Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
FOR ROAN RESOURCES, INC. AS OF JUNE 30, 2018, FOR THE SIX MONTHS ENDED JUNE 30, 2018
AND FOR THE YEAR ENDED DECEMBER 31, 2017
INDEX
Financial Information | Page Number | |||
Unaudited Pro Forma Condensed Combined Financial Information | 2 | |||
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2018 | 3 | |||
Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2018 | 4 | |||
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2017 | 5 | |||
Notes to Unaudited Pro Forma Condensed Combined Financial Statements | 6 |
ROAN RESOURCES, INC
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On August 31, 2017, Roan Resources LLC (“Roan LLC”)executed a contribution agreement (the “Contribution Agreement”) by and among the Roan LLC, Citizen Energy II, LLC (“Citizen”), Linn Energy Holdings, LLC (“LEH”) and Linn Operating, LLC (“LOI”, and together with LEH, “Linn”) pursuant to which, among other things, Citizen agreed to contribute oil and natural gas properties in the Merge, SCOOP and STACK plays within the Anadarko Basin to Roan LLC (collectively the “Contribution”). In exchange for their contributions, Citizen received a 50% equity interest in Roan LLC.
On August 31, 2017, Roan LLC purchased oil and natural gas properties located in Central Oklahoma (“Acquired Properties”) from Linn for $1.3 billion, subject to certain purchase price and post-closing adjustments (the “Acquisition”). The assets consist primarily of proved and unproved oil and natural gas properties located in the Merge, SCOOP, and STACK plays within the Anadarko Basin. The consideration for the Acquisition was 1.5 billion of Roan LLC’s equity units, or 50% of Roan LLC’s equity.
On September 24, 2018, a series of transactions were executed that resulted in Linn and Citizen contributing their equity interest in Roan LLC to two new subsidiaries that are wholly owned by Roan Resources, Inc. (“Roan Inc”) in exchange for equity interest in Roan Inc (the “Reorganization”). Following the Reorganization, Roan Inc became the successor of Linn in accordance with Rule15d-5 of the Securities Exchange Act of 1934.
The accompanying unaudited pro forma condensed combined balance sheet as of June 30, 2018 was based on the unaudited balance sheet of Roan LLC as of June 30, 2018 and includes pro forma adjustments to give effect to the Reorganization as if it had occurred on June 30, 2018.
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 and the six months ended June 30, 2018 were based on the audited statement of operations of Roan LLC for the year ended December 31, 2017 and the unaudited statement of operations of Roan LLC for the six months ended June 30, 2018, respectively, and include pro forma adjustments to give effect to the Acquisition and the Reorganization as if they had occurred on January 1, 2017.
These unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not indicative of the results that actually would have occurred had the transactions been in effect on the dates or for the periods indicated, or of results that may occur in the future. These unaudited pro forma condensed combined financial statements should be read in conjunction with Roan LLC’s historical financial statements and the audited statements of revenues and direct operating expenses for the Acquired Properties filed as exhibits to this report.
