Chord Energy Corp 8-K/A, filed Apr 1, 2022
Chord Energy Corp (CHRD)
8-K/A
2022-04-01
For: 2022-02-01
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April 08, 2026
About this 8-K/A
Chord Energy Corp filed this 8-K/A on April 1, 2022, reporting on events of February 1, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________
FORM 8-K/A
(Amendment No. 1)
____________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 1, 2022
____________________________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (281 ) 404-9500
Not Applicable.
(Former name or former address, if changed since last report)
____________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY NOTE
On February 7, 2022, Oasis Petroleum Inc. (the “Company”) filed a Current Report on Form 8-K (the “Initial Report”) to announce that on February 1, 2022, Oasis Midstream Partners LP (“OMP”) completed the transactions contemplated by that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 25, 2021, by and among OMP, Crestwood Equity Partners LP, a Delaware limited partnership (“Crestwood”), Project Falcon Merger Sub LLC, a Delaware limited liability company and direct wholly owned subsidiary of Crestwood, Project Phantom Merger Sub LLC, a Delaware limited liability company and direct wholly owned subsidiary of Crestwood, OMP GP LLC, a Delaware limited liability company and the general partner of OMP (“OMP GP”), and, solely for the purposes of Section 2.1(a)(i) of the Merger Agreement, Crestwood Equity GP LLC, the general partner of Crestwood. Pursuant to the Merger Agreement, the Company agreed to sell to Crestwood its entire ownership of OMP common units and all of the limited liability company interests of OMP GP in exchange for $160.0 million in cash and approximately 21 million common units representing limited partner interests of Crestwood (the “OMP Merger”). This Current Report on Form 8-K/A (the “Amendment”) amends and supplements the Initial Report to provide the historical financial statements and the pro forma financial information required by Item 9.01 of Form 8-K. No other modifications to the Initial Report are being made by this Amendment. This Amendment should be read in connection with the Initial Report, which provides a more complete description of the OMP Merger.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The historical audited consolidated balance sheets of Crestwood as of December 31, 2021 and 2020, the related audited consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2021 and the notes related thereto and financial statement schedules listed in the Index at Item 15(a), are filed herewith as Exhibit 99.1.
(b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated financial information of the Company as of December 31, 2021 and for the year ended December 31, 2021 are set forth in Exhibit 99.2.
(d) Exhibits
| Exhibit No. | Description of Exhibit | |||||||
| Consent of Ernst & Young LLP with respect to Crestwood Equity Partners LP’s financial statements. | ||||||||
Historical audited consolidated balance sheets of Crestwood Equity Partners LP as of December 31, 2021 and 2020, the related audited consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years ended December 31, 2021 and the notes related thereto and financial statement schedules listed in the Index at Item 15(a) (incorporated by reference to Crestwood Equity Partners LP’s Annual Report on Form 10-K for the year ended December 31, 2021 (File No. 001-34664), filed with the Securities and Exchange Commission on February 28, 2022). | ||||||||
| Unaudited pro forma condensed consolidated financial information of Oasis Petroleum Inc. | ||||||||
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OASIS PETROLEUM INC. (Registrant) | |||||||||||||||||
| Date: April 1, 2022 | By: | /s/ Nickolas J. Lorentzatos | |||||||||||||||
| Nickolas J. Lorentzatos | |||||||||||||||||
| Executive Vice President, General Counsel and Corporate Secretary | |||||||||||||||||
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-262192) pertaining to the Oasis Petroleum Inc. 2020 Long Term Incentive Plan of our report dated February 25, 2022, with respect to the consolidated financial statements and schedules of Crestwood Equity Partners LP, included in its Annual Report on Form 10-K for the year ended December 31, 2021, incorporated by reference in this Amendment No. 1 to the Current Report on Form 8-K (filed as Form 8-K/A) of Oasis Petroleum Inc. dated April 1, 2022.
/s/ Ernst & Young LLP
Houston, Texas
April 1, 2022
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information and accompanying notes reflect the pro forma effects of the following transactions.
1.On February 1, 2022, Oasis Midstream Partners LP (“OMP”) and OMP GP LLC (“OMP GP”) completed their previously announced merger with Crestwood Equity Partners LP (“Crestwood”) pursuant to the terms of an Agreement and Plan of Merger dated October 25, 2021 (the “Merger Agreement”). In accordance with the Merger Agreement, Oasis Petroleum Inc. (the “Company” or “Oasis”) sold to Crestwood its entire ownership of OMP common units and all of the limited liability company interests of OMP GP in exchange for $160.0 million in cash and 20,985,668 common units of Crestwood, which represented approximately 21% of Crestwood’s issued and outstanding common units as of February 1, 2022 (the “OMP Merger”). In addition, the Company and Crestwood executed a director nomination agreement pursuant to which the Company appointed two directors to the Board of Directors of Crestwood GP LLC (“Crestwood GP”), a Delaware limited liability company and the general partner of Crestwood.
