Attached files

file filename
EX-99.1 - EX-99.1 - WildHorse Resource Development Corpd407736dex991.htm
8-K - 8-K - WildHorse Resource Development Corpd407736d8k.htm

Exhibit 99.2

WildHorse Resource Development Corporation

Unaudited Pro Forma Combined Financial Statements

 

 

     Page  

Introduction

     2  

Unaudited Pro Forma Combined Statement of Operations for the Year Ended December 31, 2016

     4  

Unaudited Pro Forma Combined Statement of Operations for the Six Months Ended June 30, 2017

     5  

Notes to Unaudited Pro Forma Combined Financial Statements

     6  

 

1


Introduction

WildHorse Resource Development Corporation is a publicly traded Delaware corporation, the common shares of which are listed on the New York Stock Exchange (“NYSE”) under the symbol “WRD.” Unless the context requires otherwise, references to “we,” “us,” “our,” “WRD,” or “the Company” are intended to mean the business and operations of WildHorse Resource Development Corporation and its consolidated subsidiaries. We are an independent oil and natural gas company focused on the acquisition, exploitation, development and production of oil, natural gas and NGL resources.

Reference to “WHR II” or our “predecessor” refers to WildHorse Resources II, LLC, together with its consolidated subsidiaries. Reference to “Esquisto I” refers to Esquisto Resources, LLC. Reference to “Esquisto II” refers to Esquisto Resources II, LLC. Reference to “Acquisition Co.” refers to WHE AcqCo., LLC, an entity that acquired certain producing properties and undeveloped acreage from Clayton Williams Energy, Inc. (“Burleson North Acquisition”) on December 19, 2016.

Our predecessor’s financial statements were retrospectively recast due to common control considerations. Because WHR II, Esquisto I, Esquisto II and Acquisition Co. were under the common control of NGP, the sale and contribution of the respective ownership interests were accounted for as a combination of entities under common control, whereby the assets and liabilities sold and contributed were recorded based on historical cost.

On May 10, 2017, we, through our wholly owned subsidiary, WHR Eagle Ford LLC (“WHR EF”), entered into a Purchase and Sale Agreement (the “First Acquisition Agreement”) by and among WHR EF, as purchaser, and Anadarko E&P Onshore LLC (“APC”), Admiral A Holding L.P., TE Admiral A Holding L.P. and Aurora C-I Holding L.P. (collectively, “KKR” and, together with APC, the “First Sellers”), as sellers, to acquire certain acreage and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (the “Purchase”). Also on May 10, 2017, WHR EF entered into a Purchase and Sale Agreement (together, with the First Acquisition Agreement, the “Acquisition Agreements”), by and among WHR EF, as purchaser, and APC and Anadarko Energy Services Company (together, with APC, the “APC Subs” and together, with the First Sellers, the “Sellers”), as sellers, to acquire certain acreage and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (together, with the Purchase, the “Acquisition”).

Pursuant to the Acquisition Agreements, on June 30, 2017, we acquired oil and gas working interests covering approximately 111,000 aggregate net acres and the associated production therefrom. The aggregate purchase price for the assets, as described in the Acquisition Agreements, subject to customary adjustments as provided in the Acquisition Agreements, consisted of an aggregate of approximately $533.6 million of cash to the APC Subs and approximately 5.5 million shares of our common stock valued at approximately $60.8 million to KKR (in the aggregate, the “Adjusted Purchase Price”). The common stock consideration price payable to KKR issued pursuant to a Stock Issuance Agreement that was executed, on May 10, 2017 (the “Stock Issuance Agreement”), by and among us and KKR. We and KKR made customary representations, warranties and covenants in the Stock Issuance Agreement. The closing of the common stock issuance was conditioned upon and occurred simultaneous with the closing of the Acquisition. WHR EF and the Sellers made customary representations, warranties and covenants in the Acquisition Agreements. The Sellers made certain additional customary covenants, including, among others, covenants to conduct its business in the ordinary course between the execution of the Acquisition Agreements and the closing of the Acquisition and not to engage in certain kinds of transactions during that period, subject to certain exceptions. The Sellers agreed not to take certain specified actions without our consent during the time between execution of the Acquisition Agreements and the closing of the Acquisition.