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Roan Resources, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2018
Roan LLC Historical | Reorganization Adjustments | Roan Inc Pro Forma Combined | ||||||||||
(in thousands) | ||||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 24,376 | $ | — | $ | 24,376 | ||||||
Accounts receivable | ||||||||||||
Oil, natural gas and natural gas liquid sales | 21,347 | — | 21,347 | |||||||||
Oil, natural gas and natural gas liquid sales - Affiliates | 8,136 | — | 8,136 | |||||||||
Joint interest owners | 84,336 | — | 84,336 | |||||||||
Affiliates | 31,728 | — | 31,728 | |||||||||
Prepaid drilling advances | 37,019 | — | 37,019 | |||||||||
Derivative contracts | 281 | — | 281 | |||||||||
Other current assets | 6,190 | — | 6,190 | |||||||||
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Total current assets | 213,413 | — | 213,413 | |||||||||
Long-term assets | ||||||||||||
Oil and natural gas properties, successful efforts method | 2,187,486 | — | 2,187,486 | |||||||||
Accumulated depreciation, depletion, amortization and impairment | (137,564 | ) | — | (137,564 | ) | |||||||
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Oil and natural gas properties, net | 2,049,922 | — | 2,049,922 | |||||||||
Other property and equipment, net | 3,150 | — | 3,150 | |||||||||
Deferred financing costs | 3,326 | — | 3,326 | |||||||||
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Total assets | $ | 2,269,811 | $ | — | $ | 2,269,811 | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | $ | 122,278 | $ | — | $ | 122,278 | ||||||
Accounts payable and accrued liabilities - Affiliates | 26,256 | — | 26,256 | |||||||||
Revenue payable | 74,128 | — | 74,128 | |||||||||
Drilling advances | 47,605 | — | 47,605 | |||||||||
Asset retirement obligations | 416 | — | 416 | |||||||||
Derivative contracts | 49,424 | — | 49,424 | |||||||||
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Total current liabilities | 320,107 | — | 320,107 | |||||||||
Noncurrent liabilities | ||||||||||||
Long-term debt | 284,639 | — | 284,639 | |||||||||
Deferred taxes | — | 306,304 | (a) | 297,591 | ||||||||
Asset retirement obligations | 12,158 | — | 12,158 | |||||||||
Derivative contracts | 10,664 | — | 10,664 | |||||||||
Other | 117 | — | 117 | |||||||||
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Total liabilities | 627,685 | 306,304 | 925,276 | |||||||||
Commitments and contingencies | ||||||||||||
Total stockholders’ equity | 1,642,126 | (306,304 | ) (a) | 1,344,535 | ||||||||
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Total liabilities and stockholders’ equity | $ | 2,269,811 | $ | — | $ | 2,269,811 | ||||||
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Roan Resources, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Months Ending June 30, 2018
Roan LLC Historical | Reorganization Adjustments | Roan Inc Pro Forma Combined | ||||||||||
(in thousands, except earnings per share data) | ||||||||||||
Revenues | ||||||||||||
Oil sales | $ | 122,369 | $ | — | $ | 122,369 | ||||||
Natural gas sales | 21,458 | — | 21,458 | |||||||||
Natural gas sales - Affiliates | 9,439 | — | 9,439 | |||||||||
Natural gas liquids sales | 25,144 | — | 25,144 | |||||||||
Natural gas liquids sales - Affiliates | 13,127 | — | 13,127 | |||||||||
Loss on derivative contracts | (64,216 | ) | — | (64,216 | ) | |||||||
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Total revenues | 127,321 | — | 127,321 | |||||||||
Operating expenses | ||||||||||||
Production expenses | 15,374 | — | 15,374 | |||||||||
Production taxes | 4,682 | — | 4,682 | |||||||||
Exploration expenses | 18,483 | — | 18,483 | |||||||||
Depreciation, depletion and amortization | 46,466 | — | 46,466 | |||||||||
General and administrative | 27,106 | — | 27,106 | |||||||||
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Total operating expenses | 112,111 | — | 112,111 | |||||||||
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Total operating income | 15,210 | — | 15,210 | |||||||||
Other income (expense) | ||||||||||||
Interest expense | (2,886 | ) | — | (2,886 | ) | |||||||
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Income before income taxes | 12,324 | — | 12,324 | |||||||||
Income tax expense | — | 3,172 | (b) | 3,172 | ||||||||
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Net income | $ | 12,324 | $ | (3,172 | ) | $ | 9,152 | |||||
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Earnings per share: | ||||||||||||
Basic | $ | 0.00 | $ | 0.06 | ||||||||
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Diluted | $ | 0.00 | $ | 0.06 | ||||||||