The Company has the ability to exercise significant influence over Crestwood based upon its ownership in Crestwood and its representation on the Board of Directors of Crestwood GP. Accordingly, the Company has determined its investment in Crestwood is subject to the equity method of accounting and plans to elect the fair value option under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825-10, Financial Instruments (“ASC 825-10”) to account for the equity method investment.
2.On October 21, 2021, the Company completed its acquisition of approximately 95,000 net acres in the Williston Basin, effective April 1, 2021, from QEP Energy Company (“QEP”), a wholly-owned subsidiary of Diamondback Energy Inc., for total cash consideration, after purchase price adjustments, of $585.8 million (the “Williston Basin Acquisition”). The Company funded the Williston Basin Acquisition with cash on hand, including proceeds from the Permian Basin Sale (defined below) and the issuance on June 9, 2021 of $400.0 million of 6.375% senior unsecured notes due June 1, 2026 (the “Senior Notes”).
3.The Company completed a series of transactions during the second quarter of 2021 to divest all of its exploration and production (“E&P”) assets in the Permian Basin for total cash consideration, after purchase price adjustments, of $372.3 million (the “Permian Basin Sale”). The Company first divested certain wellbore interests in the Permian Basin to separate buyers for total cash proceeds of $30.0 million. On June 29, 2021, the Company completed the sale of its remaining E&P assets in the Permian Basin, effective March 1, 2021, to Percussion Petroleum Operating II, LLC for cash proceeds, after purchase price adjustments, of $342.3 million and up to three earn-out payments of $25.0 million per year for each of 2023, 2024 and 2025.
The unaudited pro forma condensed consolidated balance sheet at December 31, 2021 was prepared as if the OMP Merger had occurred on December 31, 2021. The Williston Basin Acquisition, the issuance of the Senior Notes and the Permian Basin Sale were included in the Company’s historical consolidated balance sheet as of December 31, 2021. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2021 was prepared as if the OMP Merger, the Williston Basin Acquisition, the issuance of the Senior Notes and the Permian Basin Sale had occurred on January 1, 2021. The Company’s historical audited statement of operations for the year ended December 31, 2021 included the effects of (i) the Williston Basin Acquisition from October 21, 2021 through December 31, 2021; (ii) the issuance of the Senior Notes from June 9, 2021 through December 31, 2021 and (iii) the Permian Basin Sale from January 1, 2021 through June 29, 2021. In addition, the OMP Merger represented a strategic shift for the Company and qualified as a discontinued operation in accordance with FASB ASC 205-20, Presentation of financial statements – Discontinued Operations (“ASC 205-20”). Accordingly, the results of operations of OMP were classified as discontinued operations in the Company’s historical audited consolidated statement of operations for the year ended December 31, 2021, and the assets and liabilities of OMP were classified as held for sale in the Company’s historical consolidated balance sheet as of December 31, 2021. In accordance with Regulation S-X 11-02, the unaudited pro forma condensed consolidated combined statement of operations is presented through income from continuing operations.
The unaudited pro forma condensed consolidated financial information has been derived from the historical consolidated financial statements of the Company and, as it pertains to the Williston Basin Acquisition, the unaudited historical Statement of Revenues and Direct Operating Expenses for the period from January 1, 2021 through October 20, 2021 of properties acquired in the Williston Basin Acquisition, which was derived from information provided by QEP.
The unaudited pro forma condensed consolidated financial statements and underlying pro forma adjustments are based upon currently available information and include certain estimates and assumptions made by the Company’s management; accordingly, actual results could differ materially from the pro forma information. Management believes that the assumptions
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used to prepare the unaudited pro forma condensed consolidated financial information and accompanying notes provide a reasonable and reliably determinable basis for presenting the significant effects of the above transactions. The following unaudited pro forma condensed consolidated combined statement of operations does not purport to represent what the Company’s results of operations would have been if the above transactions had occurred on January 1, 2021. The unaudited pro forma condensed consolidated financial information should be read together with (i) the Company’s audited historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022; (ii) the Company’s unaudited pro forma condensed consolidated financial information giving effect to the Permian Basin Sale, filed as Exhibit 99.1 to the Current Report on Form 8-K with the SEC on July 6, 2021; (iii) the Company’s unaudited pro forma condensed consolidated financial information giving effect to the Williston Basin Acquisition, filed as Exhibit 99.2 to the Current Report on Form 8-K/A with the SEC on December 20, 2021; (iv) Crestwood’s audited historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022; and (v) the unaudited historical Statement of Revenues and Direct Operating Expenses and notes thereto of the Williston Basin Acquisition properties for the nine months ended September 30, 2021, filed as Exhibit 99.1 to the Current Report on Form 8-K/A with the SEC on December 20, 2021.
