EXHIBIT 99.3
Published on February 11, 2025
Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Information
On January 24, 2025, Diversified Energy Company, PLC (the “Company”) entered into an agreement (the “Merger Agreement”) whereby Maverick will merge with a subsidiary of the
Company in a stock-and-cash transaction (the “Maverick Transaction”), after which Maverick will become a wholly owned subsidiary of the Company. Upon preliminary evaluation, the Company concluded that the transaction would not result in significant
asset concentration and determined that it will be acquiring a distinct set of inputs, processes, and outputs, leading to the conclusion that the transaction would preliminarily qualify as a business combination under International Financial
Reporting Standards 3 (“IFRS 3”). Under the terms of the Merger Agreement, the Company will fund the transaction through a combination of the issuance of 21,217,713 new U.S. dollar-denominated ordinary
shares to Maverick unitholders and pay cash consideration of approximately $207.1 million. Transaction costs and severance and change in control costs incurred with the Maverick Transaction are expected to
be approximately $50 million. The closing is subject to certain customary conditions, including, among others, regulatory clearance and approval by Diversified shareholders for the issuance and allotment of
the ordinary shares pursuant to the Merger Agreement. These closing conditions may not be completed in a timely manner or at all, and, accordingly, the Maverick Transaction may not be completed.
On June 6, 2024, the Company acquired Oaktree Capital Management, LP’s 100% membership interest in OCM Denali Holdings, LLC and its subsidiaries (the “Oaktree Transaction”),
whose assets predominantly included non-operated working interests in producing wells and related facilities (the “Assets”) that are operated by the Company. The Company assessed the Assets and determined that the Oaktree Transaction was considered
an asset acquisition rather than a business combination. When making this determination, management evaluated the Oaktree Transaction under IFRS 3 and concluded that the acquired assets did not meet the definition of a business. The Company paid
purchase consideration of $220.8 million, inclusive of transaction costs of $1.2 million and customary purchase price adjustments. As part of the Oaktree
Transaction, the Company assumed Oaktree’s debt of $132.6 million. The Company funded the purchase through a combination of existing and expanded liquidity and issued approximately $83.3 million in notes payable to Oaktree.
The unaudited pro forma condensed combined statement of financial position as of June 30, 2024 was prepared as if the Maverick Transaction had occurred on June 30, 2024. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 and for the year ended December 31, 2023 were prepared as if the Maverick and Oaktree transactions had occurred on January 1, 2023. The
following unaudited pro forma condensed combined financial statements have been derived from the historical consolidated financial statements of the Company, Maverick, and Oaktree.
The unaudited pro forma condensed combined financial statements and underlying pro forma adjustments are based upon currently available information and include certain estimates and assumptions made by the Company’s
management; accordingly, actual results could differ materially from the pro forma information. Significant estimates and assumptions include, but are not limited to, the preliminary purchase price allocation, based on estimates of, and assumptions
related to, the fair value of the assets acquired and liabilities assumed that were applied as if the Maverick Transaction occurred on June 30, 2024. Management believes that the assumptions used to prepare
the unaudited pro forma condensed combined financial statements and accompanying notes provide a reasonable and supportable basis for presenting the significant estimated effects of the transactions. The following unaudited pro forma condensed
combined statements of operations do not purport to represent what the Company’s results of operations would have been if the Maverick and Oaktree transactions had occurred on January 1, 2023. The unaudited
pro forma condensed combined statement of financial position does not purport to represent what the Company’s financial position would have been if the Maverick Transaction had occurred on June 30, 2024. The
unaudited pro forma condensed combined financial statements should be read together with the following:
|
|
• |
the Company’s audited historical consolidated financial statements and accompanying notes included in its Annual Report on Form 20-F for the year ended December
31, 2023, filed with the SEC on March 19, 2024;
|
|
|
• |
the Company’s unaudited historical condensed consolidated financial statements and accompanying notes included in its Interim Report for the six months ended June
30, 2024, furnished to the SEC as Exhibit 99.3 with Form 6-K on August 15, 2024;
|
|
|
• |
Maverick’s audited historical consolidated financial statements and accompanying notes thereto filed as Exhibits 99.1 and 99.2 to this report on Form 6-K of which this Exhibit 99.3 is a part; and
|
|
|
• |
Oaktree’s unaudited and audited historical statements of revenues and direct operating expenses and accompanying notes thereto, filed as Exhibits 99.1 and 99.2 to the report on Form 6-K filed furnished to the SEC on August 20, 2024.
|
The unaudited pro forma condensed combined financial statements have been prepared in accordance with Article 11 of SEC Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial
Disclosures about Acquired and Disposed Businesses,” using assumptions set forth in the notes herein. Article 11 permits presentation of reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to
occur (“Management’s Adjustments”). The Company has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial statements.
1
As of June 30, 2024 (Unaudited)
|
(In thousands)
|
DEC Historical
(Note 1)
|
Maverick As
Adjusted
(Note 2)
|
Maverick
Transaction
Adjustments
(Note 4)
|
Pro Forma
Combined
|
|||||||||||||
|
ASSETS
|
|||||||||||||||||
|
Non-current assets:
|
|||||||||||||||||
|
Natural gas and oil properties, net
|
$
|
2,718,258
|
$
|
1,579,386
|
$
|
(110,222
|
)
|
(a)
|
$
|
4,187,422
|
|||||||
|
Property, plant and equipment, net
|
455,083
|
74,209
|
—
|
529,292
|
|||||||||||||
|
Intangible assets
|
15,664
|
6,814
|