An affiliate of The Carlyle Group, L.P. (“Carlyle”) agreed to purchase $435 million of Preferred Stock from WRD. The remainder of the acquisition price was funded by borrowings under WRD’s revolving credit facility. The unaudited pro forma combined statements of operations of the Company include pro forma adjustments to give effect to the following as if they had occurred on the dates indicated:

 

    for the year ended December 31, 2016, the Burleson North Acquisition as if it had been completed as of January 1, 2016;

 

    for the year ended December 31, 2016, the Acquisition as if it had been completed as of January 1, 2016; and

 

2


    for the six months ended June 30, 2017, the Acquisition as if it had been completed as of January 1, 2016.

The unaudited pro forma combined statements of operations of the Company are based on (i) the audited financial statements of the Company for the year ended December 31, 2016, as included on the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2017; (ii) the unaudited financial statements of the Company for the six months ended June 30, 2017, included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2017; (iii) the audited historical statements of revenues and direct operating expenses of the Burleson North Acquisition for the nine months ended September 30, 2016, as incorporated by reference into the Company’s Form 8-K filed with the SEC on December 22, 2016; (iv) the audited and unaudited historical statements of revenues and direct operating expenses of the APC Acquisition for the year ended December 31, 2016 and the three months ended March 31, 2017, as included as an exhibit to the Company’s Form 8-K filed with the SEC on July 7, 2017; (v) the audited and unaudited historical statements of revenues and direct operating expenses of the KKR Acquisition for the year ended December 31, 2016 and the three months ended March 31, 2017, as included as an exhibit to the Company’s Form 8-K filed with the SEC on July 7, 2017; and (vi) certain pro forma adjustments reflected in the pro forma financial statements below.

The pro forma data presented reflects events directly attributable to the above described transactions and certain assumptions that the Company believes are reasonable. The pro forma adjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual adjustments may differ from the pro forma adjustments. However, management believes that the pro forma assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial statements.

The unaudited pro forma combined financial statements and related notes are presented for illustrative purposes only. If the Burleson North Acquisition or the Acquisition and the related financing transactions contemplated herein had occurred in the past, the Company’s operating results might have been materially different from those presented in the unaudited pro forma combined financial statements. The unaudited pro forma combined financial statements should not be relied upon as an indication of operating results that the Company would have achieved if the acquisitions and other transactions contemplated herein had taken place on the specified date. In addition, future results may vary significantly from the results reflected in the unaudited pro forma statements of operations and should not be relied on as an indication of the future results of the Company.

The unaudited pro forma combined financial statements should be read in conjunction with the notes thereto and with the audited and unaudited historical financial statements and related notes of the Company filed with the SEC, as well as the other audited and unaudited historical statements of revenues and direct operating expenses filed with the SEC.

 

3


WILDHORSE RESOURCE DEVELOPMENT CORPORATION

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED

DECEMBER 31, 2016

(in thousands)

 

     WRD
  Historical  
     Burleson
North
  Acquisition  

Historical
(1)
     Burleson
North
Acquisition
  Adjustments  
(2)
     APC
  Acquisition  
Historical
     KKR
  Acquisition  
Historical
     Financing
and Other
  Adjustments  
           WRD
Pro
    Forma    
 

Revenues:

                      

Oil sales

    $ 75,938        $ 34,571        $ 10,583        $ 66,585        $ 21,746        $ —          $     209,423   

Natural gas sales

     43,487         1,812         646         4,299         530         —           50,774   

NGL sales

     5,786         810         318         5,179         821         —           12,914   

Other income

     2,131         —         —         —         —         —           2,131   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Total operating revenues

     127,342         37,193         11,547         76,063         23,097         —           275,242   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Operating expenses:

                      

Lease operating expenses

     12,320         12,966         2,443         24,660         3,014         (10,178)         (a)       45,225   

