Annual report pursuant to Section 13 and 15(d)

Acquisitions and Divestitures

v3.19.3.a.u2
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisitions and Divestitures Acquisitions and Divestitures
2019 Acquisitions and Divestitures
Carrizo Oil & Gas, Inc. Merger. On December 20, 2019, the Company completed its acquisition of Carrizo in an all-stock transaction (the “Merger” or the “Carrizo Acquisition”). Under the terms of the Merger, each outstanding share of Carrizo common stock was converted into 1.75 shares of the Company’s common stock. The Company issued approximately 168.2 million shares of common stock at a price of $4.55 per share, resulting in total consideration paid by the Company to the former Carrizo shareholders of approximately $765.4 million. In connection with the closing of the Merger, the Company funded the redemption of Carrizo’s 8.875% Preferred Stock, repaid the outstanding principal under Carrizo’s revolving credit facility and assumed all of Carrizo’s senior notes. See “Note 7 - Borrowings” for further details.
The Merger was accounted for as a business combination, therefore, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated acquisition date fair values based on then currently available information. A combination of a discounted cash flow model and market data was used by a third-party specialist in determining the fair value of the oil and gas properties. Significant inputs into the calculation included future commodity prices, estimated volumes of oil and gas reserves, expectations for timing and amount of future development and operating costs, future plugging and abandonment costs and a risk adjusted discount rate. Certain data necessary to complete the purchase price allocation is not yet available, including final tax returns that provide the underlying tax basis of Carrizo’s assets and liabilities. The company expects to complete the purchase price allocation during the 12-month period following the acquisition date.
The following table sets forth the Company’s preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date.
 
 
Preliminary Purchase
Price Allocation
 
 
(In thousands)
Consideration:
 
 
Fair value of the Company’s common stock issued
 

$765,373

Total consideration
 

$765,373

 
 
 
Liabilities:
 
 
Accounts payable
 

$37,657

Revenues and royalties payable
 
52,449

Operating lease liabilities - current
 
29,924

Fair value of derivatives - current
 
61,015

Other current liabilities
 
82,084

Long-term debt
 
1,984,135

Operating lease liabilities - non-current
 
30,070

Asset retirement obligation
 
26,151

Fair value of derivatives - non-current
 
26,960

Other long-term liabilities
 
17,260

Common stock warrants
 
10,029

Total liabilities assumed
 

$2,357,734

 
 
 
Assets:
 
 
Accounts receivable, net
 

$48,479

Fair value of derivatives - current
 
17,451

Other current assets
 
4,945

Evaluated oil and natural gas properties
 
2,133,280

Unevaluated properties
 
682,928

Other property and equipment
 
9,614

Fair value of derivatives - non-current
 
4,518

Deferred tax asset
 
159,320

Operating lease right-of-use-assets
 
59,994

Other long term assets
 
2,578

Total assets acquired
 

$3,123,107


Approximately $28.6 million of revenues and $7.0 million of direct operating expenses attributed to the Carrizo Acquisition are included in the Company’s consolidated statements of operations for the period from the closing date on December 20, 2019 through December 31, 2019.
Pro Forma Operating Results (Unaudited). The following unaudited pro forma combined condensed financial data for the years ended December 31, 2019 and 2018 was derived from the historical financial statements of the Company giving effect to the Merger, as if it had occurred on January 1, 2018. The below information reflects pro forma adjustments for the issuance of the Company’s common stock in exchange for Carrizo’s outstanding shares of common stock, as well as pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including (i) the Company’s common stock issued to convert Carrizo’s outstanding shares of common stock and equity awards as of the closing date of the Merger, (ii) the depletion of Carrizo’s fair-valued proved oil and natural gas properties and (iii) the estimated tax impacts of the pro forma adjustments.
Additionally, pro forma earnings were adjusted to exclude acquisition-related costs incurred by the Company of approximately $58.8 million for the year ended December 31, 2019 and acquisition-related costs incurred by Carrizo that totaled approximately $15.6 million for the year ended December 31, 2019. The pro forma results of operations do not include any cost savings or other synergies that may result from the Merger or any estimated costs that have been or will be incurred by the Company to integrate the Carrizo assets. The pro forma financial data does not include the pro forma results of operations for any other acquisitions made during the periods presented, as they were primarily acreage acquisitions and their results were not deemed material.
The pro forma consolidated statements of operations data has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the Merger taken place on January 1, 2018 and is not intended to be a projection of future results.
 
