EX-99.2 4 tm248757d2_ex99-2.htm EXHIBIT 99.2

 

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

The unaudited pro forma condensed combined financial information and related footnotes (the “Pro Forma Financial Statements”) have been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, which is herein referred to as Article 11. The Pro Forma Financial Statements of Civitas Resources, Inc., a Delaware corporation (“Civitas” or the “Company”) present the combination of the financial information and the pro forma effect with respect to the following transactions (collectively, the “Transactions”), further details of which are included within the footnotes to the Pro Forma Financial Statements.

 

·On August 2, 2023, the Company completed the acquisition of Hibernia Energy III, LLC (“HE3”) and Hibernia Energy III-B, LLC (“HE3-B” and, together with HE3, “Hibernia” and such acquisition, the “Hibernia Acquisition”) for aggregate consideration of $2.2 billion in cash, inclusive of customary post-closing adjustments.

 

·On August 2, 2023, the Company completed the purchase of all of the issued and outstanding equity ownership interests of Tap Rock AcquisitionCo, LLC (“Tap Rock AcquisitionCo”), Tap Rock Resources II, LLC (“Tap Rock Resources II”), and Tap Rock NM10 Holdings, LLC (“Tap Rock NM10 Holdings” and, together with Tap Rock Resources II and Tap Rock NM10 Holdings, “Tap Rock” and such acquisition, the “Tap Rock Acquisition”) for aggregate consideration of approximately $2.5 billion, inclusive of customary post-closing adjustments.

 

·On January 2, 2024, the Company completed the acquisition (the “Vencer Acquisition”) of certain oil and gas properties, interests, and related assets from Vencer Energy, LLC (“Vencer”) for adjusted aggregate consideration of approximately $2.0 billion, which was comprised of (i) $1.0 billion in cash, (ii) 7,181,527 shares of common stock, par value $0.01 per share, valued at approximately $500.0 million, and (iii) $550.0 million in cash to be paid on or before January 3, 2025.

 

The Pro Forma Financial Statements of Civitas present the combination of the financial information and the pro forma effects with respect to the Transactions, further details of which are included within the notes to the Pro Forma Financial Statements. The Pro Forma Financial Statements have been prepared from the respective historical consolidated financial statements of Civitas, Hibernia, Tap Rock, and Vencer, adjusted to give effect to the Transactions and exclude historical financial data from the HE3-B historical financial statements.

 

The unaudited pro forma condensed combined balance sheet (the “Pro Forma Balance Sheet”) combines the historical condensed consolidated balance sheets of Civitas and Vencer as of December 31, 2023, giving effect to the Transactions as if they had been consummated on December 31, 2023. The unaudited pro forma condensed combined statement of operations (the “Pro Forma Statement of Operations”) for the year ended December 31, 2023, combines the historical condensed consolidated statements of operations of Civitas, Vencer, Tap Rock (through the acquisition date) and Hibernia (through the acquisition date), giving effect to the Transactions as if they had been consummated on January 1, 2023. The Pro Forma Financial Statements contain certain reclassification adjustments to conform the historical Hibernia, Tap Rock, and Vencer financial statement presentations to Civitas’ financial statement presentation.

 

The Pro Forma Financial Statements are presented to reflect the Transactions and do not represent what Civitas’ results of operations would have been had the Transactions occurred on the dates noted above, nor do they project the results of operations of the combined company following the effective dates. The Pro Forma Financial Statements are intended to provide information about the continuing impact of the Transactions as if they had been consummated earlier. The transaction accounting adjustments are based on information and certain estimates and assumptions that management believes are reasonable based on currently available information. In the opinion of management, all adjustments necessary to present fairly the Pro Forma Financial Statements have been made.

 

1 

 

 

The Transactions have been accounted for using the acquisition method of accounting, with Civitas identified as the acquirer. The acquisition method of accounting requires fair values to be estimated and determined for the consideration transferred, as well as the assets acquired and liabilities assumed by Civitas. As of the date of this filing, the determination of these fair value estimates are still preliminary as Civitas continues to complete the detailed valuation analysis to arrive at the required final valuations, which will be completed as soon as practicable, and will not extend beyond the one-year measurement period from the close of the Transactions provided under Accounting Standards Codification 805, Business Combinations (“ASC 805”). Any increases or decreases in the fair values of assets acquired and liabilities assumed upon completion of the final valuation analysis may be materially different from the information reflected in the Pro Forma Financial Statements herein. The Pro Forma Financial Statement should be read in conjunction with:

 

·the audited consolidated financial statements contained in Civitas’ Annual Report on Form 10-K as of and for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 27, 2024;

 

·the audited financial statements of Vencer as of and for the period ended December 31, 2023, which are included elsewhere in this filing;

 

·the unaudited consolidated financial statements and notes of HE3 as of and for the six months ended June 30, 2023, filed with the Securities and Exchange Commission on September 29, 2023;

 

·the unaudited consolidated financial statements of Tap Rock AcquisitionCo as of and for the six months ended June 30, 2023, filed with the Securities and Exchange Commission on September 29, 2023; and

 

·the unaudited consolidated financial statements and notes of Tap Rock Resources II as of and for the six months ended June 30, 2023, filed with the Securities and Exchange Commission on September 29, 2023.

