Crescent Energy Co 8-K, filed Mar 10, 2022
Crescent Energy Co (CRGY)
About this 8-K
Crescent Energy Co filed this 8-K on March 10, 2022, reporting on events of March 9, 2022.
Items reported
- Item 2.02: Financial results
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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| Item 2.02. | Results of Operations and Financial Condition. |
Earnings Release
On March 9, 2022, Crescent Energy Company (the “Company”) announced its financial and operating results for the year ended December 31, 2021. A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
Pro Forma Financial Statements
As reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission by the Company on December 7, 2021 (the “Original Crescent Form 8-K”), on December 7, 2021 (the “Closing Date”), the Company consummated the transactions (the “Transactions”) contemplated by the Transaction Agreement, dated as of June 7, 2021, among Contango Oil & Gas Company (“Contango”), Independence Energy LLC, the Company, IE OpCo LLC, IE L Merger Sub LLC and IE C Merger Sub Inc., pursuant to which each of Contango and Independence became consolidated subsidiaries of the Company.
This Current Report on Form 8-K provides certain pro forma financial statements as described in Item 9.01 below. This Current Report on Form 8-K should be read in connection with the Original Crescent Form 8-K, which provides a more complete description of the Transactions.
The information in this Item 2.02, including the exhibits, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
| Item 7.01 | Regulation FD Disclosure. |
The information contained in Item 2.02 of this Current Report is incorporated into this Item 7.01 by reference.
The information contained in this Item 7.01, including the exhibits, shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing under the Securities Act or the Exchange Act.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
The following unaudited pro forma condensed combined financial information of the Company, giving effect to the Transactions, attached as Exhibit 99.2 hereto:
| • | Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2021; |
| • | Notes to the Unaudited Pro Forma Condensed Combined Financial Statements. |
| Exhibit |
Description | |
| 99.1 | Press release, dated March 9, 2022. | |
| 99.2 | Unaudited pro forma condensed combined financial information for the year ended December 31, 2021. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 9, 2022
| CRESCENT ENERGY COMPANY | ||
| By: | /s/ Brandi Kendall | |
| Name: | Brandi Kendall | |
| Title: | Chief Financial Officer | |
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Exhibit 99.1
Crescent Energy Reports 2021 Financial and Operational Results
Company Declares Fourth Quarter 2021 Cash Dividend of $0.12 per Share
Houston, March 9, 2022 – Crescent Energy Company (NYSE: CRGY) today announced actual and pro forma financial and operational results for 2021 and declared a quarterly cash dividend of $0.12 per share, payable on March 31, 2022, to holders of record on March 18, 2022. Crescent plans to host a conference call and webcast to discuss these results, as well as its 2022 outlook at 10 a.m. CT, Thursday, March 10. Complete details are available within this release.
Pro forma 2021 financial and operational results are related to the business combination (the “Contango Merger”) between Independence Energy LLC (“Independence”) and Contango Oil & Gas Company (“Contango”) to form Crescent Energy Company (“Crescent” or “the Company”). Actual 2021 financial and operational results include legacy results of Independence, Crescent’s financial reporting predecessor, from January 1 through December 6, 2021 and 25 days of Crescent results beginning December 7, 2021.
2021 Pro Forma Highlights
| – | Successfully integrated Independence and Contango to form Crescent, a differentiated energy company |
| – | Closed three transactions in the second half of 2021, including two asset acquisitions totaling approximately $140 million and the transformational Contango Merger |
| – | Scaled business with strong 2021 cash flow and substantial year-end reserves: |
| Select Results | 2021 Pro Forma | |
|
Total Revenues (GAAP) |
$1,968 MM | |
|
Net Loss (GAAP)(1) |
$(435) MM | |
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Adj. EBITDAX (non-GAAP)(2) |
$682 MM | |
|
Levered Free Cash Flow (“Levered FCF”) (non-GAAP)(2) |
$384 MM | |
|
Unhedged Adj. EBITDAX (non-GAAP)(2) |
$1,055 MM | |
|
Net Debt / Adj. EBITDAX(2) |
1.3x | |
|
Net Debt / Unhedged Adj. EBITDAX(2) |
0.9x | |
|
Total Proved Standardized Measure(3) |
$5.0 Bn | |
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Total Proved PV-10(2)(3) |
$5.2 Bn | |
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Proved Developed PV-10(2)(3) |
$4.3 Bn |
Uinta Basin Acquisition and 2022 Outlook:
| – | Pending $815 million acquisition of high-margin oil assets in the Uinta Basin, expected to close in 1H’22 |
| ○ | Deal consistent with strategy to acquire high-value and accretive cash flowing assets while maintaining financial strength |
| – | Scales Crescent’s production base in the Rockies region and adds multi-year inventory of proven, high-return development locations |
| – | Increased Adj. EBITDAX(2) guidance to $1.1-$1.2 billion with $375-$475 million of Levered FCF(2) |
| – | Expect to pay a $0.17 / share quarterly dividend(4), post close of Uinta transaction, based on 10% of 2022E Adjusted EBITDAX(2) guidance |
| – | Transaction maintains strong balance sheet with expected post close net leverage ratio of 1.4x(5) |
Crescent CEO David Rockecharlie said, “2021 was a transformational year for Crescent – we generated significant free cash flow, continued to scale our business, maintained our strong balance sheet and began trading in December as a public company. Although we have a new name and ticker symbol, our business strategy is well established and has been executed consistently over the last decade. The recently announced Uinta acquisition adds significant cash flow and resource upside from high return oil assets in a proven basin at a
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very attractive entry price. We enter 2022 with strong momentum and a differentiated strategy that is well positioned to create value for our shareholders.”
Please refer to the Company’s Current Report on Form 8-K which can be found at the SEC’s website at www.sec.gov, for additional details and information regarding the historical financial results of Crescent and Contango and the assumptions made in preparing the pro forma financial statements derived therefrom that are summarized herein.
Q4 Dividend
Crescent’s Board of Directors approved a quarterly cash dividend of $0.12 per share for the fourth quarter of 2021, or $0.48 per share on an annualized basis. The quarterly dividend is payable on March 31, 2022 to shareholders of record as of the close of business on March 18, 2022.
Commitment to ESG
Crescent continues to advance its sustainability initiatives and has achieved the following milestones since closing the Contango Merger in December 2021:
| • | Issued its inaugural ESG report in December 2021, with updated disclosures planned for mid-2022 |
| ○ | Reported key ESG performance metrics according to the Value Reporting Foundation’s SASB Standard for Oil & Gas – Exploration & Production |
| ○ | Established Crescent’s ESG priorities as climate change, environmental, health and safety, water management, community engagement and diversity, equity and inclusion |
| • | Formed an ESG Advisory Council to advise management and the Board on ESG-related topics |
| • | Joined the Oil & Gas Methane Partnership (OGMP) 2.0 initiative to enhance reporting of methane emissions |
Operational Update
Crescent produced 116 net MBoe/d for the month of December 2021 on an actual basis. During 2021, Crescent invested approximately $230 million of pro forma development capital to bring online 95 gross (20 net) wells in the Eagle Ford, DJ and Permian basins. Total pro forma operating expense for the year totaled $17.47 per Boe, with pro forma operating expense, excluding production taxes, of $14.53 per Boe.
In 2022, Crescent expects to bring online 32-38 gross operated wells in the Eagle Ford with greater than 90% average working interest. Crescent plans to operate two rigs in the Uinta Basin for the remainder of the year, subject to closing of the transaction.
Financial Position
As of December 31, 2021, the Company had principal amount of indebtedness of $1.0 billion and net debt of approximately $915 million. In February 2022, Crescent issued an additional $200 million aggregate principal amount of its existing senior unsecured notes (the “Tack-On Offering”) and used the net proceeds to repay amounts outstanding on its credit facility (“Crescent Credit Facility”).
As of December 31, 2021, on a pro forma basis for the Tack-On Offering, Crescent had $700 million of senior unsecured notes and $345 million of outstanding borrowings on the Crescent Credit Facility. Pro forma for the Tack-On Offering, Crescent exited the year with a net debt to 2021 Pro Forma Adjusted EBITDAX(2) ratio of 1.3x and a net debt to 2021 Pro Forma Unhedged Adjusted EBITDAX(2) ratio of 0.9x.
Upon the closing of the Contango Merger in December, the Company’s borrowing base increased to $1.3 billion with an elected commitment of $700 million. Total liquidity as of December 31, 2021 on a pro forma basis for the
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Tack-On Offering was $463 million, including outstanding letters of credit of $21 million and cash and cash equivalents of $129 million.
Crescent’s lenders authorized an increase of the Company’s elected commitment amount under the existing revolving credit facility to $1.3 billion from $700 million, contingent upon the closing of the Uinta transaction.
2022 Guidance: Standalone and Pro Forma for the Uinta Acquisition
Initial 2022E guidance is below, on both a standalone basis and combined basis for the pending Uinta Basin acquisition assuming nine months of contribution from the acquisition. Estimates are based on $75/Bbl NYMEX WTI and $3.75/MMBtu Henry Hub pricing:
| CRGY Standalone Full Year 2022 |
Pro Forma CRGY (Nine Months of Uinta Acquisition) |
Annualized Pro Forma Mid-Point(6) | ||||
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| EBITDAX and Levered Free Cash Flow |
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| Adjusted EBITDAX (non-GAAP)(2) |
$800 - $850 MM | $1,100 - $1,200 MM | $1,260 MM | |||
| Unhedged Adj. EBITDAX (non-GAAP)(2) |
$1,100 - $1,150 MM | $1,400 - $1,500 MM | $1,560 MM | |||
| Levered Free Cash Flow (non-GAAP)(2) |
$325 - $375 MM | $375 - $475 MM | $450 MM | |||
| Production(7) |
114 - 124 MBoe/d | 134 - 148 MBoe/d | 148 Mboe/d | |||
| % Oil / % Liquids |
~40% / ~55% | ~45% / ~58% | ||||
| Capital (Excl. Potential Acquisitions) |
$375 - $425 MM | $600 - $700 MM | ||||
| Per Unit Expenses |
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| Operating Expense(8) |
$17.25 - $18.25 / Boe | $15.50 - $16.50 / Boe | ||||
| Adj. Cash G&A (Incl. Management Comp)(2) |
$1.60 - $1.80 / Boe | $1.45 - $1.55 / Boe | ||||
| Implied 2022 Quarterly Dividend(4) |
$0.12 / Share | $0.17 / Share | ||||
| Outstanding Share Count (Class A & B) |
169.5 MM | 169.5 MM | ||||
| Net Debt / LTM Adj. EBITDAX(2)(5) |
1.3x | 1.4x | ||||
| Pro Forma Net Debt |
$915 | $1,625 | ||||
| Proved Developed PV-10 at SEC Pricing(3) |
$4.3 Bn | $5.1 Bn(9) |
Note: All amounts are approximations based on currently available information and estimates and are subject to change based on events and circumstances after the date hereof. Please see “Cautionary Statement Regarding Forward-Looking Information.”