 
Years Ended December 31,
 
 
2019
 
2018
 
 
(In thousands)
Revenues
 

$1,620,357

 

$1,661,171

Income from operations
 
614,668

 
767,628

Net income
 
369,777

 
734,527

Basic earnings per common share
 
0.89

 

$1.87

Diluted earnings per common share
 
0.89

 

$1.87


During 2019, in conjunction with the Carrizo Acquisition, the Company incurred costs totaling $74.4 million comprised of severance costs of $28.8 million and other merger and integration expenses of $45.6 million. As of December 31, 2019, $52.4 million remained accrued and is included as a component of “Accounts payable and accrued liabilities” in the consolidated balance sheets.
Ranger Divestiture. In the second quarter of 2019, the Company completed its divestiture of certain non-core assets in the southern Midland Basin (the “Ranger Divestiture”) for net cash proceeds of $244.9 million. The transaction also provided for potential additional contingent consideration of up to $60.0 million based on West Texas Intermediate average annual pricing over a three-year period. See “Note 8 - Derivative Instruments and Hedging Activities” and “Note 9 - Fair Value Measurements” for further discussion of this contingent consideration arrangement. The divestiture encompasses the Ranger operating area in the southern Midland Basin which includes approximately 9,850 net Wolfcamp acres with an average 66% working interest. The net cash proceeds were recognized as a reduction of evaluated oil and gas properties with no gain or loss recognized.
2018 Acquisitions and Divestitures
On August 31, 2018, the Company completed the acquisition of approximately 28,000 net surface acres in the Spur operating area, located in the Delaware Basin, from Cimarex Energy Company, for a net cash consideration of approximately $539.5 million (the “Delaware Asset Acquisition”). The Company funded the Delaware Asset Acquisition with net proceeds from both the common stock offering completed on May 30, 2018 and the issuance of the 6.375% Senior Notes. See “Note 7 - Borrowings” and “Note 11 - Stockholders’ Equity” for further details of these offerings.
The Delaware Asset Acquisition was accounted for as a business combination, therefore, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated acquisition date fair values based on then currently available information. A combination of a discounted cash flow model and market data was used by a third-party specialist in determining the fair value of the oil and gas properties. Significant inputs into the calculation included future commodity prices, estimated volumes of oil and gas reserves, expectations for timing and amount of future development and operating costs, future plugging and abandonment costs and a risk adjusted discount rate. The following table sets forth the Company’s allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date.
 
Purchase Price Allocation
 
(In thousands)
Assets
 
Oil and natural gas properties
 
Evaluated properties

$253,089

Unevaluated properties
287,000

Total oil and natural gas properties

$540,089

Total assets acquired

$540,089

 
 
Liabilities
 
Asset retirement obligations

($570
)
Total liabilities assumed

($570
)
Net Assets Acquired

$539,519


Approximately $27.3 million of revenues and $9.9 million of direct operating expenses attributed to the Delaware Asset Acquisition are included in the Company’s consolidated statements of operations for the period from the closing date on August 31, 2018 through December 31, 2018.
Pro Forma Operating Results (Unaudited). The following unaudited pro forma financial information presents a summary of the Company’s consolidated results of operations for the years ended December 31, 2018 and 2017, assuming the Delaware Asset Acquisition had been completed as of January 1, 2017, including adjustments to reflect the acquisition date fair values assigned to the assets acquired and liabilities assumed. The pro forma financial information does not purport to represent what the actual results of operations would have been had the transactions been completed as of the date assumed, nor is this information necessarily indicative of future consolidated results of operations. The Company believes the assumptions used provide a reasonable basis for reflecting the significant pro forma effects directly attributable to the Delaware Asset Acquisition.
 