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Oasis Petroleum Inc.
Condensed Consolidated Balance Sheet (Unaudited)
As of December 31, 2021
(In thousands, except share data)
| Transaction Accounting Adjustments | |||||||||||||||||
| As Reported | OMP Merger | Pro Forma | |||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ | 172,114 | $ | 160,000 | (a) | $ | 332,114 | ||||||||||
| Accounts receivable, net | 377,202 | — | 377,202 | ||||||||||||||
| Inventory | 28,956 | — | 28,956 | ||||||||||||||
| Prepaid expenses | 6,016 | — | 6,016 | ||||||||||||||
| Other current assets | 1,836 | — | 1,836 | ||||||||||||||
| Current assets held for sale | 1,029,318 | (1,029,318) | (b) | — | |||||||||||||
| Total current assets | 1,615,442 | (869,318) | 746,124 | ||||||||||||||
| Property, plant and equipment | |||||||||||||||||
| Oil and gas properties (successful efforts method) | 1,395,837 | — | 1,395,837 | ||||||||||||||
| Other property and equipment | 48,981 | — | 48,981 | ||||||||||||||
| Less: accumulated depreciation, depletion and amortization | (124,386) | — | (124,386) | ||||||||||||||
| Total property, plant and equipment, net | 1,320,432 | — | 1,320,432 | ||||||||||||||
| Derivative instruments | 44,865 | — | 44,865 | ||||||||||||||
| Investment in unconsolidated affiliate | — | 568,312 | (c) | 568,312 | |||||||||||||
| Long-term inventory | 17,510 | — | 17,510 | ||||||||||||||
| Operating right-of-use assets | 15,782 | — | 15,782 | ||||||||||||||
| Other assets | 12,756 | — | 12,756 | ||||||||||||||
| Total assets | $ | 3,026,787 | $ | (301,006) | $ | 2,725,781 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | 2,136 | $ | — | $ | 2,136 | |||||||||||
| Revenues and production taxes payable | 270,306 | — | 270,306 | ||||||||||||||
| Accrued liabilities | 150,674 | 65,120 | (d) | 223,851 | |||||||||||||
| 8,057 | (e) | ||||||||||||||||
| Accrued interest payable | 2,150 | — | 2,150 | ||||||||||||||
| Derivative instruments | 89,447 | — | 89,447 | ||||||||||||||
| Advances from joint interest partners | 1,892 | — | 1,892 | ||||||||||||||
| Current operating lease liabilities | 7,893 | — | 7,893 | ||||||||||||||
| Other current liabilities | 1,046 | 8,362 | (f) | 9,408 | |||||||||||||
| Current liabilities held for sale | 699,653 | (699,653) | (b) | — | |||||||||||||
| Total current liabilities | 1,225,197 | (618,114) | 607,083 | ||||||||||||||
| Long-term debt | 392,524 | — | 392,524 | ||||||||||||||
| Deferred income taxes | 7 | — | 7 | ||||||||||||||
| Asset retirement obligations | 57,604 | — | 57,604 | ||||||||||||||
| Derivative instruments | 115,282 | — | 115,282 | ||||||||||||||
| Operating lease liabilities | 6,724 | — | 6,724 | ||||||||||||||
| Other liabilities | 7,876 | — | 7,876 | ||||||||||||||
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| Total liabilities | 1,805,214 | (618,114) | 1,187,100 | ||||||||||||||
Commitments and contingencies | |||||||||||||||||
| Stockholders’ equity | |||||||||||||||||
| Common stock, $0.01 par value: 60,000,000 shares authorized; 20,147,199 shares issued and 19,276,181 shares outstanding at December 31, 2021 | 200 | — | 200 | ||||||||||||||
| Treasury stock, at cost: 871,018 shares at December 31, 2021 | (100,000) | — | (100,000) | ||||||||||||||
| Additional paid-in capital | 863,010 | — | 863,010 | ||||||||||||||
| Retained earnings | 269,690 | 505,781 | (g) | 775,471 | |||||||||||||
| Oasis share of stockholders’ equity | 1,032,900 | 505,781 | 1,538,681 | ||||||||||||||
| Non-controlling interests | 188,673 | (188,673) | (b) | — | |||||||||||||
| Total stockholders’ equity | 1,221,573 | 317,108 | 1,538,681 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,026,787 | $ | (301,006) | $ | 2,725,781 | |||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
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Oasis Petroleum Inc.