(6,698
|
)
|
(a)
|
15,780
|
|||||||||||
|
Restricted cash
|
36,374
|
—
|
—
|
36,374
|
|||||||||||||
|
Derivative financial instruments
|
39,617
|
1,279
|
—
|
40,896
|
|||||||||||||
|
Deferred tax asset
|
248,868
|
—
|
—
|
248,868
|
|||||||||||||
|
Other non-current assets
|
13,637
|
45,590
|
—
|
59,227
|
|||||||||||||
|
Total non-current assets
|
3,527,501
|
1,707,278
|
(116,920
|
)
|
5,117,859
|
||||||||||||
|
Current assets:
|
|||||||||||||||||
|
Trade receivables, net
|
180,017
|
134,534
|
—
|
314,551
|
|||||||||||||
|
Cash and cash equivalents
|
3,483
|
62,662
|
207,100
|
(a)
|
53,645
|
||||||||||||
|
|
(207,100
|
)
|
(a)
|
||||||||||||||
|
|
(12,500
|
)
|
(b)
|
||||||||||||||
|
Restricted cash
|
18,602
|
39,700
|
—
|
58,302
|
|||||||||||||
|
Derivative financial instruments
|
70,313
|
4,327
|
—
|
74,640
|
|||||||||||||
|
Other current assets
|
16,547
|
13,008
|
—
|
29,555
|
|||||||||||||
|
Total current assets
|
288,962
|
254,231
|
(12,500
|
)
|
530,693
|
||||||||||||
|
Total assets
|
3,816,463
|
1,961,509
|
(129,420
|
)
|
5,648,552
|
||||||||||||
|
EQUITY AND LIABILITIES
|
|||||||||||||||||
|
Shareholders' equity:
|
|||||||||||||||||
|
Share capital
|
$
|
12,793
|
$
|
—
|
$
|
5,305
|
(a)
|
$
|
18,098
|
||||||||
|
Share premium
|
1,208,192
|
—
|
346,274
|
(a)
|
1,554,466
|
||||||||||||
|
Treasury reserve
|
(109,322
|
)
|
—
|
—
|
(109,322
|
)
|
|||||||||||
|
Share-based payment and other reserves
|
15,889
|
—
|
—
|
15,889
|
|||||||||||||
|
Retained earnings (accumulated deficit)
|
(591,624
|
)
|
588,425
|
(588,425
|
)
|
(a)
|
(641,569
|
)
|
|||||||||
|
|
(49,945
|
)
|
(c)
|
||||||||||||||
|
Equity attributable to owners of the parent
|
535,928
|
588,425
|
(286,791
|
)
|
837,562
|
||||||||||||
|
Non-controlling interest
|
12,370
|
—
|
—
|
12,370
|
|||||||||||||
|
Total equity
|
548,298
|
588,425
|
(286,791
|
)
|
849,932
|
||||||||||||
|
Non-current liabilities:
|
|||||||||||||||||
|
Asset retirement obligations
|
510,935
|
244,213
|
(68,809
|
)
|
(a)
|
686,339
|
|||||||||||
|
Leases
|
29,309
|
25,458
|
—
|
54,767
|
|||||||||||||
|
Borrowings
|
1,442,986
|
681,377
|
(21,553
|
)
|
(a)
|
2,297,410
|
|||||||||||
|
|
207,100
|
(a)
|
|||||||||||||||
|
|
(12,500
|
)
|
(b)
|
||||||||||||||
|
Deferred tax liability
|
10,879
|
—
|
—
|
10,879
|
|||||||||||||
|
Derivative financial instruments
|
611,576
|
23,426
|
—
|
635,002
|
|||||||||||||
|
Other non-current liabilities
|
4,491
|
29,292
|
—
|
33,783
|
|||||||||||||
|
Total non-current liabilities
|
2,610,176
|
1,003,766
|
104,238
|
3,718,180
|
|||||||||||||
|
Current liabilities:
|
|||||||||||||||||
|
Trade and other payables
|
60,482
|
225,051
|
—
|
285,533
|
|||||||||||||
|
Taxes payable
|
42,624
|
—
|
—
|
42,624
|
|||||||||||||
|
Leases
|
13,712
|
—
|
—
|
13,712
|
|||||||||||||
|
Borrowings
|
211,574
|
113,544
|
(5,257
|
)
|
(a)
|
319,861
|
|||||||||||
|
Derivative financial instruments
|
99,790
|
22,579
|
—
|
122,369
|
|||||||||||||
| Other current liabilities | 229,807 |
8,144 |
8,445 |
(a) | 296,341 |
||||||||||||
|
|
|
|
49,945
|
(c) |
|
||||||||||||
|
Total current liabilities
|
657,989
|
369,318
|
53,133
|
1,080,440
|
|||||||||||||
|
Total liabilities
|
3,268,165
|
1,373,084
|
157,371
|
4,798,620
|
|||||||||||||
|
Total equity and liabilities
|
$
|
3,816,463
|
1,961,509
|
$
|
(129,420
|
)
|
$
|
5,648,552
|
|||||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
2
For the Six Months Ended June 30, 2024 (Unaudited)
|
(In thousands, except share and per unit data)
|
DEC
Historical
(Note 1)
|
Oaktree
Historical
(Note 1)
|
Maverick As
Adjusted
(Note 2)
|
Oaktree
Transaction
Adjustments
(Note 3)
|
Maverick
Transaction
Adjustments
(Note 4)
|
Pro Forma
Combined
|
|||||||||||||||||||||
|
Revenue
|
$
|
368,674
|
$
|
35,398
|
$
|
435,980
|
$
|
20,891
|
(a)
|
$
|
—
|
$
|
860,943
|
||||||||||||||
|
Operating expense
|
(196,112
|
)
|
(19,344
|
)
|
(239,681
|
)
|
(8,562
|
)
|
(a)
|
—
|
(463,699
|
)
|
|||||||||||||||
|
Depreciation, depletion and amortization
|
(119,220
|
)
|
—
|
(82,318
|
)
|
(14,877
|
)
|
(b)
|
22,718
|
(a)
|
(193,697
|
)
|
|||||||||||||||
|
Gross profit
|
53,342
|
16,054
|
113,981
|
(2,548
|
)
|
22,718
|
203,547
|
||||||||||||||||||||
|
General and administrative expense
|
(58,326
|
)
|
—
|
(34,919
|
)
|
—
|
—
|
(93,245
|
)
|
||||||||||||||||||
|
Allowance for expected credit losses
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Gain (loss) on natural gas and oil property and equipment
|
7,210
|
—
|
2,206
|
—
|
—
|
9,416
|
|||||||||||||||||||||
|
Gain (loss) on sale of equity interest
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Unrealized gain (loss) on investment
|
2,433
|
—
|
—
|
—
|
—
|
2,433
|
|||||||||||||||||||||
|
Gain (loss) on derivative financial instruments
|
(2,268
|
)
|
—
|
(118,407
|
)
|
—
|
—
|
(120,675
|
)
|
||||||||||||||||||
|
Impairment of proved properties
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Operating profit (loss)
|
2,391
|
16,054
|
(37,139
|
)
|
(2,548
|
)
|
22,718
|
1,476
|
|||||||||||||||||||
|
Finance costs
|
(60,581
|
)
|
—
|
(41,844
|
)
|
(10,684
|
)
|
(c)
|
(10,640
|
)
|
(b)
|
(123,749
|
)
|
||||||||||||||
|
Accretion of asset retirement obligation
|
(14,667
|
)
|
—
|
(6,825
|
)
|
(754
|
)
|
(d)
|
1,078
|
(c)
|
(21,168
|
)
|
|||||||||||||||
|
Loss on early retirement of debt
|
(10,649
|
)
|
—
|
—
|
—
|
—
|
(10,649
|
)
|
|||||||||||||||||||
|
Other income (expense)
|
1,254
|
—
|
1,715
|
—
|
—
|
2,969
|
|||||||||||||||||||||
|
Income (loss) before taxation
|
(82,252
|
)
|
16,054
|
(84,093
|
)
|
(13,986
|
)
|
13,156
|
(151,121
|
)
|
|||||||||||||||||
|
Income tax benefit (expense)
|
97,997
|
—
|
(160
|
)
|
(497
|
)
|
(e)
|
3,157
|
(d)
|
100,497
|
|||||||||||||||||
|
Net income (loss)
|
15,745
|
16,054
|
(84,253
|
)
|
(14,483
|
)
|
16,313
|
(50,624
|
)
|
||||||||||||||||||
|
Other comprehensive income (loss)
|
(1,905
|
)
|
—
|
—
|
—
|
—
|
(1,905
|
)
|
|||||||||||||||||||
|
Total comprehensive income (loss)
|
$
|
13,840
|
$
|
16,054
|
(84,253
|
)
|
$
|
(14,483
|
)
|
$
|
16,313
|
$
|
(52,529
|
)
|
|||||||||||||
|
Net income (loss) attributable to owners of the parent
|
|||||||||||||||||||||||||||
|
Diversified Energy Company PLC
|
$
|
15,061
|
$
|
16,054
|
$
|
(84,253
|
)
|
$
|
(14,483
|
)
|
$
|
16,313
|
$
|
(51,308
|
)
|
||||||||||||
|
Non-controlling interest
|
684
|
—
|
—
|
—
|
—
|
684
|
|||||||||||||||||||||
|
Net income (loss)
|
$
|
15,745
|
$
|
16,054
|
$
|
(84,253
|
)
|
$
|
(14,483
|
)
|
$
|
16,313
|
$
|
(50,624
|
)
|
||||||||||||
|
|
|||||||||||||||||||||||||||
|