 

2 

 

 

CIVITAS RESOURCES, INC. AND SUBSIDIARIES 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET 

As of December 31, 2023 

(in thousands)

 

   Civitas Historical  Vencer Historical  Vencer Reclassification
Adjustments (Note 2)		  Vencer Transaction
Accounting Adjustments
(Note 3)		     Civitas Pro Forma
Combined		 
                    
   (in thousands, except per share amounts) 
ASSETS                        
Current assets:                        
Cash and cash equivalents  $1,124,797  $31,166  $-  $(868,002)  (a) (c)  $287,961 
Accounts receivable, net:                        
Crude oil and natural gas sales   505,961   -   71,687   (71,687)  (c)   505,961 
Joint interest and other   247,228   -   6,525   (6,525)  (c)   247,228 
Accounts receivable, net   -   78,212   (78,212)  -      - 
Derivative assets   35,192   -   -   -      35,192 
Prepaid income taxes   9,552   -   -   -      9,552 
Deposits for acquisitions   163,164   -   -   (163,164)  (b)   - 
Prepaid expenses and other   58,518   569   -   (569)  (c)   58,518 
Total current assets   2,144,412   109,947   -   (1,109,947)     1,144,412 
Property and equipment (successful efforts method):                        
Proved properties   12,738,568   -   2,169,472   (321,352)  (c) (d) (h)   14,586,688 
Less: accumulated depreciation, depletion, and amortization   (2,339,541)  -   (239,965)  239,965   (d)   (2,339,541)
Total proved properties, net   10,399,027   -   1,929,507   (81,387)     12,247,147 
Oil and natural gas properties, successful efforts method   -   2,169,472   (2,169,472)  -        
Unproved properties   821,939   -   -   231,150   (d)   1,053,089 
Wells in progress   536,858   -   -   -      536,858 
Other property and equipment, net   62,392   -   1,291   (462)  (c)   63,221 
Other PP&E   -   1,757   (1,757)  -      - 
Accumulated depreciation, depletion, and amortization   -   (240,431)  240,431   -      - 
Total property and equipment, net   11,820,216   1,930,798   -   149,301      13,900,315 
Derivative assets   8,233   -   -   -      8,233 
Right-of-use assets   94,606   -   11,306   -      105,912 
Operating lease - ROU asset   -   11,306   (11,306)  -      - 
Other noncurrent assets   29,852   -   66   (66)  (c)   29,852 
Other long-term assets   -   66   (66)  -      - 
Total assets  $14,097,319  $2,052,117  $-  $(960,712)    $15,188,724 
                         
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities:                        
Accounts payable and accrued expenses  $565,708  $-  $69,417  $(57,222) (c) (e)  $577,903 
Accounts payable   -   16,358   (16,358)  -      - 
Production taxes payable   421,045   -   -   -      421,045 
Crude oil and natural gas revenue distribution payable   766,123   -   28,956   (3,276)  (c)   791,803 
Revenues payable   -   28,956   (28,956)  -      - 
Accrued liabilities   -   53,059   (53,059)  -      - 
Derivative liability   18,096   -   28,644   (28,644)  (c)   18,096 
Asset retirement obligations   31,116   -   -   -      31,116 
Lease liability   45,298   -   8,616   -      53,914 
Operating lease liability - current   -   8,616   (8,616)  -      - 
Deferred revenue   4,501   -   -   -      4,501 
Short-term derivative instruments   -   28,644   (28,644)  -      - 
Total current liabilities   1,851,887   135,633   -   (89,142)     1,898,378 
Long-term liabilities:                        
Senior notes, net   4,035,732   -   -   -      4,035,732 
Credit facility   750,000   -   -   -      750,000 
Ad valorem taxes   313,753   -   -   -      313,753 
Derivative liability   -   -   2,832   (2,832)  (c)   - 
Deferred income tax liabilities, net   564,781   -   -   (22,272)  (f)   542,509 
Asset retirement obligations   305,716   44,146   -   -      349,862 
Lease liability   50,240   -   2,857   -      53,097 
Operating lease liability - long term   -   2,857   (2,857)  -      - 
Long-term derivative instruments   -   2,832   (2,832)  -      - 
Deferred consideration   -   -   -   513,123   (a)   513,123 
Deferred revenue   43,889   -   -   -      43,889 
Total liabilities   7,915,998   185,468   -   398,877      8,500,343 
                         
Commitments and contingencies (Note 6)                        
                         
Stockholders’ equity:                        
Preferred stock, $.01 par value   -   -   -   -      - 
Common stock, $.01 par value   5,004   -   -   72   (g)   5,076 
Equity   -   1,184,852   -   (1,184,852)  (h)   - 
Additional paid-in capital   4,964,450   -   -   496,962   (g)   5,461,412 
Retained earnings   1,211,867   681,797   -   (671,771)  (e) (f) (h)   1,221,893 
Total stockholders’ equity   6,181,321   1,866,649   -   (1,359,589)     6,688,381 
Total liabilities and stockholders’ equity  $14,097,319  $2,052,117  $-  $(960,712)    $15,188,724 