Gathering, processing and transportation

     6,581         —         1,244         —         —         10,178         (a)       18,003   

Gathering system operating expense

     99         —         —         —         —         —           99   

Taxes other than income tax

     6,814         3,546         (182)         4,664         1,414         —           16,256   

Depreciation, depletion and amortization

     81,757         —         19,115         —         —         26,576         (c)       127,448   

General and administrative

     23,973         —         —         —         —         —           23,973   

Exploration expense

     12,026         —         —         —         —         —           12,026   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Total operating expense

     143,570         16,512         22,620         29,324         4,428         26,576           243,030   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Income (loss) from operations

     (16,228)         20,681         (11,073)         46,739         18,669         (26,576)           32,212   

Other income (expense):

                      

Interest expense, net

     (7,834)         —         —         —         —         (3,556)         (d)       (11,656)   
                    (266)         (e)    

Debt extinguishment costs

     (1,667)         —         —         —         —         —           (1,667)   

Gain (loss) on derivative instruments

     (26,771)         —         —         —         —         —           (26,771)   

Other income (expense)

     (151)         —         —         —         —         —           (151)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Total other income (expense)

     (36,423)         —         —         —         —         (3,822)           (40,245)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Income (loss) before income taxes

     (52,651)         20,681         (11,073)         46,739         18,669         (30,398)           (8,033)   

Income tax benefit (expense)

     5,575         —         —         —         —         (686)         (f)       4,889   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Net income (loss)

     (47,076)         20,681         (11,073)         46,739         18,669         (31,084)           (3,144)   

Net income (loss) attributable to previous owners

     (2,681)         20,681         (11,073)         45,079         18,013         (29,098)         (g)       40,921   

Net income (loss) attributable to predecessor

     (33,998)         —         —         —         —         —           (33,998)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Net income (loss) available to WildHorse Resource Development

    $ (10,397)        $ —        $ —        $ 1,660        $ 656        $ (1,986)          $ (10,067)   

Preferred stock dividends

     —         —         —         —         —         19,870         (h)       19,870   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Net income (loss) available to common shareholders

    $ (10,397)        $ —        $ —        $ 1,660        $ 656        $ (21,856)          $ (29,937)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Earnings per common share:

                      

Basic

    $ (0.11)                         $ (0.31)   
  

 

 

                     

 

 

 

Diluted

    $ (0.11)                         $ (0.31)   
  

 

 

                     

 

 

 

Weighted-average common shares outstanding:

                      

Basic

     91,327                          96,845   
  

 

 

                     

 

 

 

Diluted

     91,327                          96,845   
  

 

 

                     

 

 

 

 

(1) Represents the nine months ended September 30, 2016.
(2) Represents activity from the Burleson North Acquisition from October 1, 2016 through December 19, 2016, the date of acquisition.

 

4


WILDHORSE RESOURCE DEVELOPMENT CORPORATION

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS

ENDED JUNE 30, 2017

(in thousands)

 

     WRD
Historical
     APC
Acquisition
Historical (1)
     KKR
Acquisition
Historical (1)
     Financing
and Other
Adjustments
            WRD
Pro
      Forma      
 

Revenues:

                 

Oil sales

    $         92,040        $         16,741        $           4,975          $         20,441              $134,197   

Natural gas sales

     25,422         1,214         122         1,141            27,899   

NGL sales

     6,067         1,621         238         1,654            9,580   

Other income

     936         —         —         61            997   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Total operating revenues

     124,465         19,576         5,335         23,297            172,673   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Operating expenses:

                 

Lease operating expenses

     13,765         6,244         622         (66)         (a)        20,565   

Gathering, processing and transportation

     3,642         —         —         4,515         (a)        8,157   

Gathering system operating expense

     44         —         —         —            44   

Taxes other than income tax

     8,408         1,507         334         1,108         (b)        11,357   

Depreciation, depletion and amortization

     59,672         —         —         10,786         (c)        70,458   

General and administrative

     17,531         —         —         —            17,531   

Exploration expense

     13,119         —         —         —            13,119   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Total operating expense