Risk Management – Current Commodity Hedging
Crescent is approximately 60% hedged in 2022 at the midpoint of its production guidance range on a pro forma basis for the Uinta acquisition. The following table details the Company’s open commodity derivative contracts as of February 28, 2022.
| WTI | Brent | Natural Gas | NGLs | |||||||||||||
| Volume (MBbl) |
Avg Price ($/Bbl) |
Volume (MBbl) |
Avg Price ($/Bbl) |
Volume (BBtu) |
Avg Price $/MMBtu |
Volume (MBbl) |
Avg Price $/Bbl | |||||||||
| Q1’22 |
2,862 | $61.67 | 123 | $56.35 | 22,534 | $2.79 | 914 | $17.20 | ||||||||
| Q2’22 |
2,714 | $61.59 | 125 | $56.35 | 21,690 | $2.77 | 873 | $17.13 | ||||||||
| Q3’22 |
2,690 | $61.15 | 126 | $56.36 | 20,634 | $2.76 | 610 | $29.87 | ||||||||
| Q4’22 |
2,534 | $60.78 | 126 | $56.36 | 20,180 | $2.78 | 587 | $29.74 | ||||||||
| FY’23 |
7,932 | $59.20 | 527 | $52.52 | 57,278 | $2.54 | -- | -- | ||||||||
| FY’24 |
5,537 | $63.45 | 217 | $65.31 | 9,604 | $3.30 | -- | -- | ||||||||
Note: Includes hedges from January 1, 2022 through December 31, 2024. Included in the figures above are minor Henry Hub collar positions totaling 510 BBtu, 550 BBtu, and 9,150 BBtu in Q1 2022, 2023 and 2024, respectively. For the same periods, these collars have a weighted average floor price of $3.00 / MMBtu, $2.63 / MMBtu and $3.00 / MMBtu, respectively and a weighted average ceiling price of $3.41 / MMBtu, $3.01 / MMBtu and $3.87 / MMBtu, respectively. Weighted average price for collar positions in the table above calculated using February 28, 2022 strip pricing.
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Full Year 2021 Conference Call Information
Crescent plans to host a conference call to discuss full-year 2021 financial and operating results as well as its 2022 outlook. Details are below. A webcast replay will be available on the website following the call. In connection with the call, Crescent has provided information in an earnings presentation on its website, www.crescentenergyco.com, regarding its full-year 2021 financial and operating results.
Date: Thursday, March 10, 2022
Time: 10 a.m. CT (11 a.m. ET)
Conference Dial-In: 877-407-0989 / 201-389-0921 (Domestic / International)
Webcast Link: https://ir.crescentenergyco.com/events-presentations/
| (1) | Includes $391 million of unrealized derivative losses and $199 million of expense related to an early settlement of certain outstanding derivative oil commodity contracts for open positions associated with calendar years 2022 and 2023. Subsequent to the settlement, the Company entered into new commodity derivative contracts at prevailing market prices. |
| (2) | Non-GAAP financial measure. Please see “Reconciliation of Non-GAAP Measures” for discussion and reconciliations of such measures to their most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). |
| (3) | Standardized measure, PV-10 and proved developed reserve estimates based on SEC methodology, including pricing of $66.56 per Bbl for WTI oil and $3.60 per MMBtu for Henry Hub natural gas. |
| (4) | Dividends are subject to approval by the Board of Directors (the “Board”) and applicable law. |
| (5) | Calculated with estimated LTM Adjusted EBITDAX(2) as of March 31, 2022. |
| (6) | Annualized pro forma mid-point includes annualized cash flows from the acquisition. |
| (7) | In addition to its production, the Company projects generating $45-$50 million of Midstream and other revenue. |
| (8) | Includes costs that are indexed to commodity prices, including production taxes and certain other input costs, such as CO2 purchase costs related to CO2 flood asset in Wyoming. These commodity indexed operating expenses are based on $75/Bbl WTI and $3.75/MMBtu Henry Hub pricing, move in tandem with oil commodity prices and are partially offset by changes in our price realizations. Midstream operating expense reflected in Operating Expense. |
| (9) | $5.1 Bn of combined proved reserves includes (i) $4.3 Bn of Crescent standalone PV-10 based on reports prepared or audited by the Company’s third party reserve engineers in accordance with applicable rules and guidelines of the SEC and (ii) ~$0.8 Bn of PV-10 contribution from the pending Uinta transaction based upon internal management estimates. |
About Crescent Energy Company
Crescent is a well-capitalized, U.S. independent energy company with a portfolio of assets in key proven basins across the lower 48 states and substantial cash flow supported by a predictable base of production. Crescent’s core leadership team is a group of experienced investment, financial and industry professionals who continue to execute on the strategy management has employed since 2011. The Company’s mission is to invest in energy assets and deliver better returns, operations and stewardship. For additional information, please visit www.crescentenergyco.com.
Cautionary Statement Regarding Forward-Looking Information
This communication contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on current expectations, including with respect to the Uinta Acquisition. The words and phrases “should”, “could”, “may”, “will”, “believe”, “plan”, “intend”, “expect”, “potential”, “possible”, “anticipate”, “estimate”, “forecast”, “view”, “efforts”, “goal” and similar expressions identify forward-looking statements and express the Company’s expectations about future events. All statements, other than statements of historical facts, included in this communication that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company’s control. Such risks and uncertainties include, but are not limited to, the ability of the parties to consummate the Uinta Acquisition in a timely manner or at all; satisfaction of the conditions precedent to consummation of the transaction, including the ability to secure required consents and regulatory approvals in a timely manner or at all; the possibility of litigation (including related to the transaction itself),weather, political, economic and market conditions, including a decline in the price and market demand for natural gas, natural gas liquids and crude oil, the impact of pandemics such as COVID-19, actions by the Organization of the Petroleum Exporting Countries (“OPEC”) and non-OPEC oil producing countries, the impact of armed conflict, including in Ukraine, the timing and success of business development efforts, and other uncertainties. Consequently, actual future results could differ materially from expectations. The Company assumes no duty to update or revise their respective forward-looking statements based on new information, future events or otherwise.
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The transactions and outlook announced today is based on information currently available to the Company, depends on certain estimates and assumptions and is subject to change.
Historical Financial Information
As discussed above, Independence is the “predecessor” of Crescent for financial reporting purposes. As a result, unless otherwise indicated, the historical financial and operating data presented in this release for the period from January 1, 2021 through the closing of the Contango Merger on December 7, 2021 are those of Independence on a consolidated basis. The historical financial and operating data presented in this release as of December 31, 2021 and for the period from the closing of the Contango Merger through December 31, 2021 are those of Crescent. The historical information has been presented for informational purposes only and is not necessarily indicative of Crescent’s future financial position or results of operations.
Selected Unaudited Pro Forma Condensed Combined Financial Information
The following selected unaudited pro forma condensed combined financial information of Crescent (the “selected pro forma information”) is based on the historical financial statements of Independence, as its predecessor, for the period from January 1, 2021 through December 6, 2021 and Crescent from December 7, 2021 through December 31, 2021. Under the acquisition method of accounting, Contango’s assets acquired and liabilities assumed by Crescent will be recorded at their fair values measured as of the acquisition date. The excess, if any, of the purchase price over the estimated fair values of Contango’s assets acquired and liabilities assumed will be recorded as goodwill.
The selected pro forma information has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma condensed combined financial statements of Crescent included in the Current Report on Form 8-K, which can be found at the SEC’s website at www.sec.gov and the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements have been prepared from, and should be read in conjunction with, the historical consolidated financial statements of Independence and Contango and the accompanying notes thereto, each of which were also included on such Current Report on Form 8-K or the Current Report on Form 8-K/A filed on December 17, 2021, adjusted to give effect to the transactions discussed therein (the “Pro Forma Transactions”).
The selected pro forma information has been presented for informational purposes only and is not necessarily indicative of what Crescent’s actual financial position or results of operations would have been had the Pro Forma Transactions been completed as of the dates indicated. In addition, the selected pro forma information does not purport to project the future financial position or operating results of the post-combination business.