 

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Statement”

 

3 

 

 

CIVITAS RESOURCES, INC. AND SUBSIDIARIES 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS 

Year Ended December 31, 2023 

(in thousands, except per share data)

 

   Civitas Historical  Hibernia
Historical		  Hibernia
Reclassification
Adjustments (Note 2)		  Hibernia Transaction
Accounting
Adjustments (Note 3)		  Civitas Pro Forma
Combined (Excluding
Tap Rock and Vencer)		 
Operating net revenues:                     
Crude oil, natural gas, and NGL sales  $3,479,240  $-  $402,640  $-   3,881,880 
Oil   -   354,729   (354,729)  -   - 
Natural gas   -   18,407   (18,407)  -   - 
Natural gas liquids   -   51,997   (51,997)  -   - 
Realized gain on commodity derivatives   -   23,725   (23,725)  -   - 
Other   -   -   -   -   - 
Operating expenses:                     
Lease operating expense   301,288   32,230   2,075   -   335,593 
Midstream operating expense   45,080   -   -   -   45,080 
Gathering, transportation, and processing   290,645   -   -   -   290,645 
Production taxes, transportation, processing and gathering   -   -   -   -   - 
Workover   -   2,075   (2,075)  -   - 
Severance and ad valorem taxes   276,535   -   23,897   -   300,432 
Production, ad valorem and severance tax   -   23,897   (23,897)  -   - 
Production taxes   -   -   -   -   - 
Taxes other than income   -   -   -   -   - 
Revenue deductions   -   22,493   (22,493)  -   - 
Exploration   2,178   -   -   -   2,178 
Depreciation, depletion, and amortization   1,171,192   91,092   -   1,483(a)  1,263,767 
Transaction costs   84,328   -   -   -   84,328 
General and administrative expense   161,077   6,571   226   -   167,874 
Accretion of asset retirement obligations   -   -   -   -   - 
(Gain) loss on commodity derivative instruments   -   -   -   -   - 
Other operating expense   7,437   -   -   -   7,437 
Equity compensation expense   -   226   (226)  -   - 
Total operating expenses   2,339,760   178,584   (22,493)  1,483   2,497,334 
Other income (expense):                     
Derivative gain (loss), net   9,307   -   53,225   (53,225)(b)  9,307 
Interest expense   (182,740)  (18,037)  -   (66,977)(c)  (267,754)
Gain (loss) on property transactions, net   (254)  9   -   232(d)  (13)
Other income (expense)   33,661   76   -   -   33,737 
Unrealized gain on commodity derivatives   -   29,500   (29,500)  -   - 
Total other income (expense)   (140,026)  11,548   23,725   (119,970)  (224,723)
Income from operations before income taxes   999,454   281,822   -   (121,453)  1,159,823 
Income tax expense   (215,166)  (1,729)  -   (58,737)(e)  (275,632)
Net income (loss)  $784,288  $280,093  $-  $(180,190) $884,191 
Net income (loss) attributable to non-controlling interest   -   -   -   -   - 
Net income (loss) attributable to controlling interest  $784,288  $280,093  $-  $(180,190) $884,191 
                      
Earnings per common share:                     
Basic  $10.25              $10.25 
Diluted  $10.16              $10.16 
Weighted-average common shares outstanding                     
Basic   86,240               86,240 
Diluted   86,988               86,988 

 

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Statements”

 

4 

 

 

CIVITAS RESOURCES, INC. AND SUBSIDIARIES 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued) 

Year Ended December 31, 2023 

(in thousands, except per share data)

 