Earnings (loss) per share attributable to owners of the parent
|
|||||||||||||||||||||||||||
|
Earnings (loss) per share - basic
|
$
|
0.32
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(0.75
|
)
|
(e)
|
|||||||||||||
|
Earnings (loss) per share - diluted
|
$
|
0.32
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(0.75
|
)
|
(e)
|
|||||||||||||
|
|
|||||||||||||||||||||||||||
|
Weighted average shares outstanding - basic
|
47,202,283
|
—
|
—
|
—
|
—
|
68,419,996
|
(e)
|
||||||||||||||||||||
|
Weighted average shares outstanding - diluted
|
47,561,299
|
—
|
—
|
—
|
—
|
68,419,996
|
(e)
|
||||||||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
3
For the Year Ended December 31, 2023 (Unaudited)
|
(In thousands, except share and per unit data)
|
DEC
Historical
(Note 1)
|
Oaktree
Historical
(Note 1)
|
Maverick As
Adjusted
(Note 2)
|
Oaktree
Transaction
Adjustments
(Note 3)
|
Maverick
Transaction
Adjustments
(Note 4)
|
Pro Forma
Combined
|
|||||||||||||||||||||
|
Revenue
|
$
|
868,263
|
$
|
152,521
|
$
|
977,390
|
$
|
—
|
$
|
—
|
$
|
1,998,174
|
|||||||||||||||
|
Operating expense
|
(440,562
|
)
|
(87,210
|
)
|
(488,261
|
)
|
—
|
—
|
(1,016,033
|
)
|
|||||||||||||||||
|
Depreciation, depletion and amortization
|
(224,546
|
)
|
—
|
(151,822
|
)
|
(38,720
|
)
|
(b)
|
24,733
|
(a)
|
(390,355
|
)
|
|||||||||||||||
|
Gross profit
|
203,155
|
65,311
|
337,307
|
(38,720
|
)
|
24,733
|
591,786
|
||||||||||||||||||||
|
General and administrative expense
|
(119,722
|
)
|
—
|
(84,949
|
)
|
—
|
(49,945
|
)
|
(b)
|
(254,616
|
)
|
||||||||||||||||
|
Allowance for expected credit losses
|
(8,478
|
)
|
—
|
—
|
—
|
—
|
(8,478
|
)
|
|||||||||||||||||||
|
Gain (loss) on natural gas and oil property and equipment
|
24,146
|
—
|
1,090
|
—
|
—
|
25,236
|
|||||||||||||||||||||
|
Gain (loss) on sale of equity interest
|
18,440
|
—
|
—
|
—
|
—
|
18,440
|
|||||||||||||||||||||
|
Unrealized gain (loss) on investment
|
4,610
|
—
|
—
|
—
|
—
|
4,610
|
|||||||||||||||||||||
|
Gain (loss) on derivative financial instruments
|
1,080,516
|
—
|
145,934
|
—
|
—
|
1,226,450
|
|||||||||||||||||||||
|
Impairment of proved properties
|
(41,616
|
)
|
—
|
(66,785
|
)
|
—
|
—
|
(108,401
|
)
|
||||||||||||||||||
|
Operating profit (loss)
|
1,161,051
|
65,311
|
332,597
|
(38,720
|
)
|
(25,212
|
)
|
1,495,027
|
|||||||||||||||||||
|
Finance costs
|
(134,166
|
)
|
—
|
(62,176
|
)
|
(29,605
|
)
|
(c)
|
(20,747
|
)
|
(c)
|
(246,694
|
)
|
||||||||||||||
|
Accretion of asset retirement obligation
|
(26,926
|
)
|
—
|
(14,666
|
)
|
(1,809
|
)
|
(d)
|
3,171
|
(d)
|
(40,230
|
)
|
|||||||||||||||
|
Loss on early retirement of debt
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Other income (expense)
|
385
|
—
|
1,130
|
—
|
—
|
1,515
|
|||||||||||||||||||||
|
Income (loss) before taxation
|
1,000,344
|
65,311
|
256,885
|
(70,134
|
)
|
(42,788
|
)
|
1,209,618
|
|||||||||||||||||||
|
Income tax benefit (expense)
|
(240,643
|
)
|
—
|
(604
|
)
|
1,160
|
(e)
|
(10,269
|
)
|
(e)
|
(250,356
|
)
|
|||||||||||||||
|
Net income (loss)
|
759,701
|
65,311
|
256,281
|
(68,974
|
)
|
(53,057
|
)
|
959,262
|
|||||||||||||||||||
|
Other comprehensive income (loss)
|
(270
|
)
|
—
|
—
|
—
|
—
|
(270
|
)
|
|||||||||||||||||||
|
Total comprehensive income (loss)
|
$
|
759,431
|
$
|
65,311
|
256,281
|
$
|
(68,974
|
)
|
$
|
(53,057
|
)
|
$
|
958,992
|
||||||||||||||
|
Net income (loss) attributable to owners of the parent
|
|||||||||||||||||||||||||||
|
Diversified Energy Company PLC
|
$
|
758,018
|
$
|
65,311
|
$
|
256,281
|
$
|
(68,974
|
)
|
$
|
(53,057
|
)
|
$
|
957,579
|
|||||||||||||
|
Non-controlling interest
|
1,683
|
—
|
—
|
—
|
—
|
1,683
|
|||||||||||||||||||||
|
Net income (loss)
|
$
|
759,701
|
$
|
65,311
|
$
|
256,281
|
$
|
(68,974
|
)
|
$
|
(53,057
|
)
|
$
|
959,262
|
|||||||||||||
|
|
|||||||||||||||||||||||||||
|
Earnings (loss) per share attributable to owners of the parent
|
|||||||||||||||||||||||||||
|
Earnings (loss) per share - basic
|
$
|
16.07
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
14.00
|
(f)
|
||||||||||||||
|
Earnings (loss) per share - diluted
|
$
|
15.95
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
13.93
|
(f)
|
||||||||||||||
|
|
|||||||||||||||||||||||||||
|
Weighted average shares outstanding - basic
|
47,165,380
|
—
|
—
|
—
|
—
|
68,383,093
|
(f)
|
||||||||||||||||||||
|
Weighted average shares outstanding - diluted
|
47,514,000
|
—
|
—
|
—
|
—
|
68,732,234
|
(f)
|
||||||||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
4
The accompanying unaudited pro forma condensed combined financial information was prepared based on the historical consolidated financial statements of the Company for the year ended December 31, 2023 and the six months ended June 30, 2024, the historical Maverick consolidated financial statements, the
historical Oaktree statements of revenues and direct operating expenses, and the historical financial activity of Oaktree from April 1, 2024 through June 6, 2024, the closing date of the Oaktree Transaction.
The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2024 and the year ended December 31, 2023 were prepared assuming the Maverick and Oaktree transactions occurred on January 1, 2023. The unaudited pro forma condensed combined statement of
financial position as of June 30, 2024 was prepared as if the Maverick Transaction had occurred on June 30, 2024. The Oaktree transaction closed on June 6, 2024. Therefore, the Oaktree transaction is already included in the Company's condensed consolidated statement of financial position as of June 30, 2024.
The unaudited pro forma condensed combined financial information reflects pro forma adjustments that are described in the accompanying notes and are based on currently available information and certain assumptions that
the Company believes are reasonable, however, actual results may differ materially. In the Company’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The unaudited pro forma condensed combined
financial information does not purport to represent what the Company’s results of operations would have been if the Maverick and Oaktree transactions had actually occurred on the date indicated above, nor is it indicative of the Company’s future
results of operations. The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and related notes of the Company, as applicable, for the periods presented.
Certain reclassifications have been made in the historical presentation of Maverick’s financial statements to conform to the Company’s historical presentation.