 
Years Ended December 31,
 
 
2018
 
2017
 
 
(In thousands)
Revenues
 

$669,236

 

$469,896

Income from operations
 
299,090

 
209,723

Net income
 
324,318

 
181,406

Basic earnings per common share
 
$1.49
 
$0.90
Diluted earnings per common share
 
$1.49
 
$0.90

Other. In addition, the Company completed various acquisitions of additional working interests and mineral rights, and associated production volumes, in the Company’s existing core operating areas within the Permian Basin. In the first quarter of 2018, the Company completed acquisitions within Monarch and WildHorse operating areas for aggregate net cash consideration of approximately $37.8 million. In the fourth quarter of 2018, the Company completed acquisitions of leasehold interests and mineral rights within its WildHorse and Spur operating areas for net cash consideration of approximately $87.9 million.
The Company did not have any material divestitures for the year ended December 31, 2018.
2017 Acquisitions and Divestitures
Ameredev Acquisition. On February 13, 2017, the Company completed the acquisition of 29,175 gross (16,688 net) acres in the Delaware Basin, primarily located in Ward and Pecos Counties, Texas from American Resource Development, LLC, for total cash consideration of $646.6 million, excluding customary purchase price adjustments (the “Ameredev Acquisition”). The Company partially funded the Ameredev Acquisition with net proceeds from the common stock offering completed on December 19, 2016. The Company obtained an 82% average working interest (75% average net revenue interest) in the properties acquired in the Ameredev Acquisition.
The Ameredev Acquisition was accounted for as a business combination, therefore, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated acquisition date fair values based on then currently available information. A combination of a discounted cash flow model and market data was used by a third-party specialist in determining the fair value of the oil and gas properties. Significant inputs into the calculation included future commodity prices, estimated volumes of oil and gas reserves, expectations for timing and amount of future development and operating costs, future plugging and abandonment costs and a risk adjusted discount rate. The following table sets forth the Company’s allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date.
 
Purchase Price Allocation
 
(In thousands)
Assets
 
Oil and natural gas properties
 
Evaluated properties

$137,368

Unevaluated properties
509,359

Total oil and natural gas properties

$646,727

Total assets acquired

$646,727

 
 
Liabilities
 
Asset retirement obligations

($168
)
Total liabilities assumed

($168
)
Net Assets Acquired

$646,559


Approximately $36.1 million of revenues and $8.5 million of direct operating expenses attributed to the Ameredev Acquisition are included in the Company’s consolidated statements of operations for the period from the closing date on February 13, 2017 through December 31, 2017.
Pro Forma Operating Results (Unaudited). The following unaudited pro forma financial information presents a summary of the Company’s consolidated results of operations for the year ended December 31, 2017, assuming the Ameredev Acquisition had been completed as of January 1, 2016, including adjustments to reflect the acquisition date fair values assigned to the assets acquired and liabilities assumed. The pro forma financial information does not purport to represent what the actual results of operations would have been had the transactions been completed as of the date assumed, nor is this information necessarily indicative of future consolidated results of operations. The Company believes the assumptions used provide a reasonable basis for reflecting the significant pro forma effects directly attributable to the Ameredev Acquisition.
 
 
Year Ended December 31, 2017
 
 
(In thousands)
Revenues
 

$369,527

Income from operations
 
144,104

Net income
 
115,787

Basic earnings per common share
 

$0.57

Diluted earnings per common share
 

$0.57


Other. On June 5, 2017, the Company completed the acquisition of 7,031 gross (2,488 net) acres in the Delaware Basin, located near the acreage acquired in the Ameredev Acquisition discussed above, for aggregate net cash consideration of approximately $52.0 million. The Company funded the cash purchase price with available cash and proceeds from the issuance of an additional $200.0 million of its 6.125% Senior Notes. See “Note 7 - Borrowings” for further details of this offering.
The Company did not have any material divestitures for the year ended December 31, 2017.