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Crescent Income Statement
| Actual | Pro Forma Combined | |||||||||||
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| (in thousands, except per share data) | For the year ended December 31, 2021 |
For the year ended December 31, 2020 |
For the year ended December 31, 2021 |
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| Revenues: |
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| Oil |
$ | 883,087 | $ | 491,780 | $ | 1,112,024 | ||||||
| Natural gas |
354,298 | 149,317 | 550,791 | |||||||||
| Natural gas liquids |
185,530 | 69,902 | 235,600 | |||||||||
| Midstream and other |
54,062 | 43,222 | 69,421 | |||||||||
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| Total revenues |
1,476,977 | 754,221 | 1,967,836 | |||||||||
| Expenses: |
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| Lease operating expense |
243,501 | 202,180 | — | |||||||||
| Workover expense |
10,842 | 6,385 | — | |||||||||
| Asset operating expense |
45,940 | 39,023 | — | |||||||||
| Gathering, transportation and marketing |
187,059 | 173,122 | — | |||||||||
| Production and other taxes |
108,992 | 61,124 | — | |||||||||
| Operating expense |
— | — | 795,466 | |||||||||
| Depreciation, depletion and amortization |
312,787 | 372,300 | 416,160 | |||||||||
| Impairment of oil and natural gas properties |
— | 247,215 | 761 | |||||||||
| Exploration expense |
1,180 | 486 | 1,661 | |||||||||
| Midstream operating expense |
13,389 | 9,472 | 15,355 | |||||||||
| General and administrative expense |
78,342 | 16,542 | 171,327 | |||||||||
| Gain on sale of assets |
(8,794 | ) | — | (9,232 | ) | |||||||
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| Total expenses |
993,238 | 1,127,849 | 1,391,498 | |||||||||
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| Income (loss) from operations |
483,739 | (373,628 | ) | 576,338 | ||||||||
| Other income (expense): |
||||||||||||
| Interest expense |
(50,740 | ) | (38,107 | ) | (73,698 | ) | ||||||
| Other income (expense) |
120 | 341 | 5,926 | |||||||||
| Income from equity method investments |
368 | — | (1,529 | ) | ||||||||
| Gain on extinguishment of debt |
— | — | 3,369 | |||||||||
| Gain (loss) on derivatives |
(866,020 | ) | 195,284 | (970,659 | ) | |||||||
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| Total other income (expense) |
(916,272 | ) | 157,518 | (1,036,591 | ) | |||||||
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| Income (loss) before taxes |
(432,533 | ) | (216,110 | ) | (460,253 | ) | ||||||
| Income tax benefit (expense) |
306 | (14 | ) | 25,561 | ||||||||
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| Net income (loss) |
(432,227 | ) | (216,124 | ) | (434,692 | ) | ||||||
| Less: net (income) loss attributable to Predecessor |
339,168 | 118,649 | — | |||||||||
| Less: net (income) loss attributable to noncontrolling interests |
14,922 | 97,475 | 3,570 | |||||||||
| Less: net loss attributable to redeemable noncontrolling interests |
58,761 | — | 333,598 | |||||||||
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| Net loss attributable to Crescent Energy |
$ | (19,376 | ) | $ | — | $ | (97,524 | ) | ||||
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| Net Loss per Share: |
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| Class A common stock - basic and diluted |
$ | (0.46 | ) | $ | (2.32 | ) | ||||||
| Class B common stock - basic and diluted |
$ | — | $ | — | ||||||||
| Weighted Average Shares Outstanding: |
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| Class A common stock - basic and diluted |
41,954 | 41,954 | ||||||||||
| Class B common stock - basic and diluted |
127,536 | 127,536 | ||||||||||
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Crescent Balance Sheet
| Actual | ||||||||
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| December 31, 2021 |
December 31, 2020 |
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| (in thousands, except share and unit data) |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | 128,578 | $ | 36,861 | ||||
| Accounts receivable, net |
321,855 | 111,821 | ||||||
| Accounts receivable – affiliates |
20,341 | — | ||||||
| Derivative assets – current |
— | 30,926 | ||||||
| Drilling advances |
200 | 38,892 | ||||||
| Prepaid and other current assets |
8,644 | 1,948 | ||||||
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| Total current assets |
479,618 | 220,448 | ||||||
| Property, plant and equipment: |
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| Oil and natural gas properties at cost, successful efforts method |
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| Proved |
6,043,602 | 4,910,059 | ||||||
| Unproved |
308,721 | 288,459 | ||||||
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| Oil and natural gas properties at cost, successful efforts method |
6,352,323 | 5,198,518 | ||||||
| Field and other property and equipment, at cost |
144,318 | 138,371 | ||||||
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|||||
| Total property, plant and equipment |
6,496,641 | 5,336,889 | ||||||
| Less: accumulated depreciation, depletion, amortization and impairment |
(1,941,528 | ) | (1,694,742 | ) | ||||
|
|
|
|
|
|||||
| Property, plant and equipment, net |
4,555,113 | 3,642,147 | ||||||
| Goodwill |
76,564 | — | ||||||
| Derivative assets – noncurrent |
579 | 22,352 | ||||||
| Investment in equity affiliates |
15,415 | — | ||||||
| Other assets |
30,173 | 22,422 | ||||||
|
|
|
|
|
|||||
| TOTAL ASSETS |
$ | 5,157,462 | $ | 3,907,369 | ||||
|
|
|
|
|
|||||
7
| Actual | ||||||||
|
|
|
|||||||
| December 31, 2021 |
December 31, 2020 |
|||||||
|
|
|
|
|
|||||
| (in thousands, except share and unit data) |
||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued liabilities |
$ | 337,881 | $ | 80,688 | ||||
| Accounts payable – affiliates |
8,675 | 9,019 | ||||||
| Derivative liabilities – current |
253,525 | 26,392 | ||||||
| Financing lease obligations – current |
1,606 | — | ||||||
| Other current liabilities |
14,438 | 4,572 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
616,125 | 120,671 | ||||||
| Long-term debt |
1,030,406 | 751,075 | ||||||
| Derivative liabilities – noncurrent |
133,471 | 23,958 | ||||||
| Asset retirement obligations |
258,102 | 106,403 | ||||||
| Deferred tax liability |
82,537 | — | ||||||
| Financing lease obligations – noncurrent |
3,512 | — | ||||||
| Other liabilities |
13,652 | 12,102 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
2,137,805 | 1,014,209 | ||||||
| Commitments and contingencies |
||||||||
| Redeemable noncontrolling interests |
2,325,013 | — | ||||||
| Equity: |
||||||||
|
Members’ equity – Class A units, no units and 1,220,421 units outstanding as of December 31, 2021 and 2020, respectively |
— | 2,716,892 | ||||||
|
Class A common stock, $0.0001 par value; 1,000,000,000 shares authorized and 43,105,376 shares issued and 41,954,385 shares outstanding as of December 31, 2021; no shares issued and outstanding as of December 31, 2020 |
4 | — | ||||||
|
Class B common stock, $0.0001 par value; 500,000,000 shares authorized and 127,536,463 shares issued and outstanding as of December 31, 2021; no shares issued and outstanding as of December 31, 2020 |
13 | — | ||||||
|
Preferred stock, $0.0001 par value; 500,000,000 shares authorized and 1,000 Series I preferred shares issued and outstanding as of December 31, 2021; no shares issued and outstanding as of December 31, 2020 |
— | — | ||||||
|
Treasury stock, at cost; 1,150,991 shares of Class A common stock as of December 31, 2021 and no shares of Class A Common Stock as of December 31, 2020 |
(18,448 | ) | — | |||||
|
Additional paid-in capital |
720,016 | — | ||||||
|
Accumulated deficit |
(19,376 | ) | — | |||||
|
Noncontrolling interests |
12,435 | 176,268 | ||||||
|
|
|
|
|
|||||
| Total equity |
694,644 | 2,893,160 | ||||||
|
|
|
|
|
|||||
| TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY |
$ | 5,157,462 | $ | 3,907,369 | ||||
|
|
|
|
|
|||||
8
Crescent Cash Flow Statement
| Actual | ||||||||
|
|
|
|||||||
| For the year ended December 31, 2021 |
For the year ended December 31, 2020 |
|||||||
|
|
|
|
|
|||||
| (in thousands) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (432,227 | ) | $ | (216,124 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation, depletion and amortization |
312,787 | 372,300 | ||||||
| Impairment of oil and natural gas properties |
— | 247,215 | ||||||
| Deferred income taxes (benefit) |
(935 | ) | — | |||||
| Gain on sale of oil and natural gas properties |
(8,794 | ) | — | |||||
| (Gain) loss on derivatives |
866,020 | (195,284 | ) | |||||
| Net cash (paid) received on settlement of derivatives |
(535,269 | ) | 186,495 | |||||
| Non-cash equity-based compensation expense |
39,919 | (797 | ) | |||||
| Amortization of debt issuance costs and discount |
7,647 | 4,941 | ||||||
| Write-off of debt issuance costs |
2,541 | — | ||||||
| Write-off of other long-term assets and other |
(928 | ) | (29 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(71,301 | ) | 14,652 | |||||
| Accounts receivable – affiliates |
(20,333 | ) | — | |||||
| Prepaid and other current assets |
39,986 | 17,886 | ||||||
| Accounts payable and accrued liabilities |
31,110 | (15,138 | ) | |||||
| Accounts payable – affiliates |
(358 | ) | 657 | |||||
| Other |
3,282 | (5,746 | ) | |||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
233,147 | 411,028 | ||||||
| Cash flows from investing activities: |
||||||||
| Development of oil and natural gas properties |
(155,607 | ) | (126,164 | ) | ||||
| Acquisitions of oil and natural gas properties, net of cash acquired |
(115,076 | ) | — | |||||
| Proceeds from the sale of oil and natural gas properties |
25,723 | 9,362 | ||||||
| Purchases of restricted investment securities – HTM |
(8,537 | ) | (9,071 | ) | ||||
| Maturities of restricted investment securities – HTM |
11,703 | 9,052 | ||||||
| Due from related party and other |
(2,801 | ) | (8,119 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(244,595 | ) | (124,940 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of the Senior Notes, net of discount |
490,625 | — | ||||||
| Revolving Credit Facility borrowings |
702,000 | — | ||||||
| Revolving Credit Facility repayments |
(159,000 | ) | — | |||||
| Payment of debt issuance costs |
(14,611 | ) | (3,333 | ) | ||||
| Prior Credit Agreement borrowings |
53,900 | 275,850 | ||||||
| Prior Credit Agreement repayments |
(804,975 | ) | (496,875 | ) | ||||
| Repayments of debt acquired in Merger Transactions |
(140,000 | ) | — | |||||
| Member contributions |
110 | 5,186 | ||||||
| Noncontrolling interest contributions |
35,460 | — | ||||||
| Repurchase of noncontrolling interest |
(2,462 | ) | — | |||||
| Member distributions |
(35,331 | ) | (61,422 | ) | ||||
| Noncontrolling interest distributions |
(1,695 | ) | (1,145 | ) | ||||
| Cash paid for treasury stock acquired for equity-based compensation tax withholding |
(18,448 | ) | — | |||||
| Due to related party and other |
(428 | ) | 9,650 | |||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
105,145 | (272,089 | ) | |||||
|
|
|
|
|
|||||
| Net change in cash, cash equivalents and restricted cash |
93,697 | 13,999 | ||||||
| Cash, cash equivalents and restricted cash, beginning of period |
41,420 | 27,421 | ||||||
|
|
|
|
|
|||||
| Cash, cash equivalents, and restricted cash, end of period |
$ | 135,117 | $ | 41,420 | ||||
|
|
|
|
|
|||||
9
Reconciliation of Non-GAAP Measures
This release includes financial measures that have not been calculated in accordance with GAAP. These non-GAAP measures include Adjusted EBITDAX, Levered Free Cash Flow, Unhedged Adjusted EBITDAX, Adjusted Cash G&A and PV-10. These non-GAAP measures should be read in conjunction with the information contained in Crescent’s audited combined and consolidated financial statements prepared in accordance with GAAP.