Condensed Consolidated Combined Statement of Operations (Unaudited)
Year Ended December 31, 2021
(In thousands, except per share data)
| Transaction Accounting Adjustments | Other Transaction Accounting Adjustments | ||||||||||||||||||||||||||||||||||||||||
As Reported | OMP Merger | As Adjusted | Williston Basin Acquisition | Senior Notes | Permian Basin Sale | Pro Forma | |||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||
| Oil and gas revenues | $ | 1,200,256 | $ | — | $ | 1,200,256 | $ | 358,861 | (c) | $ | — | $ | (70,158) | (f) | $ | 1,488,959 | |||||||||||||||||||||||||
| Purchased oil and gas sales | 378,983 | — | 378,983 | — | — | (21,320) | (f) | 357,663 | |||||||||||||||||||||||||||||||||
| Other services revenues | 687 | — | 687 | — | — | — | 687 | ||||||||||||||||||||||||||||||||||
| Total revenues | 1,579,926 | — | 1,579,926 | 358,861 | — | (91,478) | 1,847,309 | ||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||
| Lease operating expenses | 203,933 | — | 203,933 | 70,856 | (c) | — | (11,365) | (f) | 263,424 | ||||||||||||||||||||||||||||||||
| Other services expenses | 47 | — | 47 | — | — | — | 47 | ||||||||||||||||||||||||||||||||||
| Gathering, processing and transportation expenses | 122,614 | — | 122,614 | 26,473 | (c) | — | (2,518) | (f) | 146,569 | ||||||||||||||||||||||||||||||||
| Purchased oil and gas expenses | 379,972 | — | 379,972 | — | — | (23,840) | (f) | 356,132 | |||||||||||||||||||||||||||||||||
| Production taxes | 76,835 | — | 76,835 | 31,015 | (c) | — | (3,316) | (f) | 104,534 | ||||||||||||||||||||||||||||||||
| Depreciation, depletion and amortization | 126,436 | — | 126,436 | 71,702 | (d) | — | (8,659) | (f) | 189,479 | ||||||||||||||||||||||||||||||||
| Exploration expenses | 2,760 | — | 2,760 | — | — | (331) | (f) | 2,429 | |||||||||||||||||||||||||||||||||
| Impairment | 3 | — | 3 | — | — | (3) | (f) | — | |||||||||||||||||||||||||||||||||
| General and administrative expenses | 80,688 | — | 80,688 | — | — | (551) | (f) | 80,137 | |||||||||||||||||||||||||||||||||
| Total operating expenses | 993,288 | — | 993,288 | 200,046 | — | (50,583) | 1,142,751 | ||||||||||||||||||||||||||||||||||
| Gain on sale of properties | 222,806 | — | 222,806 | — | — | — | 222,806 | ||||||||||||||||||||||||||||||||||
| Operating income | 809,444 | — | 809,444 | 158,815 | — | (40,895) | 927,364 | ||||||||||||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||||||||
| Net loss on derivative instruments | (589,641) | — | (589,641) | — | — | — | (589,641) | ||||||||||||||||||||||||||||||||||
| Income from unconsolidated affiliate | — | 248,685 | (a) | 248,685 | — | — | — | 248,685 | |||||||||||||||||||||||||||||||||
| Interest expense, net of capitalized interest | (30,806) | — | (30,806) | — | (11,920) | (e) | — | (42,726) | |||||||||||||||||||||||||||||||||
| Other expense | (1,010) | — | (1,010) | — | — | (11) | (f) | (1,021) | |||||||||||||||||||||||||||||||||
| Total other expense | (621,457) | 248,685 | (372,772) | — | (11,920) | (11) | (384,703) | ||||||||||||||||||||||||||||||||||
| Income from continuing operations before income taxes | 187,987 | 248,685 | 436,672 | 158,815 | (11,920) | (40,906) | 542,661 | ||||||||||||||||||||||||||||||||||
| Income tax (expense) benefit | 973 | (8,362) | (b) | (7,389) | — | — | — | (7,389) | |||||||||||||||||||||||||||||||||
| Net income from continuing operations | $ | 188,960 | $ | 240,323 | $ | 429,283 | $ | 158,815 | $ | (11,920) | $ | (40,906) | $ | 535,272 | |||||||||||||||||||||||||||
| Earnings from continuing operations per share: | |||||||||||||||||||||||||||||||||||||||||
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| Basic | $ | 9.55 | $ | 21.69 | $ | 27.04 | |||||||||||||||||||||||||||||||||||
| Diluted | 9.15 | 20.79 | 25.92 | ||||||||||||||||||||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||||||||||||||||||||
Basic | 19,792 | 19,792 | 19,792 | ||||||||||||||||||||||||||||||||||||||
Diluted | 20,648 | 20,648 | 20,648 | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
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Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
1. Basis of Presentation
