EX-99.3 3 a14-14407_1ex99d3.htm EX-99.3

Exhibit 99.3

 

STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES OF THE
ACQUIRED PROPERTIES

 

 

Page

Independent Auditors’ Report

2

Independent Auditors’ Review Report

4

Statements of Revenues and Direct Operating Expenses of the Acquired Properties

5

Notes to Statements of Revenues and Direct Operating Expenses of the Acquired Properties

9

 

1



 

INDEPENDENT AUDITORS’ REPORT

 

To the Board of Directors and Shareholders of Cubic Energy, Inc.

 

We have audited the accompanying financial statements which comprise the statements of revenues and direct operating expenses of certain oil and gas properties (collectively, the “Acquired Properties”) acquired by Cubic Energy, Inc. on October 2, 2013 from Gastar Exploration Texas, LP (“Gastar”), Navasota Resources LTD., LLP (“Navasota”) and Tauren Exploration, Inc. (“Tauren”), for the years ended December 31, 2012 and 2011.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of the Acquired Properties for the years ended December 31, 2012 and 2011 in accordance with accounting principles generally accepted in the United States of America.

 

2



 

Emphasis of Matter

 

The accompanying financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in the notes to the financial statements and are not intended to be a complete presentation of the Acquired Properties. Our opinion on the statements of revenues and direct operating expenses is not affected by this matter.

 

 

/s/ Philip Vogel & Co.

 

 

 

Dallas, Texas

 

December 18, 2013

 

 

3



 

INDEPENDENT AUDITORS’ REVIEW REPORT

 

To the Board of Directors and Shareholders of Cubic Energy, Inc.

 

We have reviewed the accompanying statements of revenues and direct operating expenses of certain oil and gas properties (the “Acquired Properties”) acquired by Cubic Energy, Inc. on October 2, 2013 from Gastar Exploration Texas, LP (“Gastar”), Navasota Resources LTD., LLP (“Navasota”) and Tauren Exploration, Inc. (“Tauren”), for the nine-month periods ended September 30, 2013 and 2012 (the “interim financial information”).

 

Management’s Responsibility for the Interim Financial Information

 

Management is responsible for the preparation and fair presentation of the interim financial information in accordance with accounting principles generally accepted in the United States of America; this responsibility includes the design, implementation, and maintenance of internal controls sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with the applicable financial reporting framework.

 

Auditor’s Responsibility

 

Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.

 

Conclusion

 

Based on our reviews, we are not aware of any material modifications that should be made to the interim financial information referred to above for it to be in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

 

The accompanying statements of revenues and direct operating expenses of the Acquired Properties were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in the notes to the financial statements and are not intended to be a complete presentation of the Acquired Properties.

 

 

/s/ Philip Vogel & Co.

 

 

 

Dallas, Texas

 

December 18, 2013

 

 

4



 

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

OF THE ACQUIRED PROPERTIES

 

 

 

Year Ended December 31, 2012

 

 

 

Gastar

 

Navasota

 

Tauren

 

Total

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

Natural gas

 

$

9,491,139

 

$

3,688,013

 

$

215,620

 

$

13,394,772

 

NGLs

 

 

 

73,277

 

73,277

 

Oil

 

1,631,883

 

741,950

 

74,950

 

2,448,783

 

Total revenues

 

11,123,022

 

4,429,963

 

363,847

 

15,916,832

 

 

 

 

 

 

 

 

 

 

 

DIRECT OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Production taxes

 

88,166

 

29,072

 

10,356

 

127,594

 

Lease operating costs

 

2,820,208

 

1,010,034

 

501,603

 

4,331,845

 

Transportation, marketing and other

 

1,721,120

 

1,034,161

 

35,544

 

2,790,825

 

Workover

 

830,540

 

92,089

 

1,245

 

923,874

 

Volume shortfall costs

 

1,991,132

 

 

 

1,991,132

 

Total direct operating expenses

 

7,451,166

 

2,165,356

 

548,748

 

10,165,270

 

 

 

 

 

 

 

 

 

 

 

Excess of revenues over direct operating expenses

 

$

3,671,856

 

$

2,264,607

 

$

(184,901

)

$

5,751,562

 

 

See accompanying notes to statements of revenues and direct operating expenses.