     116,181         7,751         956         16,343            141,231   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Income (loss) from operations

     8,284         11,825         4,379         6,954            31,442   

Other income (expense):

                 

Interest expense, net

     (12,204)         —         —         (1,743)         (d)        (14,013)   
              (66)         (e)     

Debt extinguishment costs

     11         —         —         —            11   

Gain (loss) on derivative instruments

     77,407         —         —         —            77,407   

Other income (expense)

     13         —         —         —            13   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Total other income (expense)

     65,227         —         —         (1,809)            63,418   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Income (loss) before income taxes

     73,511         11,825         4,379         5,145            94,860   

Income tax benefit (expense)

     (26,893)         —         —         (7,577)         (f)        (34,470)   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Net income (loss) available to WildHorse Resources

    $ 46,618        $ 11,825        $ 4,379          $ (2,432)             $60,390   

Preferred stock dividends

     73         —         —         13,675         (h)        13,748   

Undistributed earnings allocated to preferred stock

     434         —         —         11,420         (i)        11,854   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Net income (loss) available to common shareholders

    $ 46,111        $ 11,825        $ 4,379          $ (27,527)             $34,788   
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

 

Earnings per common share:

                 

Basic

    $ 0.49                      $0.35   
  

 

 

                

 

 

 

Diluted

    $ 0.49                      $0.35   
  

 

 

                

 

 

 

Weighted-average common shares outstanding:

                 

Basic

     93,452                     98,940   
  

 

 

                

 

 

 

Diluted

     93,452                     98,940   
  

 

 

                

 

 

 

 

(1) Represents the three months ended March 31, 2017.

 

5


WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Note 1. Basis of Pro Forma Presentation

On May 10, 2017, we, through our wholly owned subsidiary, WHR Eagle Ford LLC (“WHR EF”), entered into a Purchase and Sale Agreement (the “First Acquisition Agreement”) by and among WHR EF, as purchaser, and Anadarko E&P Onshore LLC (“APC”), Admiral A Holding L.P., TE Admiral A Holding L.P. and Aurora C-I Holding L.P. (collectively, “KKR” and, together with APC, the “First Sellers”), as sellers, to acquire certain acreage and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (the “Purchase”). Also on May 10, 2017, WHR EF entered into a Purchase and Sale Agreement (together, with the First Acquisition Agreement, the “Acquisition Agreements”), by and among WHR EF, as purchaser, and APC and Anadarko Energy Services Company (together, with APC, the “APC Subs” and together, with the First Sellers, the “Sellers”), as sellers, to acquire certain acres and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (together, with the Purchase, the “Acquisition”).

The unaudited pro forma combined financial information has been derived from the Company’s historical consolidated and combined financial statements. The unaudited pro forma combined statements of operations for the six months ended June 30, 2017 and the year ended December 31, 2016 each give effect to the Acquisition as if it had been completed on January 1, 2016. The unaudited pro forma combined statement of operations for the year ended December 31, 2016 also gives effect to the Burleson North Acquisition as if it had been completed on January 1, 2016.

The unaudited pro forma combined financial statements reflect pro forma adjustments that are described in Note 3 below and are based on available and certain assumptions that the Company believes are reasonable. However, actual results may differ from those reflected in these statements. In our opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The following unaudited pro forma combined statements do not purport to represent what the financial position or results of operations would have been if the transaction had actually occurred on the dates indicated above, nor are they indicative of our future financial position or results of operations. These unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements and our related notes for the periods presented.

Note 2. Preliminary Purchase Price Allocation

We account for third-party acquisitions, including the Acquisition, under the acquisition method. The assets acquired and the liabilities assumed in the Acquisition have been measured at fair value based on various estimates. These estimates are based on key assumptions related to the business combination, including reviews of publicly disclosed information for other acquisitions in the industry, historical experience of the companies, data that was available through the public domain and due diligence reviews of the acquiree businesses. Acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.