On February 1, 2022, OMP and OMP GP completed the OMP Merger with Crestwood. At the closing of the OMP Merger, the Company sold to Crestwood its entire ownership of OMP common units and all of the limited liability company interests of OMP GP in exchange for $160.0 million in cash and 20,985,668 common units of Crestwood, which represented approximately 21% of Crestwood’s issued and outstanding common units as of February 1, 2022. In addition, the Company appointed two directors to the Board of Directors of Crestwood GP in connection with the execution of a director nomination agreement at closing.
At closing on February 1, 2022, the Company accounted for the derecognition of OMP from its consolidated financial statements in accordance with FASB ASC 810-10, Consolidation (“ASC 810-10”) and derecognized the assets, liabilities and equity of OMP, including non-controlling interests. Upon deconsolidation, the Company recognized a gain that was recorded to income from discontinued operations, net of income tax. In accordance with Article 11 of Regulation S-X, the unaudited pro forma condensed consolidated combined statement of operations is presented through income from continuing operations; accordingly, the pro forma adjustments presented herein do not show the effects of the gain on sale within the pro forma unaudited condensed consolidated combined statement of operations.
The Company has the ability to exercise significant influence over Crestwood based upon its ownership in Crestwood and its representation on the Board of Directors of Crestwood GP. Accordingly, the Company has determined its investment in Crestwood is subject to the equity method of accounting and plans to elect the fair value option under ASC 825-10 to account for the equity method investment. In accordance with ASC 825-10, the Company will present its equity method investment in Crestwood at fair value each reporting period with changes in fair value and distributions received from Crestwood recorded to income from investment in unconsolidated affiliate on the statement of operations.
The unaudited pro forma condensed consolidated balance sheet at December 31, 2021 was prepared as if the OMP Merger had occurred on December 31, 2021. The Williston Basin Acquisition, the issuance of the Senior Notes and the Permian Basin Sale were included in the Company’s historical consolidated balance sheet as of December 31, 2021. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2021 was prepared as if the OMP Merger, the Williston Basin Acquisition, the issuance of the Senior Notes and the Permian Basin Sale had occurred on January 1, 2021. The Company’s historical audited statement of operations for the year ended December 31, 2021 included the effects of (i) the Williston Basin Acquisition from October 21, 2021 through December 31, 2021; (ii) the issuance of the Senior Notes from June 9, 2021 through December 31, 2021 and (iii) the Permian Basin Sale from January 1, 2021 through June 29, 2021. In addition, the OMP Merger represented a strategic shift for the Company and qualified as a discontinued operation in accordance with ASC 205-20. Accordingly, the results of operations of OMP were classified as discontinued operations in the Company’s historical audited consolidated statement of operations for the year ended December 31, 2021, and the assets and liabilities of OMP were classified as held for sale in the Company’s historical consolidated balance sheet as of December 31, 2021. In accordance with Article 11 of Regulation S-X, the unaudited pro forma condensed consolidated combined statement of operations is presented through income from continuing operations.
The unaudited pro forma condensed consolidated financial information has been derived from the historical consolidated financial statements of the Company and, as it pertains to the Williston Basin Acquisition, the unaudited historical Statement of Revenues and Direct Operating Expenses for the period from January 1, 2021 through October 20, 2021 of properties acquired in the Williston Basin Acquisition, which was derived from information provided by QEP.
The unaudited pro forma condensed consolidated financial statements and underlying pro forma adjustments are based upon currently available information and include certain estimates and assumptions made by management; accordingly, actual results could differ materially from the pro forma information. Management believes the assumptions provide a reasonable and reliably determinable basis for presenting the significant effects of the transactions described above. These unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and may or may not provide an indication of results in the future.