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Weighted average number of shares outstanding: | ||||||||||||
Basic | 3,026,163 | (2,873,623 | ) (c) | 152,540 | ||||||||
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Diluted | 3,026,163 | (2,873,623 | ) (c) | 152,540 | ||||||||
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Roan Resources, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ending December 31, 2017
Roan LLC Historical | Acquired Properties Adjustments (for the period from January 1 through August 31, 2017) | Reorganization Adjustments | Roan Inc Pro Forma Combined | |||||||||||||
(in thousands, except earnings per share data) | ||||||||||||||||
Revenues | ||||||||||||||||
Oil sales | $ | 76,876 | $ | 23,332 | (d) | $ | — | $ | 100,208 | |||||||
Natural gas sales | 46,303 | 10,014 | (d) | — | 56,317 | |||||||||||
Natural gas liquids sales | 35,217 | 4,447 | (d) | — | 39,664 | |||||||||||
Natural gas and natural gas liquids sales - Affiliates | 7,989 | 17,780 | (d) | — | 25,769 | |||||||||||
Loss on derivative contracts | (6,797 | ) | — | — | (6,797 | ) | ||||||||||
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Total revenues | 159,588 | 55,573 | — | 215,161 | ||||||||||||
Operating expenses | ||||||||||||||||
Production expenses | 16,872 | 7,165 | (d) | $ | — | 24,037 | ||||||||||
Gathering, transportation and processing | 18,602 | 5,066 | (d) | — | 23,668 | |||||||||||
Production taxes | 3,685 | 1,657 | (d) | — | 5,342 | |||||||||||
Exploration expenses | 32,629 | — | — | 32,629 | ||||||||||||
Depreciation, depletion and amortization | 37,012 | 14,901 | (e) | — | 51,913 | |||||||||||
Accretion of asset retirement obligations | 364 | 368 | (f) | — | 732 | |||||||||||
General and administrative | 31,357 | — | — | 31,357 | ||||||||||||
Gain on sale of assets | (838 | ) | — | — | (838 | ) | ||||||||||
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Total operating expenses | 139,683 | 29,157 | — | 168,840 | ||||||||||||
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Total operating income | 19,905 | 26,416 | — | 46,321 | ||||||||||||
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Other income (expense) | ||||||||||||||||
Interest expense | (1,461 | ) | — | — | (1,461 | ) | ||||||||||
Other income (expense), net | 13 | — | — | 13 | ||||||||||||
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Total other expense | (1,448 | ) | — | — | (1,448 | ) | ||||||||||
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Income before income taxes | 18,457 | 26,416 | — | 44,873 | ||||||||||||
Income tax expense | — | — | 11,550 | (b) | 11,550 | |||||||||||
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Net income | $ | 18,457 | $ | 26,416 | $ | (11,550 | ) | $ | 33,323 | |||||||
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Earnings per share: | ||||||||||||||||
Basic | $ | 0.01 | $ | 0.22 | ||||||||||||
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Diluted | $ | 0.01 | $ | 0.22 | ||||||||||||
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Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 2,001,370 | (1,849,248 | ) (c) | 152,122 | ||||||||||||
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Diluted | 2,001,370 | (1,849,248 | ) (c) | 152,122 | ||||||||||||
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ROAN RESOURCES, INC
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. | Basis of Presentation |
Roan Inc. was incorporated to serve as a holding company and, prior to the Reorganization, had no previous operations, assets or liabilities. The historical financial information is derived from the historical financial statements of Roan LLC and the historical statements of revenues and direct operating expenses of the Acquired Properties. The unaudited pro forma condensed combined balance sheet as of June 30, 2018 has been prepared as if the Reorganization had taken place on June 30, 2018. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 and for the six months ended June 30, 2018 assume that the Acquisition and Reorganization occurred on January 1, 2017. The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to events that are (1) directly attributable to the Acquisition and Reorganization, (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results.
These unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and may or may not provide an indication of results in the future.
2. | Pro Forma Adjustments |
The following adjustments were made in the preparation of the unaudited pro forma condensed combined financial statements.