(In thousands)
|
Maverick Caption
|
Diversified Caption
|
Maverick
Historical
|
Reclassification
Adjustments
|
Maverick As
Adjusted
|
|||||||||||||
|
|
ASSETS
|
||||||||||||||||
|
|
Non-current assets:
|
||||||||||||||||
|
Oil and natural gas properties
|
Natural gas and oil properties, net
|
$
|
2,715,824
|
$
|
(1,136,438
|
)
|
(1
|
)
|
1,579,386
|
||||||||
|
Other property, plant and equipment
|
|
118,804
|
(118,804
|
)
|
(2
|
)
|
—
|
||||||||||
|
Accumulated depletion, depreciation, and impairment
|
|
(1,174,219
|
)
|
1,174,219
|
(1
|
)
|
—
|
||||||||||
|
|
Property, plant and equipment, net
|
—
|
74,209
|
(1)(2
|
)
|
74,209
|
|||||||||||
|
|
Intangible assets
|
—
|
6,814
|
(2
|
)
|
6,814
|
|||||||||||
|
|
Restricted cash
|
—
|
—
|
—
|
|||||||||||||
|
Derivative instruments
|
Derivative financial instruments
|
1,279
|
—
|
1,279
|
|||||||||||||
|
Operating lease right-of-use assets
|
|
11,803
|
(11,803
|
)
|
(3
|
)
|
—
|
||||||||||
|
|
Deferred tax asset
|
—
|
—
|
—
|
|||||||||||||
|
Other long-term assets
|
Other non-current assets
|
33,787
|
11,803
|
(3
|
)
|
45,590
|
|||||||||||
|
|
Total non-current assets
|
1,707,278
|
—
|
1,707,278
|
|||||||||||||
|
|
Current assets:
|
||||||||||||||||
|
Accounts receivable, net
|
Trade receivables, net
|
134,534
|
—
|
134,534
|
|||||||||||||
|
Cash
|
Cash and cash equivalents
|
62,662
|
—
|
62,662
|
|||||||||||||
|
Restricted cash - current
|
Restricted cash
|
39,700
|
—
|
39,700
|
|||||||||||||
|
Derivative instruments
|
Derivative financial instruments
|
4,327
|
—
|
4,327
|
|||||||||||||
|
Inventory
|
|
8,113
|
(8,113
|
)
|
(4
|
)
|
—
|
||||||||||
|
Prepaid expenses and other current assets
|
Other current assets
|
4,895
|
8,113
|
(4
|
)
|
13,008
|
|||||||||||
|
|
Total current assets
|
254,231
|
—
|
254,231
|
|||||||||||||
|
|
Total assets
|
1,961,509
|
—
|
1,961,509
|
|||||||||||||
|
|
EQUITY AND LIABILITIES
|
||||||||||||||||
|
|
Shareholders' equity:
|
||||||||||||||||
|
|
Share capital
|
—
|
—
|
—
|
|||||||||||||
|
|
Share premium
|
—
|
—
|
—
|
|||||||||||||
|
|
Treasury reserve
|
—
|
—
|
—
|
|||||||||||||
|
|
Share-based payment and other reserves
|
—
|
—
|
—
|
|||||||||||||
|
Members' equity
|
Retained earnings (accumulated deficit)
|
588,425
|
—
|
588,425
|
|||||||||||||
|
|
Equity attributable to owners of the parent
|
588,425
|
—
|
588,425
|
|||||||||||||
|
|
Non-controlling interest
|
—
|
—
|
—
|
|||||||||||||
|
|
Total equity
|
588,425
|
—
|
588,425
|
|||||||||||||
|
|
Non-current liabilities:
|
||||||||||||||||
|
Asset retirement obligation
|
Asset retirement obligations
|
244,213
|
—
|
244,213
|
|||||||||||||
|
Operating lease obligations - noncurrent
|
Leases
|
25,458
|
—
|
25,458
|
|||||||||||||
|
Long-term debt
|
Borrowings
|
681,377
|
—
|
681,377
|
|||||||||||||
|
|
Deferred tax liability
|
—
|
—
|
—
|
|||||||||||||
|
Derivative instruments
|
Derivative financial instruments
|
23,426
|
—
|
23,426
|
|||||||||||||
|
Other long-term liabilities
|
Other non-current liabilities
|
29,292
|
—
|
29,292
|
|||||||||||||
|
|
Total non-current liabilities
|
1,003,766
|
—
|
1,003,766
|
|||||||||||||
|
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable and accrued expenses
|
Trade and other payables
|
225,051
|
—
|
225,051
|
|||||||||||||
|
Current portion of long-term debt
|
Borrowings
|
113,544
|
—
|
113,544
|
|||||||||||||
|
Derivative instruments
|
Derivative financial instruments
|
22,579
|
—
|
22,579
|
|||||||||||||
|
Current portion of asset retirement obligations
|
|
7,282
|
(7,282
|
)
|
(5
|
)
|
—
|
||||||||||
|
Operating lease obligation - current
|
|
862
|
(862
|
)
|
(5
|
)
|
—
|
||||||||||
|
|
Other current liabilities
|
—
|
8,144
|
(5
|
)
|
8,144
|
|||||||||||
|
|
Total current liabilities
|
369,318
|
—
|
369,318
|
|||||||||||||
|
|
Total liabilities
|
1,373,084
|
—
|
1,373,084
|
|||||||||||||
|
|
Total equity and liabilities
|
$
|
1,961,509
|
$
|
—
|
$
|
1,961,509
|
||||||||||
| (1) |
Represents the reclassification of balances contained in “Accumulated depletion, depreciation, and impairment” on Maverick’s historical balance sheet to “Natural gas and oil properties, net” and “Property, plant and equipment, net” to
conform to the Company’s balance sheet presentation.
|
| (2) |
Represents the reclassification of balances contained in “Other property, plant and equipment” on Maverick’s historical balance sheet to “Property, plant and equipment, net” and “Intangible assets” to conform to the Company’s balance sheet
presentation.
|
| (3) |
Represents the reclassification of balances contained in “Operating lease right-of-use assets” on Maverick’s historical balance sheet to “Other non-current assets” to conform to the Company’s balance sheet presentation.
|
| (4) |
Represents the reclassification of balances contained in “Inventory” on Maverick’s historical balance sheet to “Other current assets” to conform to the Company’s balance sheet presentation.
|
| (5) |
Represents the reclassification of balances contained in “Current portion of asset retirement obligations” and “Operating lease obligation - current” on Maverick’s historical balance sheet to “Other current liabilities” to conform to the
Company’s balance sheet presentation.
|
5
(In thousands)
|
Maverick Caption
|
Diversified Caption
|
Maverick Historical
|
Reclassification Adjustments
|
Maverick As Adjusted
|
|||||||||||||
|
Oil revenues
|
|
$
|
288,298
|
$
|
(288,298
|
)
|
(1
|
)
|
$
|
—
|
|||||||
|
Natural gas revenues
|
|
52,087
|
(52,087
|
)
|
(1
|
)
|
—
|
||||||||||
|
NGL revenues
|
|
53,721
|
(53,721
|
)
|
(1
|
)
|
—
|
||||||||||
|
Other revenues, net
|
|
41,874
|
(41,874
|
)
|
(1
|
)
|
—
|
||||||||||
|
|
Revenue
|
—
|
435,980
|
(1
|
)
|
435,980
|
|||||||||||
|
Operating costs
|
Operating expense
|
239,681
|
—
|
(5
|
)
|
(239,681
|
)
|
||||||||||
|
Depletion, depreciation and amortization
|
Depreciation, depletion and amortization
|
89,143
|
(6,825
|
)
|
(2)(5
|
)
|
(82,318
|
)
|
|||||||||
|
|
Gross profit
|
107,156
|
(6,825
|
)
|
113,981
|
||||||||||||
|
General and administrative expenses
|
General and administrative expense
|
31,043
|
3,876
|
(3)(5
|
)
|
(34,919
|
)
|
||||||||||
|
Restructuring costs
|
|
3,876
|
(3,876
|
)
|
(3
|
)
|
—
|
||||||||||
|
|
Allowance for expected credit losses
|
—
|
—
|
—
|
|||||||||||||
|
(Gain) loss on sale of assets
|
Gain (loss) on natural gas and oil property and equipment
|
(2,206
|
)
|
—
|
(6
|
)
|
2,206
|
||||||||||
|
|
Gain (loss) on sale of equity interest
|
—
|
—
|
—
|
|||||||||||||
|
|
Unrealized gain (loss) on investment
|
—
|
—
|
—
|
|||||||||||||
|
Realized gain (loss) on commodity derivative instruments
|
Gain (loss) on derivative financial instruments
|
12,421
|
(130,828
|
)
|
(4
|
)
|
(118,407
|
)
|
|||||||||
|
Unrealized gain (loss) on commodity derivative instruments
|
|
(130,828
|
)
|
130,828
|
(4
|
)
|
—
|
||||||||||
|
Impairment of oil and natural gas properties
|
Impairment of proved properties
|
—
|
—
|
—
|
|||||||||||||
|
|
Operating profit (loss)
|
(43,964
|
)
|
(6,825
|
)
|
(37,139
|
)
|
||||||||||
|
Interest expense
|
Finance costs
|
41,844
|
—
|
(5
|
)
|
(41,844
|
)
|
||||||||||
|
|
Accretion of asset retirement obligation
|
—
|
6,825
|
(2)(5
|
)
|
(6,825
|
)
|
||||||||||
|
|
Loss on early retirement of debt
|
—
|
—
|
—
|
|||||||||||||
|
Other income, net
|
Other income (expense)
|
(1,715
|
)
|
—
|
(6
|
)
|
1,715
|
||||||||||
|
|
Income (loss) before taxation
|
(84,093
|
)
|
—
|
(84,093
|
)
|
|||||||||||
|
Income tax expense (benefit)
|
Income tax benefit (expense)
|
160
|
—
|
(5
|
)
|
(160
|
)
|
||||||||||
|
|
Net income (loss)
|
(84,253
|
)
|
—
|
(84,253
|
)
|
|||||||||||
|
|
Other comprehensive income (loss)
|
—
|
—
|
—
|
|||||||||||||
|
|
Total comprehensive income (loss)
|
$
|
(84,253
|
)
|
$
|
—
|
$
|
(84,253
|
)
|
||||||||
| (1) |
Represents the reclassification of amounts contained in “Oil revenues,” “Natural gas revenues,” “NGL revenues,” and “Other revenues, net” on Maverick’s historical income statement to “Revenue” to conform to the Company’s income statement
presentation.