Adjusted EBITDAX and Levered Free Cash Flow
Crescent defines Adjusted EBITDAX as net income (loss) before interest expense, realized (gain) loss on interest rate derivatives, income tax expense, depreciation, depletion and amortization, exploration expense, non-cash gain (loss) on derivatives, impairment of oil and natural gas properties, equity-based compensation, (gain) loss on sale of assets, other (income) expense, certain redeemable noncontrolling interest distributions made by Crescent Energy OpCo, LLC (“OpCo”) related to Management Compensation, nonrecurring expenses and transaction expenses. Management believes Adjusted EBITDAX is a useful performance measure because it allows for an effective evaluation of the Company’s operating performance when compared against its peers, without regard to financing methods, corporate form or capital structure. The Company excludes the items listed above from net income (loss) in arriving at Adjusted EBITDAX because these amounts can vary substantially within its industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP, of which such measure is the most comparable GAAP measure. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax burden, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDAX. The Company’s presentation of Adjusted EBITDAX should not be construed as an inference that its results will be unaffected by unusual or nonrecurring items. Crescent’s computations of Adjusted EBITDAX may not be identical to other similarly titled measures of other companies. In addition, the Company’s Credit Agreement and the notes include a calculation of Adjusted EBITDAX for purposes of covenant compliance.
Crescent defines Levered Free Cash Flow as Adjusted EBITDAX less interest expense, excluding noncash deferred financing cost amortization, realized gain (loss) on interest rate derivatives, current income tax provision, tax-related redeemable noncontrolling interest distributions made by OpCo and development of oil and natural gas properties. Levered Free Cash Flow does not take into account amounts incurred on acquisitions. Levered Free Cash Flow is not a measure of performance as determined by GAAP. Levered Free Cash Flow is a supplemental non-GAAP performance measure that is used by Crescent’s management and external users of its financial statements, such as industry analysts, investors, lenders and rating agencies. Management believes Levered Free Cash Flow is a useful performance measure because it allows for an effective evaluation of operating and financial performance and the ability of the Company’s operations to generate cash flow that is available to reduce leverage or distribute to equity holders. Levered Free Cash Flow should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP, of which such measure is the most comparable GAAP measure, or as an indicator of actual operating performance or investing activities. The Company’s computations of Levered Free Cash Flow may not be comparable to other similarly titled measures of other companies.
10
The following table presents a reconciliation of pro forma Adjusted EBITDAX (non-GAAP) and pro forma Levered Free Cash Flow (non-GAAP) to pro forma net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:
| Actual | Pro Forma Combined | |||||||||||
|
|
|
|
|
|||||||||
| For the year ended December 31, 2021 |
For the year ended December 31, 2020 |
For the year ended December 31, 2021 |
||||||||||
|
|
|
|
|
|
|
|||||||
| (in thousands) | ||||||||||||
| Net income (loss) |
$ | (432,227 | ) | $ | (216,124 | ) | $ | (434,692 | ) | |||
| Adjustments to reconcile to Adjusted EBITDAX: |
||||||||||||
| Interest expense |
50,740 | 38,107 | 73,698 | |||||||||
| Realized (gain) loss on interest rate derivatives |
7,373 | 12,435 | 7,373 | |||||||||
| Income tax expense (benefit) |
(306 | ) | 14 | (25,561 | ) | |||||||
| Depreciation, depletion and amortization |
312,787 | 372,300 | 416,160 | |||||||||
| Exploration expense |
1,180 | 486 | 1,661 | |||||||||
| Non-cash (gain) loss on derivatives |
330,368 | (10,910 | ) | 391,347 | ||||||||
| Impairment of oil and natural gas properties |
— | 247,215 | 761 | |||||||||
| Non-cash equity-based compensation expense |
39,919 | (797 | ) | 65,010 | ||||||||
| (Gain) loss on sale of assets |
(8,794 | ) | — | (9,232 | ) | |||||||
| Other (income) expense |
(120 | ) | (341 | ) | (9,295 | ) | ||||||
| Certain redeemable noncontrolling interest distributions made by OpCo related to Management Compensation |
(2,706 | ) | — | (40,107 | ) | |||||||
| Transaction and nonrecurring expenses(1) |
23,149 | 22,679 | 46,191 | |||||||||
| Early settlement of derivative contracts(2) |
198,688 | — | 198,688 | |||||||||
|
|
|
|
|
|
|
|||||||
| Adjusted EBITDAX (non-GAAP) |
$ | 520,051 | $ | 465,064 | $ | 682,002 | ||||||
| Adjustments to reconcile to Levered Free Cash Flow: |
||||||||||||
| Interest expense, excluding non-cash deferred financing cost amortization |
(40,551 | ) | (33,166 | ) | (59,193 | ) | ||||||
| Realized (gain) loss on interest rate derivatives |
(7,373 | ) | (12,435 | ) | (7,373 | ) | ||||||
| Current income tax provision |
(629 | ) | (14 | ) | 84 | |||||||
| Current tax-related redeemable noncontrolling interest distributions by OpCo |
— | — | — | |||||||||
| Development of oil and natural gas properties |
(194,828 | ) | (110,126 | ) | (231,646 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Levered Free Cash Flow (non-GAAP) |
$ | 276,670 | $ | 309,323 | $ | 383,874 | ||||||
|
|
|
|
|
|
|
|||||||
| (1) | Transaction and nonrecurring expenses primarily relate to legal, consulting and other fees incurred for certain acquisitions and restructuring transactions in 2020 and 2021, as well as the termination of a midstream contract at the Eagle Ford business in 2020. |
| (2) | Represents the settlement in June 2021 of certain outstanding derivative oil commodity contracts for open positions associated with calendar years 2022 and 2023. Subsequent to the settlement, the Company entered into new commodity derivative contracts at prevailing market prices. |
Due to the forward-looking nature of certain non-GAAP measures presented in this release for the year ending December 31, 2022, including Adjusted EBITDAX, Levered Free Cash Flow and Adjusted Cash G&A for such period, no reconciliations of the non-GAAP measures to their most directly comparable GAAP measure is available without unreasonable efforts. This is due to the inherent difficulty of forecasting the timing or amount of various reconciling items that would impact the most directly comparable forward-looking GAAP financial measure, that have not yet occurred, are out of the Company’s control and/or cannot be reasonably predicted. Accordingly, such reconciliations are excluded from this release. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.
11
Unhedged Adjusted EBITDAX
Crescent defines Unhedged Adjusted EBITDAX as Adjusted EBITDAX plus realized (gain) loss on commodity derivatives. Management believes Unhedged Adjusted EBITDAX is a useful performance measure because it allows for an effective evaluation of the Company’s operating performance when compared against its peers, without regard to commodity derivatives, which can vary substantially within its industry depending upon peers hedging strategies and when hedges were entered into. Unhedged Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP, of which such measure is the most comparable GAAP measure. Certain items excluded from Unhedged Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s realized derivative loss or gain, cost of capital and tax burden, as well as the historic costs of depreciable assets, none of which are reflected in Unhedged Adjusted EBITDAX. The Company’s presentation of Unhedged Adjusted EBITDAX should not be construed as an inference that its results will be unaffected by unusual or nonrecurring items. Crescent’s computations of Unhedged Adjusted EBITDAX may not be identical to other similarly titled measures of other companies.
The following table presents a reconciliation of pro forma Unhedged Adjusted EBITDAX (non-GAAP) to pro forma Adjusted EBITDAX (non-GAAP). In the table above, pro forma Adjusted EBITDAX (non-GAAP) is reconciled to pro forma net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:
| Actual | Pro Forma Combined | |||||||||||
|
|
|
|
|
|||||||||
| For the year ended December 31, 2021 |
For the year ended December 31, 2020 |
For the year ended December 31, 2021 |
||||||||||
|
|
|
|
|
|
|
|||||||
| (in thousands) | ||||||||||||
| Adjusted EBITDAX (non-GAAP) |
$ | 520,051 | $ | 465,064 | $ | 682,002 | ||||||
| Plus realized (gain) loss on commodity derivatives |
329,590 | (196,809 | ) | 373,250 | ||||||||
|
|
|
|
|
|
|
|||||||
| Unhedged Adjusted EBITDAX (non-GAAP) |
$ | 849,641 | $ | 268,255 | $ | 1,055,252 | ||||||
|
|
|
|
|
|
|
|||||||
Adjusted Cash G&A
Crescent defines Adjusted Cash G&A as General and Administrative Expense, excluding noncash equity-based compensation, and including certain redeemable noncontrolling interest distributions made by OpCo related to the Management Compensation.
PV-10
Pre-tax present value discounted at ten percent (“PV-10”) is a considered non-GAAP measure. The most directly comparable GAAP financial measure is standardized measure of discounted future net cash flows. Neither PV-10 nor standardized measure represent an estimate of the fair market value of Crescent’s oil and natural gas properties. The Company believes that the presentation of PV-10 is relevant and useful to investors as supplemental disclosure to the standardized measure of future net cash flows, or after tax amount, because it presents the undiscounted or discounted, as applicable, future net cash flows attributable to reserves prior to taking into account future income taxes and the Company’s current tax structure. Crescent and others in the industry use PV-10 as a measure to compare the relative size and value of proved reserves held by companies without regard to the specific tax characteristics of such entities. Investors should be cautioned that neither PV-10 nor standardized measure represent an estimate of the fair market value of Crescent’s proved reserves.