 

     Total  

Consideration:

  

Cash

    $ 533,609   

Common stock

     60,754   
  

 

 

 

Total consideration

    $ 594,363   
  

 

 

 

Proved oil and gas properties

    $ 264,144   

Unproved oil and gas properties

     333,778   

Accounts receivable

     967   

Asset retirement obligations

     (2,500)   

Accrued liabilities

     (2,026)   
  

 

 

 

Total identifiable net assets

    $         594,363   
  

 

 

 

 

6


The allocation of the preliminary purchase price to the fair values of assets acquired and liabilities assumed includes pro forma adjustments to reflect the fair values of the Acquisition’s assets and liabilities at the time of the completion of the Acquisition. The final allocation of the purchase price could differ materially from the preliminary allocation. As such, we expect to finalize the allocation of the purchase price as soon as practicable.

Note 3. Pro Forma Adjustments and Assumptions

The following pro forma adjustments have been applied to the Company’s historical combined statement of operations to depict the Company’s combined statements of operations as if the Burleson North Acquisition and the Acquisition had occurred on January 1, 2016. No further pro forma balance sheet information is required, since the acquisition is fully reflected in the Company’s historical balance sheet. The pro forma adjustments are based on currently available information and assumptions that management believes to be appropriate in the circumstances.

Unaudited Pro Forma Combined Statements of Operations

The following adjustments were made in the preparation of the unaudited pro forma combined statements of operations for the six months ended June 30, 2017 and year ended December 31, 2016:

 

  a. Pro forma adjustment to reflect lease operating expenses and gathering, processing and transportation expenses. Also includes adjustment to reclass gathering, processing and transportation from lease operating expenses to conform to our presentation.

 

  b. Pro forma adjustment to reflect production and other taxes.

 

  c. Pro forma adjustment to reflect the depletion and depreciation on property, plant and equipment and the accretion expense on asset retirement obligations.

 

  d. Pro forma adjustment to reflect the incurrence of interest expense on $101.0 million of additional borrowings under our revolving credit facility used to fund the Acquisition. For the six months ended June 30, 2017 and year ended December 31, 2016, pro forma interest expense was based on a weighted-average interest rate of 3.48% and 3.52%, respectively. The table below represents the effects of a one-eighth percentage point change in the interest rate on the pro forma interest associated with these additional borrowings (dollars in thousands):

 

             Interest        
Rate
           Pro Forma      
Interest
 

For the Six Months Ended June 30, 2017:

     

Weighted-average interest rate

     3.480%       $             1,743  

Weighted-average interest rate—increase 0.125%

     3.605%       $ 1,806  

Weighted-average interest rate—decrease 0.125%

     3.355%       $ 1,681  

For the Year Ended December 31, 2016:

     

Weighted-average interest rate

     3.520%       $ 3,556  

Weighted-average interest rate—increase 0.125%

     3.645%       $ 3,682  

Weighted-average interest rate—decrease 0.125%

     3.395%       $ 3,430  

 

  e. Pro forma adjustment to reflect the amortization of deferred financing costs as if the borrowing costs associated with the Acquisition were incurred on January 1, 2016.

 

  f. Pro forma adjustment to reflect the estimated income tax effects of the Acquisition. The Texas Margins Tax (“TMT”) statutory rate of 0.75% was used for the periods prior to the closing of our initial public offering on December 19, 2016. For periods subsequent to our initial public offering, we are using a combined statutory rate of 35.49% for both federal taxes and the TMT.

 

7


  g. Pro forma adjustment reflecting allocation of net income (loss) prior to our initial public offering to previous owners.

 

  h. Adjustment reflecting 6% dividend paid-in-kind for the year ended December 31, 2016 and the six months ended June 30, 2017, compounded quarterly, excluding any historical dividends.

 

  i. Adjustment reflecting the proportionate share of undistributed net income attributable to preferred stock, excluding any historically reported undistributed net income attributable to preferred stock.

Note 4. Earnings per share

The following sets forth the calculation of earnings (loss) per share (“EPS”), for the year ended December 31, 2016 and the six months ended June 30, 2017 (in thousands, except per share amounts). In the calculation of basic net income (loss) per share attributable to common stockholders, participating securities are allocated earnings based on actual dividend distributions received plus a proportionate share of undistributed net income attributable to common stockholders, if any, after recognizing distributed earnings. The Company’s participating securities do not participate in undistributed net losses because they are not contractually obligated to do so.

