	(0.27	)
Weighted average number of units used to calculate
Basic net income per unit			69,363								3,014	(f)			72,377
Diluted net income per unit			69,363								3,014	(f)			72,377

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

 

BreitBurn Energy Partners L.P. and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2011

 

		BreitBurn																BreitBurn
		Energy				Cabot Assets				AEO Assets				Pro Forma				Energy
		Partners L.P.				Historical				Historical				Adjustments				Partners L.P.
Thousands of dollars, except per unit amounts		Historical				(Note 4)				(Note 4)				(Note 4)				Pro Forma
Revenues and other income items:
Oil, natural gas and natural gas liquid sales		$	394,393			$	40,530	(a)		$	30,810	(a)		$	150	(b)		$	465,883
Gain on commodity derivative instruments, net			81,667				-				-				-				81,667
Other revenue, net			4,310				-				-				-				4,310
Total revenues and other income items			480,370				40,530				30,810				150				551,860
Operating costs and expenses:
Operating costs			165,969				11,863	(a)			6,729	(a)			973	(c)			185,534
Depletion, depreciation and amortization			107,503				-				-				18,331	(d)			125,834
General and administrative expenses			53,313				-				-				2,183	(c)			55,496
Gain on sale of assets			(111	)			-				-				-				(111	)
Unreimbursed litigation costs			(113	)			-				-				-				(113	)
Total operating costs and expenses			326,561				11,863				6,729				21,487				366,640
Operating income (loss)			153,809				28,667				24,081				(21,337	)			185,220
Interest expense, net of capitalized interest			39,165				-				-				5,779	(e)			44,944
Loss on interest rate swaps			2,777				-				-				-				2,777
Other income, net			(19	)			-				-				-				(19	)
Income (loss) before taxes			111,886				28,667				24,081				(27,116	)			137,518
Income tax expense			1,188				-				-				-				1,188
Net income (loss)			110,698				28,667				24,081				(27,116	)			136,330
Less: Net income attributable to noncontrolling interest			(201	)			-				-				-				(201	)
Net income (loss) attributable to the partnership		$	110,497			$	28,667			$	24,081			$	(27,116	)		$	136,129
Basic net income per unit		$	1.80															$	2.11
Diluted net income per unit		$	1.79															$	2.11
Weighted average number of units used to calculate
Basic net income per unit			61,470												3,014	(f)			64,484
Diluted net income per unit			61,604												3,014	(f)			64,618

 

See the accompanying notes to the unaudited pro forma combined financial statements.

 

 

Notes to the Unaudited Pro Forma Combined Financial Statements

 

1.

General

 

BreitBurn Energy Partners L.P. is a Delaware limited partnership formed on March 23, 2006. BreitBurn Energy Partners L.P. completed its initial public offering in October 2006. References in this filing to “the Partnership,” “we,” “our,” “us” or like terms refer to BreitBurn Energy Partners L.P. and its subsidiaries.

 

We are an independent oil and gas partnership focused on the acquisition, exploitation and development of oil and gas properties in the United States.

 

On November 30, 2012, the Partnership and BreitBurn Operating L.P. (“BreitBurn Operating”), our wholly owned subsidiary, completed the acquisition of certain assets (the “AEO Assets”), effective November 1, 2012, from American Energy Operations, Inc. (“AEO”). The Partnership paid approximately $38 million in cash, net of approximately $2 million in anticipated purchase price adjustments, and issued 3,013,561 common units representing limited partner interests in the Partnership (“Common Units”) to AEO (the “AEO Acquisition”). The purchase price is subject to customary purchase price adjustments. The AEO Assets consist principally of oil properties located in the Belridge Field in Kern County, California

 

On October 6, 2011, BreitBurn Operating completed the acquisition of certain assets (the “Cabot Assets”), effective September 1, 2011, from Cabot Oil & Gas Corporation (“Cabot”) for $281 million in cash (the “Cabot Acquisition”). The Cabot Assets consist principally of natural gas properties located primarily in the Evanston and Green River Basins of Southwest Wyoming. The Cabot Assets also include limited acreage and non-operated oil and natural gas interests in Colorado and Utah.

 

2.

Basis of Presentation

 

The Partnership’s unaudited pro forma combined balance sheet has been presented to show the effect as if the AEO Acquisition had occurred on September 30, 2012.