12
| Actual | Pro Forma Combined | |||||||||||
|
|
|
|
|
|||||||||
| For the year ended December 31, 2021 |
For the year ended December 31, 2020 |
For the year ended December 31, 2021 |
||||||||||
|
|
|
|
|
|
|
|||||||
| (in thousands) | ||||||||||||
| Standardized measure of discounted future net cash flows |
$ | 4,958,300 | $ | 1,327,860 | $ | 4,958,300 | ||||||
| Tax annual discount of 10% for estimated timing |
200,524 | 16,131 | 200,524 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Proved PV-10 |
$ | 5,158,824 | $ | 1,343,991 | $ | 5,158,824 | ||||||
|
|
|
|
|
|
|
|||||||
Company Contact
For additional information, please reach out to IR@crescentenergyco.com.
13
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
Defined terms included below shall have the same meaning as terms defined and included within the proxy statement/prospectus (File No. 333-258157), dated November 3, 2021 (the “Proxy Statement/Prospectus”).
On December 7, 2021 (the “Closing Date”), Crescent Energy Company (“Crescent” or the “Company”), Contango, Independence, OpCo and certain entities formed by the Company (C Merger Sub and L Merger Sub) completed the transactions contemplated by the Transaction Agreement dated June 7, 2021 pursuant to which, (1) OpCo was recapitalized such that after giving effect to such recapitalization, all of the equity interest in OpCo consisting of 127,536,463 OpCo Units (the “OpCo Recapitalization”), Independence distributed all of the OpCo Units held by it, and all of the shares of Crescent Class B Common Stock held by it to the members of Independence in accordance with its organizational documents (the “Distribution”), and immediately following the Distribution, Independence merged with and into OpCo with OpCo surviving (the “Independence Merger”), (2) immediately following the Independence Merger, C Merger Sub merged with and into Contango, with Contango surviving the merger as a direct wholly owned corporate subsidiary of the Company (the “Contango Merger”), (3) as a result of the Contango Merger, each outstanding share of Contango Common Stock was converted into the right to receive a number of shares of Crescent Class A Common Stock equal to the Exchange Ratio, (4) immediately following the Contango Merger, Contango merged with and into L Merger Sub, with L Merger Sub surviving the merger as a direct wholly owned limited liability company subsidiary of the Company (the “LLC Merger”), (5) immediately following the LLC Merger, the Company contributed 100% of the equity interests in L Merger Sub to OpCo in exchange for certain Opco Units (the “Contribution”), and (6) immediately following the Contribution, OpCo contributed L Merger Sub to Energy Finance. Each of these transactions contemplated by the Transaction Agreement and completed on the Closing Date is collectively referred to hereafter as the “Merger Transactions.” Subject to the terms and conditions within the Transaction Agreement, holders of eligible shares of Contango Common Stock received 0.20 shares of Crescent Class A common stock in exchange for each share of Contango Common Stock held.
The following unaudited pro forma condensed combined financial statement (the “pro forma financial statement”) has been prepared from the respective historical consolidated financial statements of Crescent for the year ended December 31, 2021 and Contango for the period from January 1, 2021 through December 6, 2021, adjusted to give effect to the Merger Transactions. Additionally, the pro forma financial statement includes adjustments associated with the April 2021 Exchange, the Noncontrolling Interest Carve-out, the DJ Basin Acquisition, the acquisition of certain operated producing oil and natural gas properties predominately located in the Central Basin Platform in Texas and New Mexico (the “Central Basin Platform Acquisition”), the Independence Refinancing, and the February 2022 issuance of an additional $200.0 million in aggregate principal of our 7.250% senior notes due 2026 and the use of proceeds therefrom to repay amounts outstanding under our New Credit Agreement (the “Crescent Refinancing” and together with the April 2021 Exchange, the Noncontrolling Interest Carve-out, the DJ Basin Acquisition, the Central Basin Platform Acquisition, and the Independence Refinancing, the “Crescent Transactions”). Further, Contango completed the Mid-Con Acquisition, the Grizzly Acquisition, and the Wind River Basin Acquisition (collectively, the “Contango Transactions”) during the period presented.
The unaudited pro forma condensed combined statement of operations (the “pro forma statement of operations”) for the year ended December 31, 2021 gives effect to each of the Merger Transactions, the Crescent Transactions and the Contango Transactions (together with the Merger Transactions and the Crescent Transactions, the “Pro Forma Transactions”) as if they had been consummated on January 1, 2021.
The following pro forma financial statement is based on, and should be read in conjunction with the Company’s historical audited combined and consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K.
The accompanying pro forma financial statement was derived by making certain transaction accounting adjustments to the historical financial statements noted above. The adjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual impact of the Pro Forma Transactions may differ from the adjustments made to the pro forma financial statement. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects for the periods presented as if the Pro Forma Transactions had been consummated earlier, and that all adjustments necessary to present fairly the pro forma financial statement have been made.
A final determination of the fair value of Contango’s assets and liabilities will be based on the actual assets and liabilities of Contango that existed as of the Closing Date and will be finalized before the end of the measurement period. The pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma financial statement presented below. Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuations will result in adjustments to the pro forma statements of operations. The final purchase price allocation may be materially different than that reflected in the pro forma purchase price allocation presented herein.
The pro forma financial statement and related notes are presented for illustrative purposes only and should not be relied upon as an indication of the financial condition or the operating results that the Company would have achieved if the Transaction Agreement had been entered into and the Pro Forma Transactions had taken place on the assumed dates. The pro forma financial statement does not reflect future events that may occur after the consummation of the Transactions, including, but not limited to, the anticipated realization of ongoing savings from potential operating efficiencies, asset dispositions, cost savings, or economies of scale that the Company may achieve with respect to the combined operations. As a result, future results may vary significantly from the results reflected in the pro forma financial statement and should not be relied on as an indication of the future results of the Company.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2021
(in thousands, except per share data)
| Crescent (Historical) |
Crescent Transaction Adjustments |
Crescent As Adjusted |
Contango1 (Historical) |
Contango2 (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Reclassif- ications |
Transaction Adjustments |
Crescent Pro Forma Combined |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Oil |
$ | 883,087 | $ | 22,527 | (a | ) | $ | 905,614 | $ | 149,246 | $ | 50,182 | $ | 6,982 | (d | ) | $ | 206,410 | $ | — | $ | — | $ | 1,112,024 | ||||||||||||||||||||||||||||||||||||
| Natural gas |
354,298 | 715 | (a | ) | 355,013 | 55,556 | 45,179 | 95,043 | (d | ) | 195,778 | — | — | 550,791 | ||||||||||||||||||||||||||||||||||||||||||||||
| Natural gas liquids |
185,530 | 1,391 | (a | ) | 186,921 | 35,735 | 12,201 | 743 | (d | ) | 48,679 | — | — | 235,600 | ||||||||||||||||||||||||||||||||||||||||||||||
| Midstream and other |
54,062 | (538 | ) | (a | ) | 53,524 | — | — | 7,765 | (d | ) | 7,765 | 8,132 | (e | ) | — | 69,421 | |||||||||||||||||||||||||||||||||||||||||||
| Other revenue |
— | — | — | 2,980 | 5,152 | — | 8,132 | (8,132 | ) | (e | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|||||||||||||||||||||||||||||||||||||||||
| Total revenues |
1,476,977 | 24,095 | 1,501,072 | 243,517 | 112,714 | 110,533 | 466,764 | — | — | 1,967,836 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expense |
596,334 | 5,751 | (a | ) | 602,085 | 108,901 | 40,760 | 43,720 | (d | ) | 193,381 | — | — | 795,466 | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation, depletion and amortization |
312,787 | 4,823 | (a | ) | 317,610 | 30,391 | 7,633 | 8,608 | (d | ) | 46,632 | — | 51,918 | (f | ) | 416,160 | ||||||||||||||||||||||||||||||||||||||||||||
| Impairment and abandonment of oil and natural gas properties |
— | — | — | 712 | 49 | — | 761 | — | — | 761 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Exploration expense |
1,180 | (3 | ) | (a | ) | 1,177 | 458 | 25 | 1 | (d | ) | 484 | — | — | 1,661 | |||||||||||||||||||||||||||||||||||||||||||||
| Midstream operating expense |
13,389 | (132 | ) | (a | ) | 13,257 | — | 2,098 | — | 2,098 | — | — | 15,355 | |||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expense |
78,342 | (195 | ) | (a | ) | 78,147 | 39,441 | 26,555 | 97 | (d | ) | 66,093 | — | 12,279 | (g | ) | 171,327 | |||||||||||||||||||||||||||||||||||||||||||
| 14,808 | (h | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on sale of assets |
(8,794 | ) | — | (8,794 | ) | — | — | — | — | (438 | ) | (e | ) | — | (9,232 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||||||||||||||||
| Total expenses |
993,238 | 10,244 | 1,003,482 | 179,903 | 77,120 | 52,426 | 309,449 | (438 | ) | 79,005 | 1,391,498 | |||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense |
(50,740 | ) | 377 | (a | ) | (64,405 | ) | (4,156 | ) | (4,753 | ) | (384 | ) | (d | ) | (9,293 | ) | — | — | (73,698 | ) | |||||||||||||||||||||||||||||||||||||||
| (14,042 | ) | (b | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss on derivatives |
(866,020 | ) | — | (866,020 | ) | (117,951 | ) | 14,909 | (1,597 | ) | (d | ) | (104,639 | ) | — | — | (970,659 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from equity method investments |
368 | — | 368 | (1,897 | ) | — | — | (1,897 | ) | — | — | (1,529 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Gain from sale of assets |
— | — | — | 461 | (23 | ) | — | 438 | (438 | ) | (e | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Gain on extinguishment of debt |
— | — | — | 3,369 | — | — | 3,369 | — | — | 3,369 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expense) |
120 | (5 | ) | (a | ) | 115 | 3,714 | 2,097 | — | 5,811 | — | — | 5,926 | |||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Total other income (expense) |
(916,272 | ) | (13,670 | ) | (929,942 | ) | (116,460 | ) | 12,230 | (1,981 | ) | (106,211 | ) | (438 | ) | — | (1,036,591 | ) | ||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Income (loss) before taxes |
(432,533 | ) | 181 | (432,352 | ) | (52,846 | ) | 47,824 | 56,126 | 51,104 | — | (79,005 | ) | (460,253 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Income tax benefit (expense) |
306 | 1 | (a | ) | 307 | 711 | 1 | — | 712 | — | 24,542 | (i | ) | 25,561 | ||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | (432,227 | ) | 182 | (432,045 | ) | (52,135 | ) | 47,825 | 56,126 | 51,816 | — | (54,463 | ) | (434,692 | ) | |||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Less: net (income) loss attributable to Predecessor |
339,168 | — | 339,168 | — | — | — | — | — | (339,168 | ) | (j | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Less: net (income) loss attributable to noncontrolling interests |
14,922 | (8,716 | ) | (a | ) | 3,570 | — | — | — | — | — | — | 3,570 | |||||||||||||||||||||||||||||||||||||||||||||||
| (2,636 | ) | (c | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: net loss attributable to redeemable noncontrolling interests |
58,761 | — | 58,761 | — | — | — | — | — | 274,837 | (k | ) | 333,598 | ||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to Crescent Energy | $ | (19,376 | ) | $ | (11,170 | ) | $ | (30,546 | ) | $ | (52,135 | ) | $ | 47,825 | $ | 56,126 | $ | 51,816 | $ | — | $ | (118,794 | ) | $ | (97,524 | ) | ||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||||||
| Net Loss per Share: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A - basic and diluted |
$ | (0.46 | ) | $ | (2.32 | ) | (l | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class B - basic and diluted |
$ | — | $ | — | (l | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted Average Common Shares Outstanding | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A - basic and diluted |
41,954 | 41,954 | (l | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class B - basic and diluted |
127,536 | 127,536 | (l | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 | Reflects the historical operations of Contango for the nine months ended September 30, 2021. |
| 2 | Reflects the historical operations of Contango for the period from October 1, 2021 through December 6, 2021. |
Notes to unaudited pro forma condensed combined financial statements
NOTE 1 – Basis of pro forma presentation
The pro forma financial statement has been derived from the historical financial statements of Crescent and Contango. The pro forma statements of operations for the year ended December 31, 2021 gives effect to the Pro Forma Transactions as if they had occurred on January 1, 2021.