|
| (2) |
Represents the reclassification of amounts contained in “Depletion, depreciation and amortization” on Maverick’s historical income statement to “Accretion of asset retirement obligation” to conform to the Company’s income statement
presentation.
|
| (3) |
Represents the reclassification of amounts contained in “General and administrative expenses” and “Restructuring costs” on Maverick’s historical income statement to “General and administrative expense” to conform to the Company’s income
statement presentation.
|
| (4) |
Represents the reclassification of amounts contained in “Realized gain (loss) on commodity derivative instruments” and “Unrealized gain (loss) on commodity derivative instruments” on Maverick’s historical income statement to “Gain (loss)
on derivative financial instruments” to conform to the Company’s income statement presentation.
|
| (5) |
Represents the presentation on Maverick’s historical income statement as a negative value to conform to the Company’s income statement presentation.
|
| (6) |
Represents the presentation on Maverick’s historical income statement as a positive value to conform to the Company’s income statement presentation.
|
6
(In thousands)
|
Maverick Caption
|
Diversified Caption
|
Maverick Historical
|
Reclassification Adjustments
|
Maverick As Adjusted
|
|||||||||||||
|
Oil revenues
|
|
$
|
619,524
|
$
|
(619,524
|
)
|
(1
|
)
|
$
|
—
|
|||||||
|
Natural gas revenues
|
|
161,054
|
(161,054
|
)
|
(1
|
)
|
—
|
||||||||||
|
NGL revenues
|
|
113,320
|
(113,320
|
)
|
(1
|
)
|
—
|
||||||||||
|
Other revenues, net
|
|
83,492
|
(83,492
|
)
|
(1
|
)
|
—
|
||||||||||
|
|
Revenue
|
—
|
977,390
|
(1
|
)
|
977,390
|
|||||||||||
|
Operating costs
|
Operating expense
|
488,261
|
—
|
(4
|
)
|
(488,261
|
)
|
||||||||||
|
Depletion, depreciation and amortization
|
Depreciation, depletion and amortization
|
166,488
|
(14,666
|
)
|
(2)(4
|
)
|
(151,822
|
)
|
|||||||||
|
|
Gross profit
|
322,641
|
(14,666
|
)
|
337,307
|
||||||||||||
|
General and administrative expenses
|
General and administrative expense
|
83,318
|
1,631
|
(3)(4
|
)
|
(84,949
|
)
|
||||||||||
|
Restructuring costs
|
|
1,631
|
(1,631
|
)
|
(3
|
)
|
—
|
||||||||||
|
|
Allowance for expected credit losses
|
—
|
—
|
—
|
|||||||||||||
|
(Gain) loss on sale of assets
|
Gain (loss) on natural gas and oil property and equipment
|
(1,090
|
)
|
—
|
(5
|
)
|
1,090
|
||||||||||
|
|
Gain (loss) on sale of equity interest
|
—
|
—
|
—
|
|||||||||||||
|
|
Unrealized gain (loss) on investment
|
—
|
—
|
—
|
|||||||||||||
|
Gain (loss) on commodity derivative instruments
|
Gain (loss) on derivative financial instruments
|
145,934
|
—
|
(4
|
)
|
145,934
|
|||||||||||
|
Impairment of oil and natural gas properties
|
Impairment of proved properties
|
66,785
|
—
|
(4
|
)
|
(66,785
|
)
|
||||||||||
|
|
Operating profit (loss)
|
317,931
|
(14,666
|
)
|
332,597
|
||||||||||||
|
Interest expense
|
Finance costs
|
62,176
|
—
|
(4
|
)
|
(62,176
|
)
|
||||||||||
|
|
Accretion of asset retirement obligation
|
—
|
14,666
|
(2)(4
|
)
|
(14,666
|
)
|
||||||||||
|
|
Loss on early retirement of debt
|
—
|
—
|
—
|
|||||||||||||
|
Other income, net
|
Other income (expense)
|
(1,130
|
)
|
—
|
(5
|
)
|
1,130
|
||||||||||
|
|
Income (loss) before taxation
|
256,885
|
—
|
256,885
|
|||||||||||||
|
Income tax expense (benefit)
|
Income tax benefit (expense)
|
604
|
—
|
(4
|
)
|
(604
|
)
|
||||||||||
|
|
Net income (loss)
|
256,281
|
—
|
256,281
|
|||||||||||||
|
|
Other comprehensive income (loss)
|
—
|
—
|
—
|
|||||||||||||
|
|
Total comprehensive income (loss)
|
$
|
256,281
|
$
|
—
|
$
|
256,281
|
||||||||||
| (1) |
Represents the reclassification of amounts contained in “Oil revenues,” “Natural gas revenues,” NGL revenues,” and “Other revenues, net” on Maverick’s historical income statement to “Revenue” to conform to the Company’s income statement
presentation.
|
| (2) |
Represents the reclassification of amounts contained in “Depletion, depreciation and amortization” on Maverick’s historical income statement to “Accretion of asset retirement obligation” to conform to the Company’s income statement
presentation.
|
| (3) |
Represents the reclassification of amounts contained in “General and administrative expenses” and “Restructuring costs” on Maverick’s historical income statement to “General and administrative expense” to conform to the Company’s income
statement presentation.
|
| (4) |
Represents the presentation on Maverick’s historical income statement as a negative value to conform to the Company’s income statement presentation.
|
| (5) |
Represents the presentation on Maverick’s historical income statement as a positive value to conform to the Company’s income statement presentation.
|
7
The unaudited pro forma condensed combined financial information reflects the adjustments listed below for the Oaktree Transaction. These adjustments are expected to have a continuing impact on the combined Company,
unless stated otherwise.
| (a) |
Adjustments are for the period April 1, 2024 through June 6, 2024, the date the Oaktree Transaction closed.
|
| (b) |
Depletion expense associated with the acquired producing properties for the respective 6 and 12 month periods presented.
|
| (c) |
Interest expense for the Company’s related $172 million borrowing on its Credit Facility and ABS Warehouse Facility using current interest rates, the issuance of an $83 million note payable to Oaktree and the assumption of Oaktree’s $133 million proportionate share of the ABS VI debt.