 

     For the Year Ended
December 31, 2016
 
         (Historical)              (Pro Forma)      

Numerator:

     

Net income (loss) available to WildHorse Resources

    $ (10,397)        $ (10,067)   

Less: Preferred stock dividends

     —         19,870   
  

 

 

    

 

 

 

Net income (loss) available to common shareholders

    $ (10,397)        $ (29,937)   

Denominator:

     

Weighted-average common shares outstanding (in thousands)(1)

     91,327         91,327   

Common shares issued to KKR

     —         5,518   
  

 

 

    

 

 

 

Common shares used in basic EPS

     91,327         96,845   

Basic EPS

    $ (0.11)        $ (0.31)   
  

 

 

    

 

 

 

Diluted EPS(1)

    $         (0.11)        $         (0.31)   
  

 

 

    

 

 

 

 

(1) The Company used the two-class method for both basic and diluted EPS. For the year ended December 31, 2016, 363 incremental shares were excluded from the calculation of diluted EPS under the treasury stock method due to their antidilutive effect as we were in a loss position and 32,725 shares were excluded in the calculation of diluted EPS due to their antidilutive effect under the if-converted method.

 

     For the Six Months
Ended June 30, 2017
 
         (Historical)              (Pro Forma)      

Numerator:

     

Net income (loss) available to WildHorse Resources

     $46,618             $60,390   

Less: Preferred stock dividends

     73         13,748   

Less: Undistributed earnings allocated to preferred stock

     434         11,854   
  

 

 

    

 

 

 

Net income (loss) available to common shareholders

     $46,111         $34,788   

Denominator:

     

Weighted-average common shares outstanding (in thousands)(1)

     93,452         93,452   

Common shares issued to KKR

     —         5,488   
  

 

 

    

 

 

 

Common shares used in basic EPS

     93,452         98,940   

Basic EPS

     0.49         $0.35   
  

 

 

    

 

 

 

Diluted EPS(1)

                 $0.49         $0.35   
  

 

 

    

 

 

 

 

(1) The Company used the two-class method for both basic and diluted EPS. For the six months ended June 30, 2017, 308 incremental shares were excluded in the calculation of diluted EPS under the treasury stock method. For the historical and pro forma six months ended June 30, 2017, 173 shares and 33,714 shares were excluded in the calculation of diluted EPS, respectively, due to their antidilutive effect under the if-converted method.

 

8


Note 5. Supplemental Oil and Gas Information

Oil and Natural Gas Reserves

Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.

Proved reserves are those quantities of oil and natural gas that by analysis of geoscience and engineering data can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

Our consolidated historical proved reserves as of December 31, 2016 were prepared by our internal engineers and audited by Cawley, Gillespie and Associates, Inc. (“Cawley”), our independent reserve engineers. APC’s proved reserves as of December 31, 2016 were prepared by their internal reservoir engineers. KKR’s proved reserves as of December 31, 2016 were prepared by their internal reservoir engineers. All proved reserves are located in the United States and all prices were determined and held constant in accordance with SEC rules.

The following tables set forth estimates of the quantities of oil, natural gas and NGL reserves as of December 31, 2016:

 

     Proved Oil Reserves (MBbls)  
     WRD
        Historical        
     APC
Acquisition
        Historical        
     KKR
Acquisition
        Historical        
     WRD
        Pro Forma        
 

Proved developed and undeveloped reserves:

           

Beginning of the year

     36,650         8,124         3,356         48,130   

Extensions, discoveries and additions

     18,870         156         105         19,131   

Purchase of minerals in place

     26,835         —         —         26,835   

Sales of minerals in place

     —         (508)         —         (508)   

Production

     (1,848)         (1,734)         (549)         (4,131)   

Revisions of previous estimates

     6,940         846         (1,136)         6,650   
  

 

 

    

 

 

    

 

 

    

 

 