 

5



 

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

OF THE ACQUIRED PROPERTIES

 

 

 

Year Ended December 31, 2011

 

 

 

Gastar

 

Navasota

 

Tauren

 

Total

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

Natural gas

 

$

19,318,608

 

$

7,668,381

 

$

411,755

 

$

27,398,744

 

NGLs

 

 

 

94,926

 

94,926

 

Oil

 

2,599,751

 

39,873

 

61,374

 

2,700,998

 

Total revenues

 

21,918,359

 

7,708,254

 

568,055

 

30,194,668

 

 

 

 

 

 

 

 

 

 

 

DIRECT OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Production taxes

 

124,841

 

(35,356

)

9,021

 

98,506

 

Lease operating costs

 

3,386,111

 

818,139

 

386,382

 

4,590,632

 

Transportation, marketing and other

 

2,421,443

 

981,465

 

61,818

 

3,464,726

 

Workover

 

2,037,378

 

727,688

 

21,384

 

2,786,450

 

Volume shortfall costs

 

1,514,981

 

 

 

1,514,981

 

Total direct operating expenses

 

9,484,754

 

2,491,936

 

478,605

 

12,455,295

 

 

 

 

 

 

 

 

 

 

 

Excess of revenues over direct operating expenses

 

$

12,433,605

 

$

5,216,318

 

$

89,450

 

$

17,739,373

 

 

See accompanying notes to statements of revenues and direct operating expenses.

 

6



 

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

OF THE ACQUIRED PROPERTIES

 

 

 

(Unaudited)

 

 

 

For the Nine Months Ended September 30, 2013

 

 

 

Gastar

 

Navasota

 

Tauren

 

Total

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

Natural gas

 

$

7,518,597

 

$

2,942,810

 

$

225,108

 

$

10,686,515

 

NGLs

 

 

 

93,918

 

93,918

 

Oil

 

985,035

 

706,477

 

38,312

 

1,729,824

 

Total revenues

 

8,503,632

 

3,649,287

 

357,338

 

12,510,257

 

 

 

 

 

 

 

 

 

 

 

DIRECT OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Production taxes

 

54,127

 

33,315

 

1,788

 

89,230

 

Lease operating costs

 

1,708,404

 

639,073

 

249,514

 

2,596,991

 

Transportation, marketing and other

 

953,754

 

728,809

 

33,156

 

1,715,719

 

Workover

 

202,221

 

 

1,117

 

203,338

 

Volume shortfall costs

 

1,846,710

 

 

 

1,846,710

 

Total direct operating expenses

 

4,765,216

 

1,401,197

 

285,575

 

6,451,988

 

 

 

 

 

 

 

 

 

 

 

Excess of revenues over direct operating expenses

 

$

3,738,416

 

$

2,248,090

 

$

71,763

 

$

6,058,269

 

 

See accompanying notes to statements of revenues and direct operating expenses.

 

7



 

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

OF THE ACQUIRED PROPERTIES

 

 

 

(Unaudited)

 

 

 

For the Nine Months Ended September 30, 2012

 

 

 

Gastar

 

Navasota

 

Tauren

 

Total

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

Natural gas

 

$

6,630,632

 

$

2,558,094

 

$

156,779

 

$

9,345,505

 

NGLs

 

 

 

55,613

 

55,613

 

Oil

 

1,328,701

 

540,125

 

60,592

 

1,929,418

 

Total revenues

 

7,959,333

 

3,098,219

 

272,984

 

11,330,536

 

 

 

 

 

 

 

 

 

 

 

DIRECT OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Production taxes

 

70,305

 

19,144

 

8,361

 

97,810

 

Lease operating costs

 

1,801,691

 

631,857

 

358,533

 

2,792,081

 

Transportation, marketing and other

 

1,321,920

 

771,857

 

25,730

 

2,119,507

 

Workover

 

583,912

 

92,089

 

1,245

 

677,246

 

Volume shortfall costs

 

1,457,623

 

 

 

1,457,623

 

Total direct operating expenses

 

5,235,451

 

1,514,947

 

393,869

 

7,144,267

 

 

 

 

 

 

 

 

 

 

 

Excess of revenues over direct operating expenses

 

$

2,723,882

 

$

1,583,272

 

$

(120,885

)

$

4,186,269

 

 

See accompanying notes to statements of revenues and direct operating expenses.