 

The unaudited pro forma combined statements of operations for the nine months ended September 30, 2012 and the year ended December 31, 2011 have been presented based on the individual statements of operations of the Partnership, and reflect the pro forma operating results attributable to the AEO Assets as if the acquisition and the related transactions had occurred on January 1, 2011 and the Cabot Assets as if the acquisition and the related transactions had occurred on January 1, 2010. BreitBurn Energy Partners L.P. historical statements of operations include operating results from the Cabot Assets for the three months ended December 31, 2011 and the nine months ended September 30, 2012, and, as such, there are no pro forma adjustments related to the Cabot Assets for these periods.

 

Pro forma data is based on currently available information and certain estimates and assumptions as explained in the notes to the unaudited pro forma combined financial statements. Pro forma data is not necessarily indicative of the financial results that would have been attained had the Cabot and AEO acquisitions occurred on January 1, 2010 and January 1, 2011, respectively. As actual adjustments may differ from the pro forma adjustments, the pro forma amounts presented should not be viewed as indicative of operations in future periods. The accompanying unaudited pro forma combined financial statements of the Partnership should be read in conjunction with our Quarterly Report on Form 10-Q for the nine months ended September 30, 2012, our Annual Report on Form 10-K for the year ended December 31, 2011 and the statement of revenues and direct operating expenses for the Cabot Assets and the notes thereto filed as exhibit 99.1 to the Current Report on Form 8-K/A filed March 27, 2012.

 

3.

Pro Forma Adjustments to the Unaudited Combined Balance Sheet

 

Pro forma adjustments to the Unaudited Combined Balance Sheet for the period ended September 30, 2012 reflect the acquisition and the preliminary purchase price allocations for the AEO Assets, assuming borrowings were made under our Second Amended and Restated Credit Agreement.

 

The preliminary purchase price allocations are based on preliminary reserve reports, quoted market prices and estimates by management. To estimate the fair values of acquired oil and gas reserves, we utilized our reserve engineers’ estimates of oil and natural gas proved reserves to arrive at estimates of future cash flows net of operating and development costs. The estimated future net cash flows were discounted at a weighted average cost of capital.

 

 

The preliminary purchase price allocation is subject to final closing adjustments. We expect to finalize the purchase price allocation within one year of the acquisition date.

 

(a)

The preliminary allocation of the purchase price for the AEO Assets is summarized below:

 

Thousands of dollars
Oil and gas properties		$	97,971
Asset retirement obligation			(4,014	)
		$	93,957

 

(b)

The preliminary purchase price was approximately $38 million in cash and 3,013,561 Common Units, which had a closing price on November 30, 2012 of $18.48. The $38 million payment was made with borrowings under our Second Amended and Restated Credit Agreement.

 

Thousands of dollars
Fair market value of Common Units issued to AEO		$	55,691
Credit facility borrowings			38,266
Total purchase price		$	93,957

 

4. Pro Forma Adjustments to the Unaudited Combined Statement of Operations

 

Pro forma adjustments to the Consolidated Statement of Operations for the nine months ended September 30, 2012 and the year ended December 31, 2011 assume the acquisition was consummated on January 1, 2011.

 

The unaudited pro forma combined statements of operations have been adjusted as follows:

 

(a)

Record revenue and direct operating expenses for the acquired assets derived from historical financial records.

 

AEO - for the nine months ended September 30, 2012, $22.1 million of revenue and $4.5 million of direct operating expenses.

AEO - for the year ended December 31, 2011, $30.8 million of revenue and $6.7 million of direct operating expenses.

Cabot – for the year ended December 31, 2011, $40.5 million of revenue and $11.9 million of direct operating expenses.

 

(c)

Cabot - for the year ended December 31, 2011, record a $0.2 million increase in revenue to reflect natural gas sales revenue for the Cabot Assets under the entitlement method.

 

(d)

Cabot - for the year ended December 31, 2011, record estimated incremental regional operation management costs of $1.0 million and general and administrative expense of $2.2 million, expected to be incurred for the Cabot Assets

 

(d)

Record incremental depletion, depreciation and accretion expense related to the acquired depletable and depreciable assets.

 

AEO - for the nine months ended September 30, 2012, $5.8 million.

AEO - for the year ended December 31, 2011, $8.0 million.

Cabot - for the year ended December 31, 2011, $10.3 million.

 

(e)

AEO - Add interest expense associated with bank debt of approximately $38 million incurred to fund the AEO Acquisition; the assumed variable interest rate was 2.151% and 2.308% for the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively. If the variable interest rate increased or decreased by 0.125% in the future, the annual pro forma interest expense would increase or decrease by less than $0.1 million.

 

 

- for the nine months ended September 30, 2012, $0.6 million.

- for the year ended December 31, 2011, $1.1 million.