   Civitas Pro Forma
Combined (Excluding
Tap Rock and Vencer)		  Tap Rock
AcquisitionCo
Historical		  Tap Rock II
 Historical		  Tap Rock
AcquisitionCo
Reclassification
Adjustments (Note 2)		  Tap Rock II
Reclassification
Adjustments (Note 2)		  Tap Rock
Transaction
Accounting
Adjustments (Note 4)		  Civitas Pro Forma
Combined
(Excluding Vencer)		 
Operating net revenues:                                                      
Crude oil, natural gas, and NGL sales  $3,881,880  $382,658  $167,580  $                       -  $-  $-  $4,432,118 
Oil   -   -   -   -   -   -   - 
Natural gas   -   -   -   -   -   -   - 
Natural gas liquids   -   -   -   -   -   -   - 
Realized gain on commodity derivatives   -   -   -   -   -   -   - 
Other   -   1,004   -   (1,004)  -   -   - 
Operating expenses:                             
Lease operating expense   335,593   66,515   47,938   -   -   -   450,046 
Midstream operating expense   45,080   -   -   -   -   -   45,080 
Gathering, transportation, and processing   290,645   9,617   -   -   2,058   -   302,320 
Production taxes, transportation, processing and gathering   -   -   15,180   -   (15,180)  -   - 
Workover   -   -   -   -   -   -   - 
Severance and ad valorem taxes   300,432   -   -   30,915   13,122   -   344,469 
Production, ad valorem and severance tax   -   -   -   -   -   -   - 
Production taxes   -   30,915   -   (30,915)  -   -   - 
Taxes other than income   -   -   -   -   -   -   - 
Revenue deductions   -   -   -   -   -   -   - 
Exploration   2,178   -   -   -   -   -   2,178 
Depreciation, depletion, and amortization   1,263,767   89,315   66,049   -   -   52,764(a)  1,471,895 
Transaction costs   84,328   -   -   -   -   -   84,328 
General and administrative expense   167,874   15,189   15,632   -   -   -   198,695 
Accretion of asset retirement obligations   -   -   -   -   -   -   - 
(Gain) loss on commodity derivative instruments   -   -   -   -   -   -   - 
Other operating expense   7,437   -   -   -   -   -   7,437 
Equity compensation expense   -   -   -   -   -   -   - 
Total operating expenses   2,497,334   211,551   144,799   -   -   52,764   2,906,448 
Other income (expense):                             
Derivative gain (loss), net   9,307   18,598   24,237   -   -   (42,835)(b)  9,307 
Interest expense   (267,754)  (46,659)  (9,532)  -   -   (13,128)(c)  (337,073)
Gain (loss) on property transactions, net   (13)  -   -   -   -   -   (13)
Other income (expense)   33,737   -   -   1,004   -   -   34,741 
Unrealized gain on commodity derivatives   -   -   -   -   -   -   - 
Total other income (expense)   (224,723)  (28,061)  14,705   1,004   -   (55,963)  (293,038)
Income from operations before income taxes   1,159,823   144,050   37,486   -   -   (108,727)  1,232,632 
Income tax expense   (275,632)  -   -   -   -   (24,119)(d)  (299,751)
Net income (loss)  $884,191  $144,050  $37,486  $-  $-  $(132,846) $932,881 
Net income (loss) attributable to non-controlling interest   -   8,457   -   -   -   (8,457)(e)  - 
Net income (loss) attributable to controlling interest  $884,191  $135,593  $37,486  $-  $-  $(124,389) $932,881 
                              
Earnings per common share:                             
Basic  $10.25                      $9.91 
Diluted  $10.16                      $9.83 
Weighted-average common shares outstanding                             
Basic   86,240                       94,141 
Diluted   86,988                       94,889 

 

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Statements”

 

5 

 

 

 

CIVITAS RESOURCES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(Continued) 

Year Ended December 31, 2023

(in thousands, except per share data)

 

   Civitas Pro Forma
Combined (Excluding
Vencer)		   Vencer
Historical		   Vencer
Reclassification
Adjustments (Note 2)		   Vencer Transaction
Accounting
Adjustments (Note 5)		   Civitas Pro Forma
Combined		 
Operating net revenues:                         
Crude oil, natural gas, and NGL sales  $4,432,118   $830,379   $-   $-   $5,262,497 
Oil   -    -    -    -    - 
Natural gas   -    -    -    -    - 
Natural gas liquids   -    -    -    -    - 
Realized gain on commodity derivatives   -    -    -    -    - 
Other   -    -    -    -    - 
Operating expenses:                         
Lease operating expense   450,046    68,829    -    -    518,875 
Midstream operating expense   45,080    -    -    -    45,080 
Gathering, transportation, and processing   302,320    6,756    -    -    309,076 
Production taxes, transportation, processing and gathering   -    -    -    -    - 
Workover   -    -    -    -    - 
Severance and ad valorem taxes   344,469    -    52,874    -    397,343 
Production, ad valorem and severance tax   -    -    -    -    - 
Production taxes   -    -    -    -    - 
Taxes other than income   -    52,874    (52,874)   -    - 
Revenue deductions   -    -    -    -    - 
Exploration   2,178    -    -    -    2,178 
Depreciation, depletion, and amortization   1,471,895    135,746    2,521    65,464(i)   1,675,626 
Transaction costs   84,328    -    -    12,195(e)   96,523 
General and administrative expense   198,695    19,627    -    -    218,322 
Accretion of asset retirement obligations   -    2,521    (2,521)   -    - 
(Gain) loss on commodity derivative instruments   -    26,168    (26,168)   -    - 
Other operating expense   7,437    686    (686)   -    7,437 
Equity compensation expense   -    -    -    -    - 
Total operating expenses   2,906,448    313,207    (26,854)   77,659    3,270,460 
Other income (expense):                         
Derivative gain (loss), net   9,307    -    (26,168)   26,168(j)   9,307 
Interest expense   (337,073)   (25,098)   -    (100,379)(k)   (462,550)
Gain (loss) on property transactions, net   (13)   -    -    -    (13)
Other income (expense)   34,741    1    (686)   -    34,056 
Unrealized gain on commodity derivatives   -    -    -    -    - 
Total other income (expense)   (293,038)   (25,097)   (26,854)   (74,211)   (419,200)
Income from operations before income taxes   1,232,632    492,075    -    (151,870)   1,572,837 
Income tax expense   (299,751)   -    -    (70,071)(f)   (369,822)
Net income (loss)  $932,881   $492,075   $-   $(221,941)  $1,203,015 
Net income (loss) attributable to non-controlling interest   -    -    -    -    - 
Net income (loss) attributable to controlling interest  $932,881   $492,075   $-   $(221,941)  $1,203,015 
                          