 

End of year

                 87,447                     6,884                     1,776                     96,107   
  

 

 

    

 

 

    

 

 

    

 

 

 

Proved developed reserves:

           

Beginning of year

     7,503         7,291         1,849         16,643   

End of year

     19,192         6,884         1,776         27,852   

Proved undeveloped reserves:

           

Beginning of year

     29,147         833         1,507         31,487   

End of year

     68,255         —         —         68,255   

 

9


     Proved Natural Gas Reserve (MMcf)  
     WRD
        Historical        
     APC
Acquisition
        Historical        
     KKR
Acquisition
        Historical        
     WRD
Pro
        Forma        
 

Proved developed and undeveloped reserves:

           

Beginning of the year

     344,959         9,158         1,073         355,190   

Extensions, discoveries and additions

     32,782         55         26         32,863   

Purchase of minerals in place

     13,545         —         —         13,545   

Sales of minerals in place

     —         (450)         —         (450)   

Production

     (17,820)         (1,852)         (219)         (19,891)   

Revisions of previous estimates

     (48,364)         1,107         (180)         (47,437)   
  

 

 

    

 

 

    

 

 

    

 

 

 

End of year

             325,102                     8,018                     700                 333,820   
  

 

 

    

 

 

    

 

 

    

 

 

 

Proved developed reserves:

           

Beginning of year

     142,990         9,000         795         152,785   

End of year

     145,880         8,018         700         154,598   

Proved undeveloped reserves:

           

Beginning of year

     201,969         158         278         202,405   

End of year

     179,222         —         —         179,222   
     Proved Natural Gas Liquids Reserves (MBbls)  
     WRD
        Historical        
     APC
Acquisition
        Historical        
     KKR
Acquisition
        Historical        
     WRD
        Pro Forma        
 

Proved developed and undeveloped reserves:

           

Beginning of the year

     8,897         2,071         330         11,298   

Extensions, discoveries and additions

     2,606         12                2,626   

Purchase of minerals in place

     1,823         —         —         1,823   

Sales of minerals in place

     —         (102)         —         (102)   

Production

     (471)         (416)         (67)         (954)   

Revisions of previous estimates

     (1,981)         272         (58)         (1,767)   
  

 

 

    

 

 

    

 

 

    

 

 

 

End of year

     10,874         1,837         213         12,924   
  

 

 

    

 

 

    

 

 

    

 

 

 

Proved developed reserves:

           

Beginning of year

     2,235         2,035         245         4,515   

End of year

     3,765         1,837         213         5,815   

Proved undeveloped reserves:

           

Beginning of year

     6,662         36         85         6,783   

End of year

     7,109         —         —         7,109   
     Oil
(MBbls)
     Natural Gas
(MMcf)
     NGL
(MBbls)
     Equivalent
(Mboe)(1)
 

Proved developed and undeveloped reserves:

           

Beginning of the year

     48,130         355,190         11,298         118,626   

Extensions, discoveries and additions

     19,131         32,863         2,626         27,234   

Purchase of minerals in place

     26,835         13,545         1,823         30,916   

Sales in place

     (508)         (450)         (102)         (685)   

Production

     (4,131)         (19,891)         (954)         (8,400)   

Revisions of previous estimates

     6,650         (47,437)         (1,767)         (3,023)   
  

 

 

    

 

 

    

 

 

    

 

 

 

End of year

     96,107         333,820         12,924         164,668   
  

 

 

    

 

 

    

 

 

    

 

 

 

Proved developed reserves:

           

Beginning of year

     16,643         152,785         4,515         46,622   

End of year

     27,852         154,598         5,815         59,433   

Proved undeveloped reserves:

           

Beginning of year

     31,487         202,405         6,783         72,004   

End of year

     68,255         179,222         7,109         105,234   

 

10


 

(1) This information is presented in barrels of oil equivalents, which is calculated at a rate of six thousand cubic feet of gas per one barrel of oil equivalent.