2. Pro Forma Adjustments and Assumptions
Balance Sheet
The unaudited pro forma condensed consolidated balance sheet at December 31, 2021 reflects the following adjustments:
(a) Represents the cash consideration received upon closing of the OMP Merger.
(a) Represents the cash consideration received upon closing of the OMP Merger.
(b) Represents the derecognition of assets, liabilities and equity components of OMP in connection with the OMP Merger.
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(c) Represents the fair value of equity consideration received. Fair value was determined using Level 2 inputs, including the quoted market price of Crestwood’s publicly traded common units on February 1, 2022 of $28.18 per common unit adjusted to reflect a discount due to a restriction on the Company’s ability to sell the investment 90 days from the closing date.
(d) Represents intercompany payables from Oasis to OMP for midstream services as of December 31, 2021. The Company will have continuing cash outflows to Crestwood for gathering, processing, transportation and water handling costs pursuant to the existing contractual arrangements between the Company and OMP that were assigned to Crestwood at closing.
(e) Represents the transaction costs from the OMP Merger incurred by Oasis.
(f) Represents the estimated income tax impact from the OMP Merger.
(g) Represents the impact to retained earnings as follows:
| (In thousands) | ||||||||
| Cash consideration | $ | 160,000 | ||||||
| Fair value of equity consideration | 568,312 | |||||||
| Carrying amount of non-controlling interests in OMP | 188,673 | |||||||
| Less: | ||||||||
| Carrying amount of OMP assets | $ | 1,094,438 | ||||||
| Carrying amount of OMP liabilities | (702,964) | |||||||
| Carrying amount of OMP net assets | $ | 391,474 | ||||||
Transaction costs(1) | (11,368) | |||||||
| Gain from OMP Merger | $ | 514,143 | ||||||
| Tax impact | (8,362) | |||||||
| Impact to retained earnings | $ | 505,781 | ||||||
(1) Includes remaining transaction costs of $8.1 million incurred by Oasis and $3.3 million incurred by OMP. Transaction costs incurred during 2021 were expensed as incurred.
Statement of Operations
The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2021 reflects the following adjustments:
(a) Represents the income from the Company’s investment in Crestwood, comprised of the change in the fair value of $196.2 million and cash distributions of $52.5 million. The change in the fair value of the investment in Crestwood was calculated as the difference between the fair value of the investment as of December 31, 2021 of $579.0 million and the fair value of the investment as of December 31, 2020 of $382.8 million. The fair value of the investment in Crestwood as of December 31, 2021 was determined using Level 1 inputs based upon the quoted market price for Crestwood’s publicly traded common units, while the fair value of the investment in Crestwood as of December 31, 2020 was determined using Level 2 inputs based upon the quoted market price for Crestwood’s publicly traded common units adjusted to reflect a value discount due to a restriction on the Company's ability to sell the investment 90 days from the closing date. Crestwood paid cash distributions to its limited partners of $2.50 per common unit during 2021.
(b) Represents the estimated income tax impact from the OMP Merger based on a blended tax rate of 23.7%.
(c) Represents the revenues and direct operating expenses from the oil and gas properties acquired in the Williston Basin Acquisition for the period from January 1, 2021 through October 20, 2021.
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(d) Represents the incremental depreciation, depletion and amortization and accretion expense related to the assets acquired in the Williston Basin Acquisition. Depletion was calculated using the unit-of-production method under the successful efforts method of accounting. The depletion expense was adjusted for (i) the increase in production volumes attributable to the acquired oil and gas properties and (ii) the revision to the depletion rate reflecting the acquisition costs and the reserve volumes attributable to the acquired oil and gas properties. The pro forma depletion rate attributable to the Williston Basin Acquisition was $8.47 per barrel of oil equivalent. This adjustment also includes the depreciation expense attributable to other property, plant and equipment of $0.3 million and accretion expense attributable to asset retirement obligations of $0.6 million.
(e) Represents the incremental interest expense associated with the issuance of the Senior Notes of $11.2 million and amortization of deferred financing costs of $0.7 million for the period from January 1, 2021 through June 9, 2021.
(f) Represents the elimination of the revenues and expenses associated with the assets divested in the Permian Basin Sale for the period from January 1, 2021 through June 29, 2021. The Company recorded a gain on sale of properties of $221.6 million, which is included in the Company’s historical audited statement of operations for the year ended December 31, 2021.
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