(a) | Reflects the adjustment for deferred income taxes as a result of the Reorganization. Roan Inc is taxable as a corporation under the Internal Revenue Code of 1986, as amended, and as a result, will be subject to federal, state and local income taxes. Roan LLC was treated as a flow-through entity for income tax purposes. As a result, the net taxable income or loss of Roan LLC and any related tax credits, for federal income tax purposes, were deemed to pass to the members. Accordingly, no tax provision was made in the historical financial statements of Roan LLC since the income tax was an obligation of the members. The initial recording of the deferred tax liability has been reflected as a debit to equity in the accompanying unaudited pro forma condensed combined balance sheet, but has not been included in the accompanying unaudited pro forma condensed combined statement of operations due to itsnon-recurring nature. |
(b) | Adjustment to reflect income tax expense based on the projected effective tax rate of 25.7% to prospective periods. As there was no tax provision in the historical financial statements of Roan LLC, it was deemed appropriate to use the projected prospective effective tax rate at June 30, 2018 for purposes of calculating the income tax expense for the year ended December 31, 2017. As a result of the 2017 tax reform reconciliation act, the corporate tax rate decreased from 35% to 21% as of January 1, 2018. The pro forma tax expense reflected for December 31, 2017 is computed based on current law and does not reflect the actual tax rates in effect during that period. |
(c) | The pro forma weighted average number of shares outstanding reflects the weighted average number of shares of common stock we will have outstanding upon the completion of the Reorganization as if the Reorganization had occurred on January 1, 2017. |
(d) | Adjustment to recognize revenues and direct operating expenses of the Acquired Properties for the period from January 1, 2017 through August 31, 2017, the date of the Contribution. |
(e) | Adjustment to depreciation and depletion attributable to the Acquired Properties, using the unit of production, as if the Acquisition had taken place on January 1, 2017. |
(f) | Adjustment to recognize accretion of asset retirement obligation as if the Acquisition had taken place on January 1, 2017. |
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3. | Supplemental Pro Forma Combined Oil and Gas Reserve and Standardized Measure Information (Unaudited) |
The following unaudited supplemental pro forma oil and natural gas reserve tables present how the combined oil, natural gas and NGL reserves and standardized measure information of Roan LLC and the Acquired Properties may have appeared had the properties been acquired on January 1, 2017. The Supplemental Pro Forma Combined Reserve and Standardized Measure Information is for illustrative purposes only.
Estimated Pro Forma Combined Quantities of Proved Reserves
Roan LLC Historical | Acquired Properties (1) | Pro Forma Adjustments | Roan Inc Pro Forma Combined | |||||||||||||
Oil (mbbl) | ||||||||||||||||
Proved reserves at December 31, 2016 | 2,900 | 6,858 | — | 9,758 | ||||||||||||
Purchase of reserves | 9,843 | — | (9,843 | ) | — | |||||||||||
Extensions and discoveries | 30,554 | 3,225 | — | 33,779 | ||||||||||||
Revisions of previous estimates | (3,583 | ) | 255 | — | (3,328 | ) | ||||||||||
Production | (2,294 | ) | (495 | ) | — | (2,789 | ) | |||||||||
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Proved reserves at December 31, 2017 | 37,420 | 9,843 | (9,843 | ) | 37,420 | |||||||||||
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Natural gas (mmcf) | ||||||||||||||||
Proved reserves at December 31, 2016 | 39,831 | 122,836 | — | 162,667 | ||||||||||||
Purchase of reserves | 163,638 | — | (163,638 | ) | — | |||||||||||
Extensions and discoveries | 486,510 | 23,075 | — | 509,585 | ||||||||||||
Revisions of previous estimates | 20,844 | 25,233 | — | 46,077 | ||||||||||||
Production | (24,953 | ) | (7,506 | ) | — | (32,459 | ) | |||||||||
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Proved reserves at December 31, 2017 | 685,869 | 163,638 | (163,638 | ) | 685,869 | |||||||||||
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NGL (mbbl) | ||||||||||||||||
Proved reserves at December 31, 2016 | 3,519 | 13,975 | — | 17,494 | ||||||||||||
Purchase of reserves | 16,870 | — | (16,870 | ) | — | |||||||||||