The pro forma financial statement reflects pro forma adjustments that are based on available information and certain assumptions that management believes are reasonable. However, actual results may differ from those reflected in these statements. In management’s opinion, all adjustments known to date that are necessary to present fairly the pro forma information have been made. The pro forma financial statement does not purport to represent what the combined entity’s financial position or results of operations would have been if the Pro Forma Transactions had actually occurred on the dates indicated above, nor are they indicative of the Company’s future financial position or results of operations.
These pro forma financial statement should be read in conjunction with the Company’s historical financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K.
NOTE 2 – Purchase price allocation
The Merger Transactions was accounted for using the acquisition method of accounting for business combinations with the Company considered to be the accounting acquirer. The allocation of the purchase price for Contango was based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of the Closing Date using currently available information. Because the pro forma financial statement has been prepared based on estimates, the final purchase price allocation and the resulting effect on the Company’s financial position and results of operations may differ significantly from the pro forma amounts included in this exhibit to the Company’s Current Report on Form 8-K. The Company expects to finalize its allocation of the purchase price during the second half of 2022.
The determination of consideration transferred, fair value of assets acquired and liabilities recorded were as follows (in thousands, except exchange ratio, share, and per share data):
| Consideration transferred: |
||||
| Shares of Contango common stock outstanding |
199,136,676 | |||
| NYSE American Closing price per share on December 7, 2021 |
$ | 3.22 | ||
|
|
|
|||
| Fair value of Contango common stock |
641,220 | |||
| Settlement of Restricted Stock Awards |
7,090 | |||
| Settlement of PSU Awards |
6,306 | |||
| Settlement of Company Stock Option Awards |
— | |||
|
|
|
|||
| Consideration transferred |
$ | 654,616 | ||
|
|
|
|||
| Fair value of assets acquired: |
||||
| Cash and cash equivalents |
$ | 14,202 | ||
| Accounts receivable, net |
145,727 | |||
| Prepaid and other current assets |
8,275 | |||
| Oil and natural gas properties - proved |
||||
| Oil and natural gas properties - proved |
1,002,165 | |||
| Unproved properties |
— | |||
| Field and other property and equipment |
6,955 | |||
| Goodwill |
76,564 | |||
| Other assets |
3,514 | |||
|
|
|
|||
| Total assets acquired |
1,257,402 | |||
| Fair value of liabilities assumed: |
||||
| Accounts payable and accrued liabilities |
(186,689 | ) | ||
| Derivative liabilities – current |
(44,002 | ) | ||
| Long-term debt |
(140,000 | ) | ||
| Deferred tax liability |
(83,250 | ) | ||
| Derivative liabilities – noncurrent |
(14,592 | ) | ||
| Asset retirement obligations |
(142,100 | ) | ||
| Other liabilities |
(7,200 | ) | ||
|
|
|
|||
| Total liabilities assumed |
(617,833 | ) | ||
|
|
|
|||
| Assets acquired and liabilities assumed |
$ | 654,616 | ||
|
|
|
Under the Transaction Agreement, Contango stockholders received 0.20 shares of Crescent Class A Common Stock for each share of Contango Common Stock issued and outstanding immediately prior to the Closing Date. This resulted in the Company issuing approximately 39.8 million shares of Crescent Class A Common Stock in exchange for 199.1 million outstanding shares of Contango Common Stock and 3.3 million shares of Crescent Class A Common Stock in settlement of Contango’s equity compensation awards, a portion of which was recognized as expense in the statement of operations for the Company. As Contango Common Stock were listed and actively traded on an exchange as of the Closing Date, the trading price of Contango Common Stock was used to estimate the fair value of consideration transferred.
NOTE 3 – Adjustments to the pro forma financial statement
The pro forma financial statement has been prepared to illustrate the effect of the Pro Forma Transactions and have been prepared for informational purposes only.
The following pro forma financial statement has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and allows for supplemental disclosure of the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management Adjustments”). Management has elected not to disclose Management Adjustments.
The pro forma provision for income taxes does not necessarily reflect the amounts that would have resulted had the combined company filed consolidated income tax returns during the periods presented.
The pro forma net loss per share amounts presented in the pro forma statements of operations are based upon the number of shares of Crescent Class A Common Stock and Crescent Class B Common Stock outstanding, assuming the Pro Forma Transactions occurred on January 1, 2021.
Pro forma statement of operations adjustments
The adjustments included in the pro forma statements of operations for the year ended December 31, 2021 are as follows:
Crescent Transaction Adjustments
| (a) | Reflects the impact on the pro forma statements of operations reflect for acquisitions and divestitures during the period presented, including the Noncontrolling Interest Carve-out, the DJ Basin Acquisition, and the Central Basin Platform Acquisition, which are summarized below (in thousands): |
| Year Ended December 31, 2021 | ||||||||||||||||
| Crescent Acquisitions and Carve-out |
Noncontrolling Interest Carve-Out |
DJ Basin Acquisition |
Central Basin Platform Acquisition |
Total | ||||||||||||
| Oil and condensate sales |
$ | (7,564 | ) | $ | 1,770 | $ | 28,321 | $ | 22,527 | |||||||
| Natural gas sales |
(2,292 | ) | 528 | 2,480 | 715 | |||||||||||
| Natural gas liquids sales |
(1,200 | ) | 15 | 2,575 | 1,391 | |||||||||||
| Midstream and other |
(538 | ) | — | — | (538 | ) | ||||||||||
| Operating expense |
(5,827 | ) | 418 | 11,160 | 5,751 | |||||||||||
| Depreciation, depletion and amortization |
(3,478 | ) | 822 | 7,479 | 4,823 | |||||||||||
| Exploration expense |
(3 | ) | — | — | (3 | ) | ||||||||||
| Midstream operating expense |
(132 | ) | — | — | (132 | ) | ||||||||||
| General and administrative expense |
(195 | ) | — | — | (195 | ) | ||||||||||
| Interest expense |
377 | — | — | 377 | ||||||||||||
| Other income (expense) |
(5 | ) | — | — | (5 | ) | ||||||||||
| Loss on derivatives |
10,302 | — | — | 10,302 | ||||||||||||
| Income tax benefit (expense) |
1 | — | — | 1 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
| Net income (loss) |
8,716 | 1,073 | 14,737 | 24,526 | ||||||||||||
| Less: net (income) loss attributable to noncontrolling interests |
(8,716 | ) | — | — | (8,716 | ) | ||||||||||
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|
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|
|||||||||
| Net income (loss) attributable to Crescent Energy |
$ | — | $ | 1,073 | $ | 14,737 | $ | 15,810 | ||||||||
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|||||||||
| (b) | Reflects pro forma adjustments to interest expense related to the Independence Refinancing and the Crescent Refinancing. The proceeds received from the Crescent Refinancing in February 2022 were used to repay amounts outstanding under our New Credit Agreement, and as such, result in no net adjustment, on a pro forma basis, to our balance sheet as of December 31, 2021. |
| (c) | Reflects the impact on the pro forma statements of operations for the April 2021 Exchange. |
Contango Transaction Adjustments
| (d) | Reflects adjustments to the pro forma statements of operations for the Mid-Con Acquisition, Grizzly Acquisition, and Wind River Basin Acquisition consummated by Contango on January 21, 2021, February 1, 2021, and August 31, 2021, respectively, which are summarized below (in thousands): |
| Year Ended December 31, 2021 | ||||||||||||||||
| Contango Transaction Adjustments |
Mid-Con Acquisition |
Grizzly Acquisition |
Wind River Basin Acquisition |
Total | ||||||||||||
| Oil and condensate sales |
$ | 2,554 | $ | 4,403 | $ | 25 | $ | 6,982 | ||||||||
| Natural gas sales |
48 | 663 | 94,332 | 95,043 | ||||||||||||
| Natural gas liquids sales |
— | 743 | — | 743 | ||||||||||||
| Midstream and other |
43 | — | 7,722 | 7,765 | ||||||||||||
| Operating expense |
1,243 | 1,991 | 40,486 | 43,720 | ||||||||||||
| Depreciation, depletion and amortization |
620 | 793 | 7,195 | 8,608 | ||||||||||||
| Exploration expense |
— | — | 1 | 1 | ||||||||||||
| General and administrative expense |
97 | — | — | 97 | ||||||||||||
| Interest expense |
(327 | ) | — | (57 | ) | (384 | ) | |||||||||
| Gain (loss) on derivatives |
(1,597 | ) | — | — | (1,597 | ) | ||||||||||
|
|
|
|
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|
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|
|
|||||||||
| Net income (loss) |
$ | (1,239 | ) | $ | 3,025 | $ | 54,340 | $ | 56,126 | |||||||
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Reclassifications
| (e) | The following reclassifications were made to conform Contango’s financial statement presentation to the Company’s financial statement presentation: |
| • | The reclassification of $8.1 million of Contango’s other operating revenues to midstream and other; and |
| • | The reclassification of $0.4 million of Contango’s gain from sale of assets within other income (expense) to (gain) loss on sale of assets within operating expenses. |
Transaction Adjustments