Earnings per common share:                         
Basic  $9.91                  $11.87 
Diluted  $9.83                  $11.79 
Weighted-average common shares outstanding                         
Basic   94,141                   101,322 
Diluted   94,889                   102,070 

 

See accompanying “Notes to Unaudited Pro Forma Condensed Combined Financial Statements”

 

6

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION

 

The Civitas, Hibernia, Tap Rock, and Vencer historical financial information has been derived from each respective company’s historical financial statements. Certain of Hibernia’s, Tap Rock’s and Vencer’s historical amounts have been reclassified to conform to Civitas’ financial statement presentation, as discussed further in Note 2. The Pro Forma Financial Statements should be read in conjunction with each company’s historical financial statements and the notes thereto. The Pro Forma Balance Sheet gives effect to the Transactions as if they had been completed on December 31, 2023. The Pro Forma Statement of Operations for the year ended December 31, 2023, gives effect to the Transactions as if they had been completed on January 1, 2023. In the opinion of Civitas’ management, all material adjustments have been made that are necessary to present fairly, in accordance with Article 11 of Regulation S-X of the Securities and Exchange Commission (“SEC”), the pro forma financial statements.

 

The Pro Forma Financial Statements do not purport to be indicative of the results of operations of the combined company that would have occurred if the Transactions had occurred on the date indicated, nor are they indicative of Civitas’ future results of operations. In addition, future results may differ significantly from those reflected in the Pro Forma Financial Statements. Further, the Pro Forma Financial Statements exclude historical financial data from HE3-B’s historical financial statements.

 

NOTE 2 - RECLASSIFICATION ADJUSTMENTS

 

The Pro Forma Financial Statements have been adjusted as follows to reflect reclassifications of Hibernia’s, Tap Rock’s, and Vencer’s historical financial statements to conform to Civitas’ financial statement presentation.

 

(a)Vencer Reclassification Adjustments

 

Pro Forma Condensed Combined Balance Sheet as of December 31, 2023

 

·Reclassification of approximately $71.7 million from Accounts receivable to Accounts receivable, net – Oil and gas sales;

 

·Reclassification of approximately $6.5 million from Accounts receivable to Account receivable, net – Joint interest and other;

 

·Reclassification of approximately $2,169.5 million from Oil and natural gas properties, successful efforts method to Proved properties;

 

·Reclassification of approximately $1.8 million from Other PP&E to Other property and equipment, net.

 

·Reclassification of approximately $240.0 million from Accumulated depreciation, depletion, and amortization to Accumulated depreciation, depletion, and amortization of Proved property;

 

·Reclassification of approximately $0.4 million from Accumulated depreciation, depletion, and amortization to Other property and equipment, net.

 

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·Reclassification of approximately $11.3 million from Operating-lease ROU asset to Right-of-use assets;

 

·Reclassification of approximately $0.1 million from Other long-term assets to Other noncurrent assets;

 

·Reclassification of approximately $16.4 million from Accounts payable and approximately $53.1 million from Accrued liabilities to Accounts payable and accrued expenses;

 

·Reclassification of approximately $29.0 million from Revenues payable to Crude oil and natural gas revenue distribution payable;

 

·Reclassification of approximately $8.6 million from Operating lease liability – current to Lease liability in Current liabilities;

 

·Reclassification of approximately $28.6 million from Short-term derivative instruments to Derivative liability in Current liabilities;

 

·Reclassification of approximately $2.8 million from Long-term derivative instruments to Derivative liability in Long-term liabilities; and

 

·Reclassification of approximately $2.9 million from Operating lease liability – long term to Lease liability in Long-term liabilities.

 

Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2023

 

·Reclassification of approximately $52.9 million from Taxes other than income to Severance and ad valorem taxes;

 

·Reclassification of approximately $2.5 million from Accretion of asset retirement obligations to Depreciation, depletion, and amortization;

 

·Reclassification of approximately $26.2 million from (Gain) loss on commodity derivative instruments to Derivative gain (loss); and

 

·Reclassification of approximately $0.7 million from Other operating expense to Other income (expense).