|
| (d) |
Accretion of asset retirement obligation associated with Oaktree’s proportionate working interest in the asset retirement obligations.
|
| (e) |
Adjustments to the income tax provision reflect the historical and adjusted income (loss) before taxation multiplied by an approximate 24% effective tax rate for the periods presented.
|
The unaudited pro forma condensed combined statement of financial position as of June 30, 2024 reflects the following adjustments for the Maverick Transaction:
| (a) |
As the accounting acquirer, Diversified expects to account for the Maverick Transaction as a business combination in accordance with IFRS 3. Diversified’s allocation of the preliminary purchase price with respect to the Maverick
Transaction is based on preliminary estimates of, and assumptions related to, the fair value of the assets to be acquired and liabilities to be assumed as of June 30, 2024, using currently available
information. Because the unaudited pro forma condensed combined financial statements have been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on the financial position and
results of operations of the combined company may be materially different from the pro forma amounts included herein. Diversified expects to finalize the purchase price allocation as soon as reasonably practicable after completing the
Maverick Transaction, which will not extend beyond the one-year measurement period provided under IFRS 3.
|
The preliminary purchase price allocation is subject to change due to several factors, including, but not limiting to, the following:
| • |
Changes in the estimated fair value of Maverick’s identifiable assets acquired and liabilities assumed as of the closing date of the Maverick Transaction, which could result from changes in natural gas and oil commodity prices, oil and gas
reserves estimates, discount rates and other factors; and
|
| • |
Changes in the estimated fair value of the Diversified common stock consideration issued to Maverick unitholders, based on the Diversified common stock closing price.
|
8
The tables below represent the preliminary value of the total consideration and its allocation to the net assets acquired:
|
(In thousands, except share and per unit data)
|
Diversified Shares
Issued(1)
|
Price per Share(2)
|
Purchase Price
Consideration
|
|||||||||
|
Diversified shares issued to legacy Maverick unit holders
|
21,217,713
|
$
|
16.57
|
$
|
351,578
|
|||||||
|
PLUS: Cash consideration to legacy Maverick unitholders through draw on expanded credit facility
|
207,100
|
|||||||||||
|
Preliminary purchase price consideration
|
$
|
558,678
|
||||||||||
| (1) |
The Diversified shares issued consists of the number of shares of Diversified common stock expected to be issued to legacy Maverick unitholders on the close date of the Maverick Transaction.
|
| (2) |
The per share price reflects the closing price per share of Diversified common stock as of February 6, 2025.
|
|
(In thousands)
|
Preliminary
Purchase Price
Allocation
|
|||
|
Assets acquired
|
||||
|
Non-current assets
|
||||
|
Natural gas and oil properties, net
|
$
|
1,469,164
|
||
|
Property, plant and equipment, net
|
74,209
|
|||
|
Intangible assets
|
116
|
|||
|
Derivative financial instruments
|
1,279
|
|||
|
Other non-current assets
|
45,590
|
|||
|
Current assets
|
||||
|
Trade receivables, net
|
134,534
|
|||
|
Cash and cash equivalents
|
62,662
|
|||
|
Restricted cash
|
39,700
|
|||
|
Derivative financial instruments
|
4,327
|
|||
|
Other current assets
|
13,008
|
|||
|
Total assets acquired
|
1,844,589
|
|||
|
Liabilities assumed
|
||||
|
Non-current liabilities
|
||||
|
Asset retirement obligations(1)
|
(175,404
|
)
|
||
|
Leases
|
(25,458
|
)
|
||
|
Borrowings
|
(659,824
|
)
|
||
|
Derivative financial instruments
|
(23,426
|
)
|
||
|
Other current liabilities
|
(29,292
|
)
|
||
|
Current liabilities
|
||||
|
Trade and other payables
|
(225,051
|
)
|
||
|
Borrowings
|
(108,287
|
)
|
||
|
Derivative financial instruments
|
(22,579
|
)
|
||
|
Other current liabilities(1)
|
(16,590
|
)
|
||
|
Total liabilities assumed
|
(1,285,911
|
)
|
||
|
Net assets acquired
|
$
|
558,678
|
||
|
Preliminary purchase price consideration
|
$
|
558,678
|
||
| (1) |
Maverick prepares its financial statements in accordance with U.S. GAAP, while the Company prepares its financial statements in accordance with IFRS. Accordingly, the Company has adjusted Maverick’s current and non-current asset retirement
obligation to conform to IFRS. No other material adjustments were necessary to conform to Diversified’s IFRS presentation.
|
The final value of the consideration will be determined based on the market price of Diversified common stock at closing. A 20% change in the closing price of Diversified common stock, as compared to
the February 6, 2025 closing price, would increase or decrease the consideration by approximately $70 million, assuming all other factors are held constant. Diversified anticipates that a change in the closing price of Diversified common stock will
primarily impact the value of natural gas and oil properties.
| (b) |
Represents the adjustment of $12.5 million for estimated financing costs expected to be incurred by Diversified related to the amendment to be entered into by Diversified on the closing date of the Maverick Transaction to increase the
borrowing base and commitment amounts on its existing revolving credit facility.
|
9
| (c) |
Represents the accrual of $33.8 million of estimated transaction costs and $16.2 million of estimated severance and change in control costs payable to certain Maverick officers who are expected to be terminated as a result of the Maverick
transaction, which are expected to be incurred by Diversified subsequent to June 30, 2024. These
transaction and severance and change in control costs are preliminary estimates; the final amounts and the resulting effect on Diversified’s financial position may differ significantly.
|
The unaudited pro forma combined statement of operations for the six months ended June 30, 2024 reflects the adjustments listed below
for the Maverick Transaction. These adjustments are expected to have a continuing impact on the combined Company, unless stated otherwise.
| (a) |
Represents the incremental depreciation, depletion and amortization expense related to the assets to be acquired in the Maverick Transaction, which is based on the preliminary purchase price allocation. Depletion was calculated using the
unit-of-production method under the successful efforts method of accounting. The depletion expense was adjusted for the revision to the depletion rate reflecting the acquisition costs and the reserves volumes attributable to the acquired oil
and gas properties. The pro forma depletion rate attributable to the Maverick Transaction was $4.71 per barrel of oil equivalent.
|
| (b) |
Represents the net increase to interest expense resulting from the (i) incremental interest expense for borrowings on Diversified’s expanded credit facility to finance the closing of the Maverick Transaction and (ii) incremental interest
expense for the amortization of estimated financing costs related to the amendment to be entered into by Diversified on the closing date of the Maverick Transaction to increase the borrowing base capacity and commitment amounts on
Diversified’s revolving credit facility as follows:
|
|
|
Six Months Ended
|
|||
|
(In thousands)
|
June 30, 2024
|
|||
|
Incremental interest expense for borrowings on Diversified's expanded revolving credit facility
|
(9,077
|
)
|
||
|
Incremental interest expense for amortization of expected financing costs
|
(1,563
|
)
|
||
|
Net transaction accounting adjustments to interest expense
|
$
|
(10,640
|
)
|
|
A 0.125% change in the variable interest rate of Diversified’s revolving credit facility or a $10 million change in the amount financed would increase or decrease interest expense presented in the
unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2024 by $0.1 million and $0.4 million, respectively.
| (c) |
Represents a decrease in accretion expense attributable to asset retirement obligations of $1.1 million for the six months ended June 30, 2024 due to a downward adjustment in the asset retirement obligation based on its fair value under IFRS.
|
| (d) |
Represents the estimated income tax impact of the pro forma adjustments from the Maverick Transaction at the estimated blended federal and state statutory rate of approximately 24% for the six months
ended June 30, 2024. Because the tax rates used for these unaudited pro forma condensed combined financial statements are an estimate, the blended rate will likely vary from the actual
effective rate in periods subsequent to the completion of the Maverick Transaction.