| (f) | Reflects the pro forma depletion expense calculated in accordance with the successful efforts method of accounting for oil and gas properties, which was based on the preliminary purchase price allocation. |
| (g) | Reflects the impact of the Management Compensation pursuant to the Management Agreement executed by and between the Company and Manager entered into as of December 7, 2021. |
| (h) | Reflects the impact of the Incentive Compensation pursuant to the Management Agreement executed by and between the Company and Manager on December 6, 2021. |
| (i) | Reflects the income tax effect of the pro forma adjustments presented. The tax rate applied to the pro forma adjustments was the estimated combined statutory rate after the effect of noncontrolling interests of 6.0%, for the year ended December 31, 2021. The effective rate of the Company could be significantly different (either higher or lower) depending on post-Closing activities. |
| (j) | Reflects the elimination of net loss attributable to Predecessor for the period prior to the Merger Transactions as the Pro Forma Transactions are assumed to occur on January 1, 2021. |
| (k) | Reflects the impact of the issuance of Crescent Class A common stock and Class B common stock as a result of the Contango Merger and the Distribution, respectively, on the allocation of net loss attributable to redeemable noncontrolling interests and net loss attributable to the Company. |
| (l) | Reflects the impact of the recapitalization of the Company as a result of the Pro Forma Transactions on basic and diluted net loss per share. |
The computation of the impact of the pro forma adjustments on the Company’s common stock outstanding and basic and diluted net loss per share of common stock is summarized below:
| Year Ended December 31, 2021 | ||||||||||||
| Net loss per share (in thousands, except per share data) |
Crescent Pro Forma Combined |
Crescent Class A |
Crescent Class B |
|||||||||
| Numerator: |
||||||||||||
| Pro forma net loss |
$ | (434,692 | ) | |||||||||
| Less: Pro forma net loss attributable to noncontrolling interests |
3,570 | |||||||||||
| Less: Pro forma net loss attributable to redeemable noncontrolling interests |
333,598 | |||||||||||
|
|
|
|||||||||||
| Pro forma net loss attributable to the Company |
$ | (97,524 | ) | $ | (97,524 | ) | $ | — | ||||
|
|
|
|
|
|
|
|||||||
| Denominator: |
||||||||||||
| Pro forma weighted-average shares of common stock outstanding – basic and diluted |
41,954 | 127,536 | ||||||||||
| Pro forma net loss per share of common stock – basic and diluted |
$ | (2.32 | ) | $ | — | |||||||
NOTE 4 – Supplemental pro forma oil and natural gas reserves information
Oil and natural gas reserves
The following tables present the estimated pro forma combined net proved developed and undeveloped oil, natural gas, and NGLs reserves information as of December 31, 2021 for our consolidated operations, along with a summary of changes in quantities of net remaining proved reserves for the year ended December 31, 2021 for our consolidated operations. Immaterial amounts for proved developed oil, natural gas, and NGLs of our equity affiliates totaling 3.7 MMBoe as of December 31, 2021 have been omitted from presentation below. The estimates below are in certain instances presented on a “barrels of oil equivalent or “Boe” basis. To determine Boe in the following tables, natural gas is converted to a crude oil equivalent at the ratio of six Mcf of natural gas to one barrel of crude oil equivalent.
The following estimated pro forma oil and natural gas reserves information is not necessarily indicative of the results that might have occurred had the Pro Forma Transactions been completed on January 1, 2021 and is not intended to be a projection of future results. Crescent Transaction Adjustments reflect adjustments to oil and natural gas reserves information for the Noncontrolling Interest Carve-out, the DJ Basin Acquisition, and the Central Basin Platform Acquisition (together with the DJ Basin Acquisition, the “Crescent Acquisitions”). Specifically, (i) the Crescent Acquisitions result in positive reserve additions as of December 31, 2020, with an offsetting decrease to purchases of reserves in place during the year ended December 31, 2021 and (ii) the Noncontrolling Interest Carve-out results in negative adjustments as of December 31, 2020 to account for the reduction in reserves that occurred when certain non-controlling interests in our subsidiaries were redeemed in exchange for a proportionate interest in our subsidiaries’ oil and gas properties and associated reserves. In each case these transactions resulted in corresponding adjustments to the Standardized Measure as set forth in tables further below. Contango Transaction Adjustments reflect adjustments to oil and natural gas reserves information for the Mid-Con Acquisition, the Grizzly Acquisition, and the Wind River Basin Acquisition. Each of these adjustments are further discussed within Note 3 – Adjustments to the pro forma financial statement. Future results may vary significantly from the results reflected because of various factors, including those discussed in “Risk Factors” included in the Company’s Annual Report on Form 10-K.
| Oil and Condensate (MBbls) | ||||||||||||||||||||||||||||||||
| Crescent (Historical) |
Crescent Transaction Adjustments | Crescent As Adjusted |
Contango (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Crescent Pro Forma Combined |
||||||||||||||||||||||||||
| Noncontrolling Interest Carve-out |
Crescent Acquisitions |
|||||||||||||||||||||||||||||||
| Proved Developed and Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
167,190 | (6,015 | ) | 4,883 | 166,058 | 13,004 | 29,916 | 42,920 | 208,978 | |||||||||||||||||||||||
| Revisions of previous estimates |
9,147 | — | — | 9,147 | 1,990 | — | 1,990 | 11,137 | ||||||||||||||||||||||||
| Extensions, discoveries, and other additions |
7,007 | — | — | 7,007 | 756 | — | 756 | 7,763 | ||||||||||||||||||||||||
| Sales of reserves in place |
(6,333 | ) | 5,866 | — | (467 | ) | (387 | ) | — | (387 | ) | (854 | ) | |||||||||||||||||||
| Purchases of reserves in place |
46,386 | — | (4,429 | ) | 41,957 | (12,329 | ) | (29,628 | ) | (41,957 | ) | — | ||||||||||||||||||||
| Production |
(13,237 | ) | 149 | (454 | ) | (13,542 | ) | (3,034 | ) | (288 | ) | (3,322 | ) | (16,864 | ) | |||||||||||||||||
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|||||||||||||||||
| December 31, 2021 |
210,160 | — | — | 210,160 | — | — | — | 210,160 | ||||||||||||||||||||||||
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|||||||||||||||||
| Proved Developed Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
92,024 | (3,359 | ) | 4,883 | 93,548 | 7,166 | 26,324 | 33,490 | 127,038 | |||||||||||||||||||||||
| December 31, 2021 |
158,091 | — | — | 158,091 | — | — | — | 158,091 | ||||||||||||||||||||||||
| Proved Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
75,166 | (2,656 | ) | — | 72,510 | 5,838 | 3,592 | 9,430 | 81,940 | |||||||||||||||||||||||
| December 31, 2021 |
52,069 | — | — | 52,069 | — | — | — | 52,069 | ||||||||||||||||||||||||
| Natural Gas (MMcf) | ||||||||||||||||||||||||||||||||
| Crescent (Historical) |
Crescent Transaction Adjustments |
Crescent As Adjusted |
Contango (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Crescent Pro Forma Combined |
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| Noncontrolling Interest Carve-out |
Crescent Acquisitions |
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| Proved Developed and Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
822,864 | (27,679 | ) | 16,765 | 811,950 | 84,482 | 370,462 | 454,944 | 1,266,894 | |||||||||||||||||||||||
| Revisions of previous estimates |
316,572 | — | — | 316,572 | 26,734 | — | 26,734 | 343,306 | ||||||||||||||||||||||||
| Extensions, discoveries, and other additions |
17,247 | — | — | 17,247 | 458 | — | 458 | 17,705 | ||||||||||||||||||||||||
| Sales of reserves in place |
(48,977 | ) | 26,708 | — | (22,269 | ) | (3,957 | ) | — | (3,957 | ) | (26,226 | ) | |||||||||||||||||||
| Purchases of reserves in place |
451,702 | — | (15,782 | ) | 435,920 | (82,174 | ) | (353,746 | ) | (435,920 | ) | — | ||||||||||||||||||||
| Production |
(89,455 | ) | 971 | (983 | ) | (89,467 | ) | (25,543 | ) | (16,716 | ) | (42,259 | ) | (131,726 | ) | |||||||||||||||||
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| December 31, 2021 |
1,469,953 | — | — | 1,469,953 | — | — | — | 1,469,953 | ||||||||||||||||||||||||
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| Proved Developed Reserves as of: |
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| December 31, 2020 |
748,496 | (26,491 | ) | 16,765 | 738,770 | 82,788 | 370,462 | 453,250 | 1,192,020 | |||||||||||||||||||||||
| December 31, 2021 |
1,404,570 | — | — | 1,404,570 | — | — | — | 1,404,570 | ||||||||||||||||||||||||
| Proved Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
74,368 | (1,188 | ) | — | 73,180 | 1,694 | — | 1,694 | 74,874 | |||||||||||||||||||||||
| December 31, 2021 |
65,383 | — | — | 65,383 | — | — | — | 65,383 | ||||||||||||||||||||||||
| NGLs (MBbls) | ||||||||||||||||||||||||||||||||
| Crescent (Historical) |
Crescent Transaction Adjustments | Crescent As Adjusted |
Contango (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Crescent Pro Forma Combined |
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| Noncontrolling Interest Carve-out |
Crescent Acquisitions |
|||||||||||||||||||||||||||||||
| Proved Developed and Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
55,324 | (1,601 | ) | 1,086 | 54,809 | 2,766 | 7,263 | 10,029 | 64,838 | |||||||||||||||||||||||