 

(b)Hibernia Reclassification Adjustments

 

Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2023

 

·Reclassification of approximately $354.7 million from Revenues – Oil, approximately $18.4 million from Revenues – Natural gas, approximately $52.0 million from Revenues – Natural gas liquids, and approximately $22.5 million from Revenue deductions to Crude oil, natural gas, and NGL sales;

 

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·Reclassification of approximately $29.5 million from Unrealized gain on commodity derivatives and approximately $23.7 million from Operating net revenues – Realized gain on commodity derivatives to Derivative gain (loss), net;

 

·Reclassification of approximately $2.1 million from Workover to Lease operating expense;

 

·Reclassification of approximately $23.9 million from Production, ad valorem and severance tax to Severance and ad valorem taxes;

 

·Reclassification of approximately $0.2 million from Equity compensation expense to General and administrative expense.

 

(c)Tap Rock AcquisitionCo Reclassification Adjustments

 

Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2023

 

·Reclassification of approximately $1.0 million from Revenues – Other to Other Income (expense); and

 

·Reclassification of approximately $30.9 million from Production taxes to Severance and ad valorem taxes.

 

(d)Tap Rock II Reclassification Adjustments

 

Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2023

 

·Reclassification of approximately $2.1 million from Production taxes, transportation, processing and gathering to Gathering, transportation, and processing; and

 

·Reclassification of approximately $13.1 million from Production taxes, transportation, processing and gathering to Severance and ad valorem taxes.

 

NOTE 3 – VENCER PRELIMINARY ACQUISITON ACCOUNTING AND PRO FORMA ADJUSTMENTS

 

The Vencer Acquisition has been accounted for under the acquisition method of accounting for business combinations in accordance with ASC 805. The allocation of the preliminary purchase price with respect to the Vencer Acquisition is based upon management’s estimates of and assumptions related to the fair values of assets acquired and liabilities assumed as of the acquisition date. The final purchase price allocation and the resulting effect on Civitas’ results of operations may differ significantly from the pro forma amounts included herein, which are based on preliminary estimates and assumptions. As of the date of this filing, the determination of these fair value estimates is still preliminary as Civitas continues to complete the detailed valuation analysis to arrive at the required final estimates, which will be completed as soon as practicable, and will not extend beyond the one-year measurement period from the close of the applicable Transactions under ASC 805. In particular, assets and liabilities subject to potential adjustment in amounts that could be material to the Pro Forma Financial Statements include oil and gas properties of approximately $2.0 billion.

 

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The following tables present the preliminary purchase price and preliminary purchase price allocation of the assets acquired and the liabilities assumed in the Vencer Acquisition:

 

Preliminary Acquisition Consideration (in thousands)    
Cash portion of total estimated preliminary purchase price  $1,000,000 
Stock portion of total estimated preliminary purchase price   504,507 
Maximum deferred payment amount   513,123 
Adjustment to total estimated preliminary purchase price   (7,474)
Total estimated preliminary purchase price  $2,010,156 

 

    Preliminary
Purchase Price
Allocation		 
    (in thousands) 
Assets Acquired     
Proved properties  $1,848,120 
Unproved properties   231,150 
Other property and equipment, net   829 
Right-of-use assets   11,306 
Deferred income tax asset   50 
Total assets acquired  $2,091,455 
      
Liabilities Assumed     
Oil and gas revenue distribution payable  $25,680 
Lease liability   11,473 
Asset retirement obligations   44,146 
Total liabilities assumed  $81,299 
Net assets acquired  $2,010,156 

 

Reflects the pro forma change in cash and cash equivalents as follows (in thousands)     
Vencer Transaction consideration payment in cash  $(836,836)
Purchase Accounting Eliminations   (31,166)
Pro forma change in cash and cash equivalents  $(868,002)

 

Vencer Acquisition Accounting Adjustments

 

The Pro Forma Financial Statements have been adjusted to give effect to the Vencer Acquisition as follows:

 

(a)Reflect the cash and deferred consideration portions of the total estimated preliminary purchase price to be paid in connection with the Vencer Acquisition.

 

(b)Reflect the application of the Vencer cash deposit towards the total estimated preliminary purchase price.

 

(c)Reflect the exclusion of certain historical assets and liabilities of Vencer not acquired as part of the Vencer Acquisition.

 

(d)Reflect the adjustment to recognize the preliminary estimated fair value of Proved and Unproved properties.

 

(e)Reflect the accrual of non-recurring costs of approximately $12.2 million related to the Vencer Acquisition including, among others, fees paid for financial advisors, legal services, and professional accounting services. These costs are not reflected in the historical December 31, 2023 consolidated balance sheets of Civitas and Vencer, but are reflected in the Pro Forma Condensed Combined Balance Sheet as of December 31, 2023 as an increase to Accounts payable and accrued expenses, with a corresponding increase to Transaction costs in the Pro Forma Condensed Combined Statement of Operations as these are nonrecurring in nature.

 

(f)Reflect the pro forma tax adjustments based upon a statutory federal and blended state tax rate of 23.51% for the year ended December 31, 2023. The adjustments include:

 

· the decrease to deferred tax liabilities as a result of the Vencer Acquisition, primarily related to a decrease in the overall blended tax rate of Civitas due to the change in state tax footprint; and

 

· the income tax expense effect of the Vencer Acquisition accounting adjustments.