 

8



 

ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

 

(1) Basis of Presentation

 

The accompanying financial statements present the revenues and direct operating expenses of the oil and natural gas properties that were acquired pursuant to Purchase and Sale Agreements between the Company and (a) Gastar Exploration Texas, LP (“Gastar”) dated April 19, 2013, (b) Navasota Resources LTD., LLP (“Navasota”) dated September 27, 2013 and (c) Tauren Exploration, Inc. (“Tauren”) dated October 2, 2013, for the years ended December 31, 2012 and 2011 and the (unaudited) nine-months ended September 30, 2013 and 2012. The foregoing properties are referred to herein, collectively, as the “Acquired Properties.” The acquisitions of the Acquired Properties closed on October 2, 2013. The Company paid total cash at closing of approximately $62.5 million.

 

The accompanying statements of revenues and direct operating expenses of the Acquired Properties do not include indirect general and administrative expenses, interest expense, depreciation, depletion and amortization, or any provision for income taxes. The Company’s management believes historical expenses of this nature incurred by Gastar, Navasota and Tauren associated with the properties are not indicative of the costs to be incurred by the Company.

 

Revenues in the accompanying statements of revenues and direct operating expenses are recognized based on the Acquired Properties’ share of any given period’s production volumes and revenues received for the period. The direct operating expenses are recognized based on the Acquired Properties’ share of direct costs including production taxes, lifting costs, gathering, well repair and well workover costs. Direct costs do not include general corporate overhead.

 

Historical financial information reflecting financial position, results of operations, and cash flows of the Acquired Properties is not presented because it would be impractical and costly to obtain since such financial information was not historically prepared by Gastar, Navasota and Tauren. In addition, the Acquired Properties were part of larger enterprises prior to the acquisition by the Company, and representative amounts of indirect general and administrative expenses, depreciation, depletion and amortization, interest and other indirect costs were not necessarily allocated to the Acquired Properties, nor would such allocated historical costs be relevant to future operations of the Acquired Properties. Accordingly, the historical statements of revenues and direct operating expenses of the Acquired Properties are not indicative of the financial conditions or results of operations going forward. The historical statements of revenues and direct operating expenses of Gastar, Navasota and Tauren’s interest in the Acquired Properties are presented in order to substantially comply with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for businesses acquired.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

9



 

(2)              Business Combination

 

Pursuant to the Purchase and Sale Agreements, the Company acquired approximately 29,400 net acres of Texas and Louisiana oil and gas leasehold interests from Gastar, Navasota and Tauren, including production from interests in 74 producing wells located in Texas and Louisiana, for total cash paid at closing of approximately of $62.5 million, prior to customary post-closing adjustments.

 

(3)              Subsequent Events

 

In accordance with Accounting Standards Codification 865, the Company has evaluated subsequent events through December 18, 2013, the date the accompanying statements of revenue and direct operating expenses were available to be issued. There were no material subsequent events that required recognition or additional disclosure in the accompanying statement of revenue and direct operating expenses.

 

(4)              Supplemental Financial Information for Natural Gas and Oil Producing Activities (Unaudited)

 

Within the Company’s Lease operating costs as part of transportation and marketing expenses, volume shortfall costs were created as part of a transaction monetizing mid-stream assets. Gastar entered into a transportation agreement with its East Texas mid-stream natural gas gathering system purchaser, requiring a certain minimum quarterly volume of natural gas production. This agreement requires Gastar to make payments for the natural gas volume shortfalls for any quarter through the autumn of 2014. Volume shortfalls required Gastar to make quarterly payments, in excess of normal transportation and marketing costs. Due to the significant change this created in monthly lease operating expenses, it has been presented separately.