Noteworthy amounts included in the categories of proved reserve changes in the above tables include:

 

    During 2016, extensions, discoveries and additions increased proved reserves by 4,131 MBoe and 22,809 MBoe related to drilling in the RCT field in Louisiana and Eagle Ford, respectively.

 

    During 2016, purchase of minerals in place of 30,916 MBoe was primarily attributable to the Burleson North Acquisition.

 

    During 2016, we had downward revisions of proved reserves of 3,102 MBoe, of which 711 MBoe related to commodity price changes and 2,391 MBoe was performance related.

 

    During 2016, APC had downward revisions due to the effects of changes in commodity prices, changes in economic conditions and changes in reservoir performance.

 

    During 2016, KKR had downward revisions due to the effects of changes in commodity prices.

A variety of methodologies are used to determine our proved reserve estimates. The principal methodologies employed are reservoir simulation, decline curve analysis, volumetric, material balance, advance production type curve matching, petro-physics/log analysis and analogy. Some combination of these methods is used to determine reserve estimates in substantially all of our fields.

Standardized Measure of Discounted Future Net Cash Flows from Proved Reserves

As required by the Financial Accounting Standards Board and SEC, the standardized measure of discounted future net cash flows presented below is computed by applying first-day-of-the-month average prices, year-end costs and legislated tax rates and a discount factor of 10 percent to proved reserves. We do not believe the standardized measure provides a reliable estimate of the Company’s expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its proved oil and gas reserves. The standardized measure is prepared on the basis of certain prescribed assumptions including first-day-of-the-month average prices, which represent discrete points in time and therefore may cause significant variability in cash flows from year to year as prices change.

The pro forma standard measure of discounted future net cash flows in as follows:

 

     For the Year Ended December 31, 2016  
     WRD
Historical
     APC
Acquisition
Historical
     KKR
Acquisition
Historical
     Adjustments      WRD
Pro Forma
 

Future cash inflows

    $ 4,434,117        $ 314,492        $ 71,045        $ —        $ 4,819,654   

Future production costs

     (1,220,067)         (144,088)         (29,457)         —         (1,393,612)   

Future development costs

     (1,146,632)         (46,476)         (2,760)         —         (1,195,868)   

Future income tax expense

     (442,285)         —         —         (32,523)         (474,808)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Future net cash flows for estimated timing of cash flows

     1,625,133         123,928         38,828         (32,523)         1,755,366   

10% annual discount for estimated timing of cash flows

     (1,082,092)         (32,357)         (10,113)         8,371         (1,116,191)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Standardized measure of discounted future net cash flows

    $ 543,041        $ 91,571        $ 28,715       $ (24,152)        $ 639,175   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves

The following is a pro forma summary of the changes in the standardized measure of discounted future net cash flows for the proved oil and natural gas reserves during the year ended December 31, 2016:

 

11


     For the Year Ended December 31, 2016  
     WRD
  Historical  
     APC
  Acquisition  

Historical
     KKR
  Acquisition  

Historical
       Adjustments        WRD
Pro
Forma
 

Beginning of year

    $       451,930        $       139,003        $         47,618        $ —        $       638,551   

Sale of oil and natural gas produced, net of production costs

     (104,596)         (46,739)         (18,668)         —         (170,003)   

Purchase of minerals in place

     188,317         —         —         —         188,317   

Sales of minerals in place

     —         (7,741)         —         —         (7,741)   

Extensions and discoveries

     168,796         3,531         1,848         —         174,175   

Changes in income taxes, net

     (206,817)         —         —         (24,152)         (230,969)   

Changes in prices and costs

     (57,034)         (39,583)         (13,616)         —         (110,233)   

Previously estimated development costs incurred

     15,067         —         11,756         —         26,823   

Net changes in future development costs

     11,985         (1,352)         249         —         10,882   

Revisions of previous quantities

     3,943         27,593         (4,827)         —         26,709   

Accretion of discount

     103,000         13,900         4,762         —         121,662   

Change in production rates and other

     (31,550)         2,959         (407)         —         (28,998)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

End of year

    $ 543,041        $ 91,571        $ 28,715        $ (24,152)        $ 639,175   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

12