 

(g)Reflect the adjustment resulting from the issuance of shares of Civitas Common Stock to Vencer investors to effect the Vencer Acquisition.

 

(h)Reflect the elimination of Vencer’s historical equity balances in accordance with the acquisition method of accounting.

 

(i)Reflect the pro forma adjustments to Depreciation, depletion, and amortization to calculate depletion expense based on the preliminary fair value of the proved properties acquired in accordance with the successful efforts method of accounting.

 

(j)Reflect the adjustment to remove the effect of derivatives not assumed with the Vencer Acquisition.

 

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(k)Reflect the following pro forma adjustments related to Interest expense for the year ended December 31, 2023:

 

·an increase to Interest expense of approximately $64.7 million related to the issuance of $1.0 billion in 8.625% Senior Notes due 2030 (the “2030 Senior Notes”);

 

·an increase to Interest expense of approximately $1.0 million, related to the amortization of the debt discount associated with the 2030 Senior Notes;

 

·an increase to Interest expense of approximately $0.3 million, related to the amortization of debt issuance costs associated with the 2030 Senior Notes; and

 

·an increase to Interest expense of approximately $34.4 million related to the deferred consideration portion of the total estimated preliminary purchase price.

 

NOTE 4 – HIBERNIA PRELIMINARY ACQUISITION ACCOUNTING AND PRO FORMA ADJUSTMENTS

 

The Hibernia Acquisition has been accounted for under the acquisition method of accounting for business combinations in accordance with ASC 805. The allocation of the preliminary purchase price with respect to the Hibernia Acquisition is based upon management’s estimates of and assumptions related to the fair values of assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation for the Hibernia Acquisition is preliminary, and Civitas will continue to assess the fair values of the assets acquired and liabilities assumed. Management expects to finalize the purchase price allocation as soon as practicable, which will not extend beyond the one-year measurement period. The Pro Forma Statements of Operations have been adjusted to give effect to the Hibernia Acquisition as follows:

 

(a)Reflect the pro forma adjustments to Depreciation, depletion, and amortization to calculate depletion expense based on the preliminary fair value of the proved properties acquired in accordance with the successful efforts method of accounting.

 

(b)Reflect the adjustment to remove the effect of derivatives not assumed as part of the Hibernia Acquisition.

 

(c)Reflect the following pro forma adjustments related to Interest expense for the year ended December 31, 2023:

 

·an increase to Interest expense of approximately $16.8 million, related to the draw on the Company's reserve-based revolving facility (the “Civitas Credit Facility”);

 

·an increase to Interest expense of approximately $64.2 million, related to the issuance of $1.5 billion in 8.375% Senior Notes due 2028 and 8.750% Senior Notes due 2031 (“Acquisition Senior Notes”);

 

·an increase to Interest expense of approximately $1.5 million, related to the amortization of the debt discount associated with the Acquisition Senior Notes;

 

·an increase to Interest expense of approximately $2.4 million, related to the amortization of debt issuance costs associated with the Acquisition Senior Notes and borrowings on the Civitas Credit Facility;

 

11 

 

 

·a decrease to Interest Expense of approximately $18.0 million related to the elimination of historical interest expense on the Hibernia credit facility; and

 

·a one-eighth percent increase or decrease in the interest rate would have changed interest expense related to the Civitas Credit Facility by $0.3 million.

 

(d)Reflect the pro forma adjustments to Gain on property transactions, net to reclassify certain amounts previously capitalized by Hibernia under the full cost method of accounting in order to conform to the presentation to the successful efforts method of accounting used by Civitas for oil and gas properties.

 

(e)Reflect the pro forma income tax expense effect of the Hibernia Acquisition accounting adjustments based upon a statutory federal and blended state tax rate of 23.77% for the year ended December 31, 2023.

 

NOTE 5 – TAP ROCK PRELIMINARY ACQUISITION ACCOUNTING AND PRO FORMA ADJUSTMENTS

 

The Tap Rock Acquisition has been accounted for under the acquisition method of accounting for business combinations in accordance with ASC 805. The allocation of the preliminary purchase price with respect to the Tap Rock Acquisition is based upon management’s estimates of and assumptions related to the fair values of assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation for the Tap Rock Acquisition is preliminary, and Civitas will continue to assess the fair values of certain of the assets acquired and liabilities assumed. Management expects to finalize the purchase price allocation as soon as practicable, which will not extend beyond the one-year measurement period. The Pro Forma Statements of Operations have been adjusted to give effect to the Tap Rock Acquisition as follows:

 

(a)Reflect the pro forma adjustments to Depreciation, depletion, and amortization to calculate depletion expense based on the preliminary fair value of the proved properties acquired in accordance with the successful efforts method of accounting.

 

(b)Reflect the adjustment to remove the effect of derivatives not assumed as part of the Tap Rock Acquisition.