| Revisions of previous estimates |
16,480 | — | — | 16,480 | 2,566 | — | 2,566 | 19,046 | ||||||||||||||||||||||||
| Extensions, discoveries, and other additions |
2,093 | — | — | 2,093 | 86 | — | 86 | 2,179 | ||||||||||||||||||||||||
| Sales of reserves in place |
(3,265 | ) | 1,542 | — | (1,723 | ) | (249 | ) | — | (249 | ) | (1,972 | ) | |||||||||||||||||||
| Purchases of reserves in place |
11,960 | — | (988 | ) | 10,972 | (3,709 | ) | (7,263 | ) | (10,972 | ) | — | ||||||||||||||||||||
| Production |
(6,099 | ) | 59 | (98 | ) | (6,138 | ) | (1,460 | ) | — | (1,460 | ) | (7,598 | ) | ||||||||||||||||||
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| December 31, 2021 |
76,493 | — | — | 76,493 | — | — | — | 76,493 | ||||||||||||||||||||||||
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| Proved Developed Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
44,307 | (1,368 | ) | 1,086 | 44,025 | 2,207 | 6,704 | 8,911 | 52,936 | |||||||||||||||||||||||
| December 31, 2021 |
66,402 | — | — | 66,402 | — | — | — | 66,402 | ||||||||||||||||||||||||
| Proved Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
11,017 | (233 | ) | — | 10,784 | 559 | 559 | 1,118 | 11,902 | |||||||||||||||||||||||
| December 31, 2021 |
10,091 | — | — | 10,091 | — | — | — | 10,091 | ||||||||||||||||||||||||
| Total (Mboe) | ||||||||||||||||||||||||||||||||
| Crescent (Historical) |
Crescent Transaction Adjustments | Crescent As Adjusted |
Contango (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Crescent Pro Forma Combined |
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| Noncontrolling Interest Carve-out |
Crescent Acquisitions |
|||||||||||||||||||||||||||||||
| Proved Developed and Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
359,658 | (12,230 | ) | 8,748 | 356,176 | 34,238 | 94,536 | 128,774 | 484,950 | |||||||||||||||||||||||
| Revisions of previous estimates |
78,389 | — | — | 78,389 | 9,012 | — | 9,012 | 87,401 | ||||||||||||||||||||||||
| Extensions, discoveries, and other additions |
11,975 | — | — | 11,975 | 918 | — | 918 | 12,893 | ||||||||||||||||||||||||
| Sales of reserves in place |
(17,762 | ) | 11,860 | — | (5,902 | ) | (1,295 | ) | — | (1,295 | ) | (7,197 | ) | |||||||||||||||||||
| Purchases of reserves in place |
133,630 | — | (8,046 | ) | 125,584 | (34,121 | ) | (91,463 | ) | (125,584 | ) | — | ||||||||||||||||||||
| Production |
(34,245 | ) | 370 | (702 | ) | (34,577 | ) | (8,752 | ) | (3,073 | ) | (11,825 | ) | (46,402 | ) | |||||||||||||||||
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| December 31, 2021 |
531,645 | — | — | 531,645 | — | — | — | 531,645 | ||||||||||||||||||||||||
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| Proved Developed Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
261,079 | (9,143 | ) | 8,748 | 260,684 | 27,559 | 90,385 | 117,944 | 378,628 | |||||||||||||||||||||||
| December 31, 2021 |
458,588 | — | — | 458,588 | — | — | — | 458,588 | ||||||||||||||||||||||||
| Proved Undeveloped Reserves as of: |
||||||||||||||||||||||||||||||||
| December 31, 2020 |
98,579 | (3,087 | ) | — | 95,492 | 6,679 | 4,151 | 10,830 | 106,322 | |||||||||||||||||||||||
| December 31, 2021 |
73,057 | — | — | 73,057 | — | — | — | 73,057 | ||||||||||||||||||||||||
Standardized measure of discounted future net cash flows
The following tables present the estimated pro forma standardized measure of discounted future net cash flows (the “pro forma standardized measure”) at December 31, 2021. The pro forma standardized measure information set forth below gives effect to the Pro Forma Transactions as if they had been completed on January 1, 2021. Crescent Transaction Adjustments reflect adjustments to the standardized measure of discounted future net cash flows for the Noncontrolling Interest Carve-out and the Crescent Acquisitions. Contango Transaction Adjustments reflect adjustments to the standardized measure of discounted future net cash flows for the Mid-Con Acquisition, the Grizzly Acquisition, and the Wind River Basin Acquisition. Transaction Adjustments reflect adjustments related to the tax restructuring of the Company resulting from the Transactions. Each of these adjustments are further discussed within Note 3 – Adjustments to the pro forma financial statement. The disclosures below were determined by referencing the “Standardized Measure of Discounted Future Net Cash Flows” reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. An explanation of the underlying methodology applied, as required by SEC regulations, can be found within the historical financial statements. The calculations assume the continuation of existing economic, operating and contractual conditions at December 31, 2021. Immaterial amounts for the pro forma standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves of our equity affiliates totaling $23.2 million as of December 31, 2021 have been omitted from presentation below.
Therefore, the following estimated pro forma standardized measure is not necessarily indicative of the results that might have occurred had the Pro Forma Transactions been completed on January 1, 2021 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in “Risk Factors” included in the Company’s Annual Report on Form 10-K.
The pro forma standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves of our consolidated operations as of December 31, 2021 is as follows:
| (in thousands) | ||||||||||||||||||||||||||||||||
| Crescent (Historical) |
Crescent Transaction Adjustments | Crescent As Adjusted |
Contango (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Crescent Pro Forma Combined |
||||||||||||||||||||||||||
| Noncontrolling Interest Carve-out |
Crescent Acquisitions |
|||||||||||||||||||||||||||||||
| Future cash inflows |
$ | 21,063,117 | $ | — | $ | — | $ | 21,063,117 | $ | — | $ | — | $ | — | $ | 21,063,117 | ||||||||||||||||
| Future production costs |
(10,194,648 | ) | — | — | (10,194,648 | ) | — | — | — | (10,194,648 | ) | |||||||||||||||||||||
| Future development costs (1) |
(1,477,562 | ) | — | — | (1,477,562 | ) | — | — | — | (1,477,562 | ) | |||||||||||||||||||||
| Future income taxes |
(352,136 | ) | — | — | (352,136 | ) | — | — | — | (352,136 | ) | |||||||||||||||||||||
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| Future net cash flows |
9,038,771 | — | — | 9,038,771 | — | — | — | 9,038,771 | ||||||||||||||||||||||||
| Annual discount of 10% for estimated timing |
(4,080,471 | ) | — | — | (4,080,471 | ) | — | — | — | (4,080,471 | ) | |||||||||||||||||||||
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| Standardized measure of discounted future net cash flows as of December 31, 2021 |
$ | 4,958,300 | $ | — | $ | — | $ | 4,958,300 | $ | — | $ | — | $ | — | $ | 4,958,300 | ||||||||||||||||
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| (1) | Future development costs include future abandonment and salvage costs. |
Changes in standardized measure
The changes in the pro forma standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves of our consolidated operations for the year ended December 31, 2021 are as follows:
| (in thousands) | ||||||||||||||||||||||||||||||||||||
| Crescent (Historical) |
Crescent Transaction Adjustments |
Crescent As Adjusted |
Contango (Historical) |
Contango Transaction Adjustments |
Contango As Adjusted |
Transaction Adjustments |
Crescent Pro Forma Combined |
|||||||||||||||||||||||||||||
| Noncontrolling Interest Carve-out |
Crescent Acquisitions |
|||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 |
$ | 1,327,860 | $ | (49,250 | ) | $ | 101,377 | $ | 1,379,987 | $ | 115,586 | $ | 377,727 | $ | 493,313 | $ | (159,547 | ) | $ | 1,713,753 | ||||||||||||||||
| Net change in prices and production costs |
3,330,299 | — | 73,538 | 3,403,837 | 271,462 | 477,843 | 749,305 | — | 4,153,142 | |||||||||||||||||||||||||||
| Net change in future development costs |
117,333 | — | — | 117,333 | (19,898 | ) | — | (19,898 | ) | — | 97,435 | |||||||||||||||||||||||||
| Sales and transfers of oil and natural gas produced, net of production expenses |
(872,521 | ) | 5,229 | (24,111 | ) | (891,403 | ) | (198,438 | ) | (59,048 | ) | (257,486 | ) | — | (1,148,889 | ) | ||||||||||||||||||||
| Extensions, discoveries, additions and improved recovery, net of related costs |
162,657 | — | — | 162,657 | 27,928 | — | 27,928 | — | 190,585 | |||||||||||||||||||||||||||
| Purchases of reserves in place |
1,236,388 | — | (153,955 | ) | 1,082,433 | (279,825 | ) | (802,608 | ) | (1,082,433 | ) | — | — | |||||||||||||||||||||||
| Sales of reserves in place |
(84,095 | ) | 44,021 | — | (40,074 | ) | (12,930 | ) | — | (12,930 | ) | — | (53,004 | ) | ||||||||||||||||||||||
| Revisions of previous quantity estimates |
(295,234 | ) | — | — | (295,234 | ) | 85,643 | — | 85,643 | — | (209,591 | ) | ||||||||||||||||||||||||
| Previously estimated development costs incurred |
95,879 | — | — | 95,879 | — | — | — | — | 95,879 | |||||||||||||||||||||||||||
| Net change in taxes |
(184,419 | ) | — | — | (184,419 | ) | 10,790 | — | 10,790 | 174,464 | 835 | |||||||||||||||||||||||||
| Accretion of discount |
124,153 | — | 10,138 | 134,291 | 11,811 | 38,599 | 50,410 | (14,917 | ) | 169,784 | ||||||||||||||||||||||||||
| Changes in timing and other |
— | — | (6,987 | ) | (6,987 | ) | (12,129 | ) | (32,513 | ) | (44,642 | ) | — | (51,629 | ) | |||||||||||||||||||||
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| Balance at December 31, 2021 |
$ | 4,958,300 | $ | — | $ | — | $ | 4,958,300 | $ | — | $ | — | $ | — | $ | — | $ | 4,958,300 | ||||||||||||||||||
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