|
| (e) |
The table below represents the calculation of the weighted average shares outstanding and earnings per share included in the unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 2024. As the Maverick Transaction is being reflected in the unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 2024 as if it had occurred on January 1, 2023, the calculation of weighted average shares outstanding for basic and diluted
earnings per share assumes that the shares issuable related to the Maverick Transaction have been outstanding for the entire period.
|
|
|
Six Months Ended
|
|||
|
(In thousands, except share and per unit data)
|
June 30, 2024
|
|||
|
Net loss, pro forma combined
|
$
|
(51,308
|
)
|
|
|
Diversified weighted average shares outstanding - basic
|
47,202,283
|
|||
|
Diversified shares issued in exchange for legacy Maverick shares as part of consideration transferred
|
21,217,713
|
|||
|
Pro forma weighted average shares outstanding - basic
|
68,419,996
|
|||
|
Dilutive impact of potential shares
|
0
|
|||
|
Pro forma weighted average shares outstanding - diluted
|
68,419,996
|
|||
|
|
||||
|
Earnings attributable to Diversified per share, basic
|
$
|
(0.75
|
)
|
|
|
Earnings attributable to Diversified per share, diluted
|
$
|
(0.75
|
)
|
|
|
|
||||
|
Potentially dilutive shares(1)
|
359,016
|
|||
| (1) |
Outstanding share-based payment awards excluded from the diluted EPS calculation because their effect would have been anti-dilutive.
|
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023
reflects the adjustments listed below. These adjustments are expected to have a continuing impact on the combined Company, unless stated otherwise.
| (a) |
Represents the incremental depreciation, depletion and amortization expense related to the assets to be acquired in the Maverick Transaction, which is based on the preliminary purchase price allocation. Depletion was calculated using the
unit-of-production method under the successful efforts method of accounting. The depletion expense was adjusted for the revision to the depletion rate reflecting the acquisition costs and the reserves volumes attributable to the acquired oil
and gas properties. The pro forma depletion rate attributable to the Maverick Transaction was $4.71 per barrel of oil equivalent.
|
10
| (b) |
Represents $33.8 million of estimated transaction costs and $16.2 million of estimated severance and change in control costs payable to certain Maverick officers who are expected to be terminated as a result of the Maverick transaction,
which are expected to be incurred by Diversified upon closing the Maverick Transaction. These costs are preliminary estimates; the final amounts and the resulting effect on Diversified’s results
of operations may differ significantly. These costs are nonrecurring and will not affect Diversified’s statement of operations beyond 12 months after the closing of the Maverick Transaction.
|
| (c) |
Represents a decrease in accretion expense attributable to asset retirement obligations of $3.2 million for the year ended December 31, 2023 due to a
downward adjustment in the asset retirement obligation based on its fair value under IFRS.
|
| (d) |
Represents the net increase to interest expense resulting from the (i) incremental interest expense for borrowings on Diversified’s expanded credit facility to finance the closing of the Maverick Transaction and (ii) incremental interest
expense for the amortization of estimated financing costs related to the amendment to be entered into by Diversified on the closing date of the Maverick Transaction to increase the borrowing base capacity and commitment amounts on
Diversified’s revolving credit facility as follows:
|
|
|
Year Ended
|
|||
|
(In thousands)
|
December 31, 2023
|
|||
|
Incremental interest expense for borrowings on Diversified's expanded revolving credit facility
|
(17,622
|
)
|
||
|
Incremental interest expense for amortization of expected financing costs
|
(3,125
|
)
|
||
|
Net transaction accounting adjustments to interest expense
|
$
|
(20,747
|
)
|
|
A 0.125% change in the variable interest rate of Diversified’s revolving credit facility or a $10 million change in the amount financed would increase or decrease interest expense presented in the
unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 by $0.3 million and $0.9 million, respectively.
| (e) |
Represents the estimated income tax impact of the pro forma adjustments from the Maverick Transaction at the estimated blended federal and state statutory rate of approximately 24% for the year ended December 31, 2023. Because the tax rates used for these unaudited pro forma condensed combined financial statements are an estimate, the blended rate will likely vary from the actual effective rate in
periods subsequent to the completion of the Maverick Transaction.
|
| (f) |
The table below represents the calculation of the weighted average shares outstanding and earnings per share included in the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2023. As the Maverick Transaction is being reflected in the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2023 as if it had occurred on January 1, 2023, the calculation of weighted average shares outstanding for basic and diluted
earnings per share assumes that the shares issuable related to the Maverick Transaction have been outstanding for the entire year.
|
|
Year Ended
|
||||
|
(In thousands, except share and per unit data)
|
December 31, 2023
|
|||
|
Net income, pro forma combined
|
$
|
957,579
|
||
|
Diversified weighted average shares outstanding - basic
|
47,165,380
|
|||
|
Diversified shares issued in exchange for legacy Maverick shares as part of consideration transferred
|
21,217,713
|
|||
|
Pro forma weighted average shares outstanding - basic
|
68,383,093
|
|||
|
Dilutive impact of potential shares
|
349,141
|
|||
|
Pro forma weighted average shares outstanding - diluted
|
68,732,234
|
|||
|
|
||||
|
Earnings attributable to Diversified per share, basic
|
$
|
14.00
|
||
|
Earnings attributable to Diversified per share, diluted
|
$
|
13.93
|
||
|
|
||||
|
Potentially dilutive shares(1)
|
54,133
|
|||
| (1) |
Outstanding share-based payment awards excluded from the diluted EPS calculation because their effect would have been anti-dilutive.
|
Estimated Quantities of Proved Oil and Natural Gas Reserves
The following tables present information regarding net proved oil and natural gas reserves attributable to the Company's interests in proved properties as of December 31, 2023,
along with a summary of changes in quantities of net remaining proved reserves during the year ended December 31, 2023. The information set forth in the tables regarding historical reserves of the Company is
based on proved reserves reports prepared in accordance with Securities and Exchange Commission’s (“SEC”) rules. The Company’s petroleum engineers prepared the proved reserves reports as of December 31, 2023.
In addition, the following tables also set forth information as of December 31, 2023 about the estimated net proved oil and natural gas reserves attributable to the Maverick
and Oaktree transactions, and the pro forma estimated net proved oil and natural gas reserves as if the Maverick and Oaktree transactions had occurred on January 1, 2023. The reserve estimates attributable
to the Maverick and Oaktree transactions at December 31, 2023 and the summary of changes in quantities of net remaining proved reserves during the year ended December 31,
2023 presented in the table below were prepared in accordance with the authoritative guidance of the SEC on oil and natural gas reserve estimation and disclosures.
Reserve estimates are inherently imprecise and are generally based upon extrapolation of historical production trends, analogy to similar properties and volumetric calculations. Accordingly, reserve estimates are
expected to change, and such changes could be material and occur in the near term as future information becomes available.