 

The following reserve estimates as of June 30, 2012 for the properties acquired from Gastar were prepared by the Company. In preparing these reserve estimates, the Company used data previously prepared by a third party reservoir engineering firm as of December 31, 2012 and 2011, which data was provided to us by Gastar. The Company’s reserve estimates as of June 30, 2012 also utilized subsequent production, extension and discovery information available to it. The Company did not receive SEC reserve reports from Navasota or Tauren, as they are private entities and are not required to obtain such reports. The Company’s reserve estimates were prepared in compliance with the SEC rules and accounting standards based on the 12-month unweighted arithmetic average of the first-day-of-the-month prices as of December 31, 2012 and 2011 with appropriate adjustments by property for location, quality, gathering and marketing adjustments.

 

(a) Reserve Quantity Information

 

Proved reserves are estimated quantities of natural gas, crude oil and NGLs which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. Below are the net quantities of total proved reserves and proved developed reserves of the Acquired Properties. An analysis of the change in estimated quantities of reserves, all of which are located within the United States, is presented below.

 

The properties acquired from Navasota generally consist of additional percentage interests in the same oil and gas properties acquired from Gastar. Therefore, we estimated the proved reserves attributable to the properties acquired

 

10



 

from Navasota as of December 31, 2012 based on the data previously prepared by a third party reservoir engineering firm as of December 31, 2012 and 2011, which data was provided to us by Gastar, but giving effect to the increased percentage interests. In order to provide reserve estimates as of June 30, 2013, the end of our latest fiscal year, we subtracted actual production from these properties for the period from January 1, 2013 through June 30, 2013 from that combined estimate as of December 31, 2012.

 

The properties acquired from Tauren generally consist of additional percentage interests in the same oil and gas properties previously held by us. Therefore, we estimated the proved reserves attributable to the properties acquired from Tauren as of June 30, 2013 based on the reserve report previously obtained by us covering those properties, but giving effect to the increased percentage interests.

 

 

 

Natural Gas

 

Condensate and Oil

 

NGLs

 

Mcf (1)

 

 

 

(Mcf) (1)

 

(Bbls) (2)

 

(Bbls)

 

Equivalents

 

Change in Proved Reserves

 

 

 

 

 

 

 

 

 

Proved developed and undeveloped reserves:

 

 

 

 

 

 

 

 

 

Gastar (3)

 

34,212,204

 

6,705

 

 

34,252,434

 

Navasota (3)

 

13,538,382

 

58

 

 

13,538,730

 

Tauren

 

20,212,873

 

445,590

 

1,367,948

 

31,094,052

 

Proved reserves as of December 31, 2011

 

67,963,459

 

452,353

 

1,367,948

 

78,885,216

 

Gastar

 

(2,082,974

)

19,477

 

 

(1,966,112

)

Navasota

 

707,851

 

16,430

 

 

806,431

 

Tauren

 

(10,699,283

)

(477,439

)

(1,030,756

)

(19,748,354

)

Revisions of previous estimates

 

(12,074,406

)

(441,532

)

(1,030,756

)

(20,908,035

)

Purchases of reserves in place

 

 

 

 

 

Gastar

 

 

6,896

 

 

41,376

 

Navasota

 

 

6,194

 

 

37,164

 

Tauren

 

20,147,898

 

444,626

 

1,367,149

 

31,018,498

 

Extensions and discoveries

 

20,147,898

 

457,716

 

1,367,149

 

31,097,038

 

Gastar

 

(4,773,567

)

(17,502

)

 

(4,878,579

)

Navasota

 

(1,746,559

)

(7,661

)

 

(1,792,525

)

Tauren

 

(75,000

)

(817

)

(1,240

)

(87,342

)

Production

 

(6,595,126

)

(25,980

)

(1,240

)

(6,758,446

)

Disposals of reserves in place

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved reserves as of December 31, 2012

 

69,441,825

 

442,557

 

1,703,101

 

82,315,773

 

 

11



 

 

 

Natural Gas

 

Condensate and Oil

 

NGLs

 

Mcf (1)

 

 

 

(Mcf) (1)

 

(Bbls) (2)

 

(Bbls) (2)

 

Equivalents

 

Change in Proved Reserves

 

 

 

 

 

 

 

 

 

Proved developed and undeveloped reserves:

 

 

 

 

 

 

 

 

 

Gastar (3)

 

27,355,663

 

15,576

 

 

27,449,119

 

Navasota (3)

 

12,499,674

 

15,021

 

 

12,589,800

 

Tauren

 

29,586,488

 

411,960

 

1,703,101

 

42,276,854

 

Proved reserves as of December 31, 2012

 

69,441,825

 

442,557

 

1,703,101

 

82,315,773

 

Gastar

 

 

 

 

 

Navasota

 

 

 

 

 

Tauren

 

 

 

 

 

Revisions of previous estimates

 

 

 

 

 

Purchases of reserves in place

 

 

 

 

 

Extensions and discoveries

 

 

 

 

 

Gastar

 

(1,809,528

)

(6,897

)

 

(1,850,910

)

Navasota

 

(662,773

)

(4,382

)

 

(689,065

)

Tauren

 

(47,729

)

(289

)

(2,139

)

(62,296

)

Production

 

(2,520,030

)

(11,568

)

(2,139

)

(2,602,271

)

Disposals of reserves in place

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved reserves as of June 30, 2013

 

66,921,795

 

430,989

 

1,700,962

 

79,713,502

 

 

 

 

Natural Gas

 

Condensate and Oil

 

NGLs

 

Mcf (1)

 

 

 

(Mcf) (1)

 

(Bbls) (2)

 

(Bbls)

 

Equivalents

 

Proved Developed and Undeveloped Reserves

 

 

 

 

 

 

 

 

 

as of December 31, 2012

 

 

 

 

 

 

 

 

 

Gastar (3)

 

21,109,124

 

15,576

 

 

21,202,580

 

Navasota (3)

 

9,942,029

 

15,021

 

 

10,032,155

 

Tauren

 

379,482

 

2,662

 

14,373

 

481,693

 

Proved Producing

 

31,430,635

 

33,259

 

14,373

 

31,716,428

 

Gastar

 

6,246,539

 

 

 

6,246,539

 

Navasota

 

2,557,645

 

 

 

2,557,645

 

Tauren

 

 

 

 

 

Proved Non-Producing

 

8,804,184

 

 

 

8,804,184

 

Proved Developed Reserves

 

40,234,819

 

33,259

 

14,373

 

40,520,612

 

Gastar

 

 

 

 

 

Navasota

 

 

 

 

 

Tauren

 

29,207,006

 

409,298

 

1,688,728

 

41,795,161

 

Proved Undeveloped

 

29,207,006

 

409,298

 

1,688,728

 

41,795,161

 

 

 

 

 

 

 

 

 

 

 

Total Proved Reserves

 

69,441,825

 

442,557

 

1,703,101

 

82,315,773

 

 

12



 

 

 

Natural Gas

 

Condensate and Oil

 

NGLs

 

Mcf (1)

 

 

 

(Mcf) (1)

 

(Bbls) (2)

 

(Bbls) (2)

 

Equivalents

 

Proved Developed and Undeveloped Reserves

 

 

 

 

 

 

 

 

 

as of June 30, 2013

 

 

 

 

 

 

 

 

 

Gastar (3)

 

19,299,596

 

8,679

 

 

19,351,670

 

Navasota (3)

 

9,279,256

 

10,639

 

 

9,343,090

 

Tauren

 

331,753

 

2,373

 

12,234

 

419,397

 

Proved Producing

 

28,910,605

 

21,691

 

12,234

 

29,114,157

 

Gastar

 

6,246,539

 

 

 

6,246,539

 

Navasota

 

2,557,645

 

 

 

2,557,645

 

Tauren

 

 

 

 

 

Proved Non-Producing

 

8,804,184

 

 

 

8,804,184

 

Proved Developed Reserves

 

37,714,789

 

21,691

 

12,234

 

37,918,341

 

Gastar

 

 

 

 

 

Navasota

 

 

 

 

 

Tauren

 

29,207,006

 

409,298

 

1,688,728

 

41,795,161

 

Proved Undeveloped

 

29,207,006

 

409,298

 

1,688,728

 

41,795,161

 

 

 

 

 

 

 

 

 

 

 

Total Proved Reserves

 

66,921,795

 

430,989

 

1,700,962

 

79,713,502

 

 


(1)                                 Thousand cubic feet or thousand cubic feet equivalent, as applicable

 

(2)                                 Barrels

 

(3)                                 The Company’s reserve estimates as of June 30, 2013 also utilized subsequent production, extension and discovery information available to it.