Extensions and discoveries | 61,599 | 3,199 | — | 64,798 | ||||||||||||
Revisions of previous estimates | (260 | ) | 166 | — | (94 | ) | ||||||||||
Production | (2,150 | ) | (470 | ) | — | (2,620 | ) | |||||||||
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Proved reserves at December 31, 2017 | 79,578 | 16,870 | (16,870 | ) | 79,578 | |||||||||||
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Total (mboe) | ||||||||||||||||
Proved reserves at December 31, 2016 | 13,057 | 41,306 | — | 54,363 | ||||||||||||
Purchase of reserves | 53,986 | — | (53,986 | ) | — | |||||||||||
Extensions and discoveries | 173,238 | 10,270 | — | 183,508 | ||||||||||||
Revisions of previous estimates | (369 | ) | 4,626 | — | 4,257 | |||||||||||
Production | (8,603 | ) | (2,216 | ) | — | (10,819 | ) | |||||||||
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Proved reserves at December 31, 2017 | 231,309 | 53,986 | (53,986 | ) | 231,309 | |||||||||||
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(1) | Activity for the Acquired Properties reflects activity for the period January 1, 2017 through August 31, 2017, the date of Contribution. |
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Pro Forma Combined Standardized Measure of Discounted Future Net Cash Flows
Roan LLC Historical | Pro Forma Adjustments (1) | Roan Inc Pro Forma Combined | ||||||||||
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Future cash inflows from production | $ | 5,270,465 | $ | — | $ | 5,270,465 | ||||||
Future production costs | (1,664,724 | ) | — | (1,664,724 | ) | |||||||
Future development costs | (745,769 | ) | — | (745,769 | ) | |||||||
Future income tax expenses | — | (554,156 | ) | (554,156 | ) | |||||||
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Undiscounted future net cash flows | 2,859,972 | (554,156 | ) | 2,305,816 | ||||||||
10% annual discount | (1,664,303 | ) | 315,334 | (1,348,969 | ) | |||||||
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Standardized measure of discounted future net cash flows | $ | 1,195,669 | $ | (238,822 | ) | $ | 956,847 | |||||
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(1) | Pro forma adjustments represent effects of income tax on the undiscounted and discounted future net cash flows associated with Roan LLC Historical. |
Changes in the Pro Forma Combined Standardized Measure of Discounted Future Net Cash Flows
Year Ended December 31, 2017 | ||||||||||||||||
Roan LLC Historical | Acquired Properties (1) | Pro Forma Adjustments (2) | Roan Inc Pro Forma Combined | |||||||||||||
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Standardized measure at December 31, 2016 | $ | 118,272 | $ | 157,758 | $ | — | $ | 276,030 | ||||||||
Sales of oil, natural gas and NGLs produced, net of production costs | (124,526 | ) | (41,683 | ) | — | (166,209 | ) | |||||||||
Net changes in prices and production costs | 36,233 | 23,152 | — | 59,385 | ||||||||||||
Extensions and discoveries, net of production and development costs | 877,846 | 94,804 | — | 972,650 | ||||||||||||
Changes in estimated future development costs | (17,970 | ) | 2,324 | — | (15,646 | ) | ||||||||||
Development costs incurred during the period that reduce future costs | 148,505 | — | — | 148,505 | ||||||||||||
Revisions of previous quantity estimates | (5,676 | ) | 28,750 | — | 23,074 | |||||||||||
Purchases of reserves in place | 279,026 | — | (279,026 | ) | — | |||||||||||
Accretion of discount | 11,827 | 15,776 | — | 27,603 | ||||||||||||
Net change in income taxes | — | — | (238,822 | ) | (238,822 | ) | ||||||||||
Timing differences and other | (127,868 | ) | (1,855 | ) | — | (129,723 | ) | |||||||||
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Standardized measure at December 31, 2017 | $ | 1,195,669 | $ | 279,026 | $ | (517,848 | ) | $ | 956,847 | |||||||
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(1) | Activity for the Acquired Properties reflects activity for the period January 1, 2017 through August 31, 2017, the date of Contribution. |
(2) | Pro forma adjustments represent effects of reflecting the Acquired Properties as if the Acquisition occurred as of January 1, 2017 rather than on August 31, 2017 and including this activity in the Acquired Properties column. Additionally, the pro forma adjustments reflect the net change in income tax on the discounted future net cash flows based on Roan Inc being a taxable corporation. |
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