11
|
Natural Gas (MMcf)
|
||||||||||||||||
|
DEC Historical
|
Oaktree
Transaction
Adjustments
|
Maverick
Transaction
Adjustments
|
Pro Forma
Combined
|
|||||||||||||
|
Total proved reserves, beginning of period
|
4,349,611
|
555,228
|
1,087,513
|
5,992,352
|
||||||||||||
|
Revisions of previous estimates
|
(658,917
|
)
|
(146,142
|
)
|
(284,624
|
)
|
(1,089,683
|
)
|
||||||||
|
Extensions, discoveries and other additions
|
712
|
3,383
|
25,759
|
29,854
|
||||||||||||
|
Production
|
(256,378
|
)
|
(39,539
|
)
|
(65,929
|
)
|
(361,846
|
)
|
||||||||
|
Purchase of reserves in place
|
105,713
|
—
|
—
|
105,713
|
||||||||||||
|
Sales of reserves in place
|
(340,697
|
)
|
—
|
(9,119
|
)
|
(349,816
|
)
|
|||||||||
|
Total proved reserves, end of period
|
3,200,044
|
372,930
|
753,600
|
4,326,574
|
||||||||||||
|
Proved developed reserves
|
||||||||||||||||
|
Beginning of period
|
4,340,779
|
555,228
|
872,712
|
5,768,719
|
||||||||||||
|
End of period
|
3,184,499
|
372,930
|
611,472
|
4,168,901
|
||||||||||||
|
Proved undeveloped reserves:
|
||||||||||||||||
|
Beginning of period
|
8,832
|
—
|
214,801
|
223,633
|
||||||||||||
|
End of period
|
15,545
|
—
|
142,128
|
157,673
|
||||||||||||
|
NGLs (MBbls)
|
||||||||||||||||
|
|
DEC Historical
|
Oaktree
Transaction
Adjustments
|
Maverick
Transaction
Adjustments
|
Pro Forma
Combined
|
||||||||||||
|
Total proved reserves, beginning of period
|
101,931
|
13,352
|
89,963
|
205,246
|
||||||||||||
|
Revisions of previous estimates
|
153
|
(3,737
|
)
|
(16,851
|
)
|
(20,435
|
)
|
|||||||||
|
Extensions, discoveries and other additions
|
—
|
50
|
578
|
628
|
||||||||||||
|
Production
|
(5,832
|
)
|
(949
|
)
|
(5,714
|
)
|
(12,495
|
)
|
||||||||
|
Purchase of reserves in place
|
2,592
|
—
|
—
|
2,592
|
||||||||||||
|
Sales of reserves in place
|
(3,143
|
)
|
—
|
(778
|
)
|
(3,921
|
)
|
|||||||||
|
Total proved reserves, end of period
|
95,701
|
8,716
|
67,198
|
171,615
|
||||||||||||
|
Proved developed reserves
|
||||||||||||||||
|
Beginning of period
|
101,931
|
13,352
|
72,476
|
187,759
|
||||||||||||
|
End of period
|
94,391
|
8,716
|
58,240
|
161,347
|
||||||||||||
|
Proved undeveloped reserves:
|
||||||||||||||||
|
Beginning of period
|
—
|
—
|
17,487
|
17,487
|
||||||||||||
|
End of period
|
1,310
|
—
|
8,958
|
10,268
|
||||||||||||
|
Oil (MBbls)
|
||||||||||||||||
|
DEC Historical
|
Oaktree
Transaction
Adjustments
|
Maverick
Transaction
Adjustments
|
Pro Forma
Combined
|
|||||||||||||
|
Total proved reserves, beginning of period
|
14,830
|
6,469
|
110,053
|
131,352
|
||||||||||||
|
Revisions of previous estimates
|
(230
|
)
|
(616
|
)
|
(11,841
|
)
|
(12,687
|
)
|
||||||||
|
Extensions, discoveries and other additions
|
50
|
83
|
4,762
|
4,895
|
||||||||||||
|
Production
|
(1,377
|
)
|
(657
|
)
|
(8,257
|
)
|
(10,291
|
)
|
||||||||
|
Purchase of reserves in place
|
923
|
—
|
—
|
923
|
||||||||||||
|
Sales of reserves in place
|
(1,580
|
)
|
—
|
(762
|
)
|
(2,342
|
)
|
|||||||||
|
Total proved reserves, end of period
|
12,616
|
5,279
|
93,955
|
111,850
|
||||||||||||
|
Proved developed reserves
|
||||||||||||||||
|
Beginning of period
|
14,830
|
6,469
|
86,403
|
107,702
|
||||||||||||
|
End of period
|
12,380
|
5,279
|
75,236
|
92,895
|
||||||||||||
|
Proved undeveloped reserves:
|
||||||||||||||||
|
Beginning of period
|
—
|
—
|
23,650
|
23,650
|
||||||||||||
|
End of period
|
236
|
—
|
18,719
|
18,955
|
||||||||||||
12
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following table presents the standardized measure of discounted future net cash flows relating to the proved oil and natural gas reserves of the Company and the Maverick and Oaktree transactions on a pro forma
combined basis as of December 31, 2023 as if the Maverick and Oaktree transactions had occurred on January 1, 2023. The standardized measure shown below represents estimates only and should not be construed
as the current market value of the Company’s estimated oil and natural gas reserves or those acquired estimated oil and natural gas reserves attributable to the Maverick and Oaktree transactions.
|
December 31, 2023
|
||||||||||||||||
|
(In thousands)
|
DEC Historical
|
Oaktree
Transaction
Adjustments
|
Maverick
Transaction
Adjustments
|
Pro Forma
Combined
|
||||||||||||
|
Future cash inflows
|
$
|
10,900,742
|
$
|
1,371,293
|
$
|
10,082,939
|
$
|
22,354,974
|
||||||||
|
Future production costs
|
(5,345,117
|
)
|
(725,738
|
)
|
(4,796,251
|
)
|
(10,867,106
|
)
|
||||||||
|
Future development costs
|
(1,937,293
|
)
|
(174,796
|
)
|
(1,707,946
|
)
|
(3,820,035
|
)
|
||||||||
|
Future income tax expense
|
(653,216
|
)
|
(1,621
|
)
|
(615,276
|
)
|
(1,270,113
|
)
|
||||||||
|
Future net cash flows
|
2,965,116
|
469,138
|
2,963,466
|
6,397,720
|
||||||||||||
|
10% annual discount for estimated timing of cash flows
|
(1,219,580
|
)
|
(140,870
|
)
|
(1,319,032
|
)
|
(2,679,482
|
)
|
||||||||
|
Standardized Measure
|
$
|
1,745,536
|
$
|
328,268
|
$
|
1,644,434
|
$
|
3,718,238
|
||||||||
The following table sets forth the principal changes in the standardized measure of discounted future net cash flows applicable to estimated net proved oil and natural gas reserves of the Company and the Maverick and
Oaktree transactions on a pro forma combined basis as of December 31, 2023:
|
December 31, 2023
|
||||||||||||||||
|
(In thousands)
|
DEC Historical
|
Oaktree
Transaction
Adjustments
|
Maverick
Transaction
Adjustments
|
Pro Forma Combined
|
||||||||||||
|
Standardized Measure, beginning of year
|
$
|
6,743,100
|
$
|
1,324,614
|
$
|
5,118,150
|
$
|
13,185,864
|
||||||||
|
Sales and transfers of natural gas and oil produced, net of production costs
|
(431,629
|
)
|
(65,311
|
)
|
(511,575
|
)
|
(1,008,515
|
)
|
||||||||
|
Net changes in prices and production costs
|
(5,850,625
|
)
|
(760,888
|
)
|
(2,300,636
|
)
|
(8,912,149
|
)
|
||||||||
|
Extensions, discoveries, and other additions, net of future production and development costs
|
(13,682
|
)
|
5,027
|
121,760
|
113,105
|
|||||||||||
|
Acquisition of reserves in place
|
122,613
|
—
|
—
|
122,613
|
||||||||||||
|
Divestiture of reserves in place
|
(377,097
|
)
|
—
|
(35,439
|
)
|
(412,536
|
)
|
|||||||||
|
Revisions of previous quantity estimates
|
(1,224,544
|
)
|
(342,713
|
)
|
(997,147
|
)
|
(2,564,404
|
)
|
||||||||
|
Net change in income taxes
|
1,688,208
|
1,842
|
(355,513
|
)
|
1,334,537
|
|||||||||||
|
Changes in estimated future development costs
|
—
|
—
|
—
|
—
|
||||||||||||
|
Previously estimated development costs incurred during the year
|
—
|
—
|
70,396
|
70,396
|
||||||||||||
|
Changes in production rates (timing) and other
|
206,646
|
32,965
|
20,569
|
260,180
|
||||||||||||
|
Accretion of discount
|
882,546
|
132,732
|
513,869
|
1,529,147
|
||||||||||||
|
Standardized Measure, end of year
|
$
|
1,745,536
|
$
|
328,268
|
$
|
1,644,434
|
$
|
3,718,238
|
||||||||
13