 

(b) Standardized Measure of Discounted Future Net Cash Flows Relating to Oil and Natural Gas Reserves

 

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves (“Standardized Measure”) is a disclosure requirement under Accounting Standards Codification 932-235. The Standardized Measure does not purport to be, nor should it be interpreted to present, the fair value of the proved oil and natural gas reserves of the Acquired Properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties and consideration of expected future economic and operating conditions. The estimates of future cash flows and future production and development costs are based on the 12-month unweighted first-day-of-the-month average prices as of December 31, 2012 and 2011 for natural gas, NGLs and condensate and oil, estimated future production of proved reserves and estimated future production and development costs of proved reserves, based on current costs and economic conditions. The estimated future net cash flows are then discounted at a rate of 10%. No deduction has been made for general and administrative expenses, interest expense, depreciation, depletion and amortization or federal or state income taxes.

 

The Standardized Measure relating to proved natural gas, NGLs and condensate and oil reserves are presented below:

 

13



 

 

 

Total

 

Gastar

 

Navasota

 

Tauren

 

Balances at December 31, 2012

 

 

 

 

 

 

 

 

 

Future cash flows

 

316,679,450

 

54,102,200

 

25,418,800

 

237,158,450

 

Future production costs

 

(57,841,338

)

(24,553,300

)

(9,396,200

)

(23,891,838

)

Future development costs

 

(126,019,462

)

(7,662,000

)

(2,347,900

)

(116,009,562

)

Future severance tax expense

 

(17,766,278

)

(3,332,400

)

(1,568,600

)

(12,865,278

)

Future income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future net cash flows

 

115,052,372

 

18,554,500

 

12,106,100

 

84,391,772

 

 

 

 

 

 

 

 

 

 

 

Ten percent annual discount for estimated timing of net cash flows

 

(57,310,319

)

(5,768,600

)

(2,335,100

)

(49,206,619

)

 

 

 

 

 

 

 

 

 

 

Standardized measure of discounted future net cash flows

 

57,742,053

 

12,785,900

 

9,771,000

 

35,185,153

 

 

 

 

Total

 

Gastar

 

Navasota

 

Tauren

 

Balances as June 30, 2013

 

 

 

 

 

 

 

 

 

Future cash flows

 

308,004,032

 

48,195,800

 

22,942,162

 

236,866,070

 

Future production costs

 

(53,392,834

)

(21,278,900

)

(8,423,957

)

(23,689,977

)

Future development costs

 

(126,019,462

)

(7,662,000

)

(2,347,900

)

(116,009,562

)

Future severance tax expense

 

(17,707,336

)

(3,295,100

)

(1,547,589

)

(12,864,647

)

Future income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future net cash flows

 

110,884,400

 

15,959,800

 

10,622,716

 

84,301,884

 

 

 

 

 

 

 

 

 

 

 

Ten percent annual discount for estimated timing of net cash flows

 

(57,004,435

)

(5,574,000

)

(2,223,816

)

(49,206,619

)

 

 

 

 

 

 

 

 

 

 

Standardized measure of discounted future net cash flows

 

53,879,965

 

10,385,800

 

8,398,900

 

35,095,265

 

 

For the year ended December 31, 2012 and 2011 future cash inflows were computed using the 12-month unweighted arithmetic average of the first-day-of-the-month prices for natural gas, NGLs and condensate and oil, adjusted by lease in accordance with sales contracts and for energy content, quality, transportation, compression and gathering fees and regional price differentials. For the period indicated, the following natural gas, NGLs and condensate and oil prices were used in the calculations:

 

14



 

 

 

For the Year Ended 
June 30, 2013

 

For the Year Ended 
December 31, 2012

 

For the Year Ended 
June 30, 2012

 

 

 

 

 

 

 

 

 

Natural gas, per Mcf

 

 

 

 

 

 

 

Henry Hub

 

$

3.62

 

$

2.67

 

$

3.25

 

Oil, per barrel

 

 

 

 

 

 

 

WTI spot

 

$

85.13

 

$

85.25

 

$

96.59

 

NGLs, per barrel

 

$

54.99

 

$

54.93

 

$

47.46

 

 

These prices are held constant in accordance with SEC guidelines for the life of the wells included in the Company’s estimates but are adjusted by lease in accordance with sales contracts and for energy content, quality, transportation, compression and gathering fees and regional price differentials.