 

Cabot - for the year ended December 31, 2011, add interest expense of $4.7 million associated with bank debt of approximately $281 million incurred to fund the Cabot Acquisition. The assumed variable interest rate was 2.230%. If the variable interest rate increased or decreased by 0.125% in the future, the annual pro forma interest expense would increase or decrease by approximately $0.4 million.

 

(f)

Add 3,013,561 Common Units issued to AEO as partial consideration for the AEO assets.

 

5.

Supplemental Oil and Gas Information (Unaudited)

 

The following table sets forth certain unaudited pro forma information regarding estimates of the Partnership’s proved crude oil and natural gas reserves for the year ended December 31, 2011, giving effect to the AEO Acquisition as if it had occurred on January 1, 2011. Because oil reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures.

 

		BreitBurn Energy Partners L.P.												AEO Assets												BreitBurn Energy Partners L.P.
		Historical												Historical												Pro Forma
		Total				Oil				Gas				Total				Oil				Gas				Total				Oil				Gas
		(MBoe)				(MBbl)				(MMcf)				(MBoe)				(MBbl)				(MMcf)				(MBoe)				(MBbl)				(MMcf)
Proved Reserves
Beginning balance			118,908				41,659				463,491				3,896				3,422				2,842				122,804				45,081				466,333
Revision of previous estimates			7,037				10,074				(18,222	)			-				-				-				7,037				10,074				(18,222	)
Purchase of reserves in-place			32,198				4,204				167,971				-				-				-				32,198				4,204				167,971
Sale of reserves in-place			-				-				-				-				-				-				-				-				-
Production			(7,037	)			(3,255	)			(22,697	)			(326	)			(271	)			(330	)			(7,363	)			(3,526	)			(23,027	)
Ending balance			151,106				52,682				590,543				3,570				3,151				2,512				154,676				55,833				593,055
Proved Developed Reserves
Beginning balance			108,283				38,719				417,381				2,639				2,264				2,248				110,922				40,983				419,629
Ending balance			131,462				47,813				501,891				2,356				2,031				1,952				133,818				49,844				503,843
Proved Undeveloped Reserves
Beginning balance			10,625				2,940				46,110				1,257				1,158				594				11,882				4,098				46,704
Ending balance			19,644				4,869				88,652				1,214				1,120				560				20,858				5,989				89,212

 

The unweighted average first-day-of-the-month crude oil and natural gas prices used to determine our historical total estimated proved reserves as of December 31, 2011 were $95.97 per Bbl of oil for Michigan, California and Florida, $76.79 per Bbl of oil for Wyoming and $4.12 per MMBtu of gas.

 

 

Summarized in the following table is information for the Partnership’s unaudited pro forma standardized measure of discounted cash flows relating to estimated proved reserves as of December 31, 2011, giving effect to the AEO Acquisition. The standardized measure of discounted future net cash flows was determined based on the economic conditions in effect at December 31, 2011. The disclosures below do not purport to present the fair market value of the Partnership’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money, and risks inherent in reserve estimates. The pro forma standardized measure of discounted future net cash flows is presented as follows:

 

		BreitBurn								BreitBurn
		Energy								Energy
		Partners L.P.				AEO Assets				Partners L.P.
Thousands of dollars		Historical				Historical				Pro Forma
Future cash inflows		$	7,338,443			$	354,470			$	7,692,913
Future development costs			(338,273	)			(24,290	)			(362,563	)
Future production expense			(3,531,192	)			(114,965	)			(3,646,157	)
Future net cash flows			3,468,978				215,215				3,684,193
Discounted at 10% per year			(1,809,677	)			(102,834	)			(1,912,511	)
Standardized measure of discounted future net cash flows		$	1,659,301			$	112,381			$	1,771,682

 

The following table sets forth unaudited pro forma information for the principal sources of changes in the standardized measure of discounted future net cash flows for the year ended December 31, 2011, giving effect to the AEO Acquisition:

 

		BreitBurn								BreitBurn
		Energy								Energy
		Partners L.P.				AEO Assets				Partners L.P.
Thousands of dollars		Historical				Historical				Pro Forma
Beginning balance		$	1,064,924			$	125,929			$	1,190,853
Sales and transfers, net of production expense			(228,424	)			(24,081	)			(252,505	)
Net change in sales and transfer prices, net of production expense			393,183				-				393,183
Previously estimated development costs incurred during year			39,665				-				39,665
Changes in estimated future development costs			(35,886	)			-				(35,886	)
Purchase of reserves in place			342,675				-				342,675
Revision of quantity estimates and timing of estimated production			(23,328	)			-				(23,328	)
Accretion of discount			106,492				10,533				117,025
Ending balance		$	1,659,301			$	112,381			$	1,771,682