 

Changes in Standardized Measure of Discounted Future Net Cash Flows

 

The principal sources of changes in the standardized measure of future net cash flows are as follows:

 

15



 

Changes in estimated standardized measure

 

 

 

Total

 

Gastar

 

Navasota

 

Tauren

 

Balances at December 31, 2011

 

 

 

 

 

 

 

 

 

Sale of oil and gas produced

 

(5,751,562

)

(3,671,856

)

(2,264,607

)

184,901

 

Net changes in prices and production costs

 

(33,913,080

)

(26,482,310

)

(9,602,344

)

2,171,574

 

Extensions and discoveries

 

0

 

0

 

0

 

0

 

Revision of previous quantity estimates

 

20,149,330

 

(1,251,912

)

638,946

 

20,762,296

 

Accretion of discount

 

8,645,424

 

4,248,620

 

1,854,460

 

2,542,344

 

Net change in income taxes

 

0

 

0

 

0

 

0

 

Purchases of reserves in place

 

0

 

0

 

0

 

0

 

Disposition of reserves in place

 

0

 

0

 

0

 

0

 

Development costs incurred that reduced future development costs

 

0

 

0

 

0

 

0

 

Changes in future development costs

 

24,216,060

 

(267,135

)

87,947

 

24,395,248

 

Changes in timing and other changes

 

(42,058,356

)

(2,275,707

)

511,998

 

(40,294,647

)

 

 

 

 

 

 

 

 

 

 

Change in standardized measure

 

(28,712,184

)

(29,700,300

)

(8,773,600

)

9,761,716

 

 

 

 

 

 

 

 

 

 

 

Balances at beginning of year

 

86,454,237

 

42,486,200

 

18,544,600

 

25,423,437

 

 

 

 

 

 

 

 

 

 

 

Balances at year end December 31, 2012

 

57,742,053

 

12,785,900

 

9,771,000

 

35,185,153

 

 

Changes in estimated standardized measure

 

 

 

Total

 

Gastar

 

Navasota

 

Tauren

 

Balances as of December 31, 2012

 

 

 

 

 

 

 

 

 

Sale of oil and gas produced

 

(4,168,030

)

(2,594,758

)

(1,483,384

)

(89,888

)

Net changes in prices and production costs

 

 

 

 

 

Extensions and discoveries

 

 

 

 

 

Revision of previous quantity estimates

 

 

 

 

 

Accretion of discount

 

386,209

 

240,010

 

137,210

 

8,989

 

Net change in income taxes

 

 

 

 

 

Purchases of reserves in place

 

 

 

 

 

Disposition of reserves in place

 

 

 

 

 

Development costs incurred that reduced future development costs

 

 

 

 

 

Changes in future development costs

 

 

 

 

 

Changes in timing and other changes

 

(80,267

)

(45,352

)

(25,926

)

(8,989

)

 

 

 

 

 

 

 

 

 

 

Change in standardized measure

 

(3,862,088

)

(2,400,100

)

(1,372,100

)

(89,888

)

 

 

 

 

 

 

 

 

 

 

Balances at beginning of year

 

57,742,053

 

12,785,900

 

9,771,000

 

35,185,153

 

 

 

 

 

 

 

 

 

 

 

Balances as of June 30, 2013

 

53,879,965

 

10,385,800

 

8,398,900

 

35,095,265

 

 

Estimates of economically recoverable oil and natural gas reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree speculative and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations, reservoir behavior, equipment condition and other matters. Actual quantities of oil and natural gas produced in the future may differ materially from the amounts estimated.

 

16