 

(c)Reflect the following pro forma adjustments related to Interest expense for the year ended December 31, 2023:

 

·an increase to Interest expense of approximately $14.6 million, related to the draw on the Civitas Credit Facility;

 

·an increase to Interest expense of approximately $51.4 million, related to the issuance of $1.2 billion in Acquisition Senior Notes;

 

·an increase to Interest expense of approximately $1.2 million, related to the amortization of the debt discount associated with the Acquisition Senior Notes;

 

·an increase to Interest expense of approximately $2.1 million, related to the amortization of debt issuance costs associated with the Acquisition Senior Notes and borrowings on the Civitas Credit Facility;

 

12

 

 

·a decrease to Interest expense of approximately $56.2 million, related to elimination of historical interest expense on the Tap Rock term loan and credit facility; and

 

·a one-eighth percent increase or decrease in the interest rate would have changed interest expense related to the Civitas Credit Facility by $0.3 million.

 

(d)Reflect the pro forma income tax expense effect of the Tap Rock Acquisition accounting adjustments based upon a statutory federal and blended state tax rate of 24.32% for the year ended December 31, 2023.

 

(e)Reflect the elimination of the non-controlling interests as Civitas acquired 100% of Tap Rock.

 

NOTE 6 – SUPPLEMENTAL PRO FORMA OIL AND GAS RESERVES INFORMATION

 

The following tables present the estimated pro forma combined net proved developed and undeveloped oil and gas reserves information 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 following estimated pro forma combined oil and gas reserves information is not necessarily indicative of the results that might have occurred had the Transactions been completed on January 1, 2023 and is not intended to be a projection of future results.

 

   Oil (MBbl) 
   Civitas   Vencer   Civitas Pro
Forma
Combined		 
Balance-December 31, 2022   152,602    209,869    362,471 
Extensions, discoveries, and other additions   12,598    -    12,598 
Production   (36,726)   (8,786)   (45,512)
Divestiture of reserves   (830)        (830)
Removed from capital program   (2,301)        (2,301)
Acquisition of reserves   151,717    819    152,536 
Revisions to previous estimates   (4,255)   (130,146)   (134,401)
Balance-December 31, 2023   272,805    71,756    344,561 
                
Proved developed reserves:               
December 31, 2022   117,768    44,561    162,329 
December 31, 2023   199,585    49,013    248,598 
                
Proved undeveloped reserves:               
December 31, 2022   34,834    165,308    200,142 
December 31, 2023   73,220    22,743    95,963 

 

   Natural Gas (MMcf) 
   Civitas   Vencer   Civitas Pro
Forma
Combined		 
Balance-December 31, 2022   867,500    849,037    1,716,537 
Extensions, discoveries, and other additions   31,174         31,174 
Production   (133,821)   (26,148)   (159,969)
Divestiture of reserves   (3,582)        (3,582)
Removed from capital program   (7,812)        (7,812)
Acquisition of reserves   635,710    2,911    638,621 
Revisions to previous estimates   (68,867)   (463,884)   (532,751)
Balance-December 31, 2023   1,320,302    361,916    1,682,218 
                
Proved developed reserves:               
December 31, 2022   750,793    250,603    1,001,396 
December 31, 2023   1,077,221    265,063    1,342,284 
                
Proved undeveloped reserves:               
December 31, 2022   116,707    598,434    715,141 
December 31, 2023   243,081    96,853    339,934 

 

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   NGLs (MBbl) 
   Civitas   Vencer   Civitas Pro
Forma
Combined		 
Balance-December 31, 2022   118,834    163,050    281,884 
Extensions, discoveries, and other additions   3,719         3,719 
Production   (18,400)   (4,712)   (23,112)
Divestiture of reserves   (514)        (514)
Removed from capital program   (1,155)        (1,155)
Acquisition of reserves   114,708    946    115,654 
Revisions to previous estimates   (12,249)   (100,019)   (112,268)
Balance-December 31, 2023   204,943    59,265    264,208 
                
Proved developed reserves:               
December 31, 2022   102,004    39,322    141,326 
December 31, 2023   162,117    41,480    203,597 
                
Proved undeveloped reserves:               
December 31, 2022   16,830    123,728    140,558 
December 31, 2023   42,826    17,785    60,611 

 

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Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities

 

The following tables present the estimated pro forma discounted future net cash flows at December 31, 2023. The pro forma standardized measure information set forth below gives effect to the Transactions as if the Transactions had been completed on January 1, 2023. With respect to the disclosures below for Civitas, the amounts were determined by referencing the “Standardized Measure of Discounted Future Net Cash Flows” reported in Civitas’ Annual Report on Form 10-K for the year ended December 31, 2023. An explanation of the underlying methodology applied, as required by SEC regulations, can be found within the Annual Report on Form 10-K. With respect to the disclosures below for Vencer, the amounts were initiated from the “Unaudited Supplemental Oil and Gas Disclosures” reported in Vencer’s annual financial statements for the year ended December 31, 2023, included elsewhere in this filing. Subsequently, the amounts were updated by Civitas management for changes in the development plans of the assets as of the acquisition date and updates for income tax considerations as Vencer was a limited liability corporation that is exempt from federal taxes. These calculations assume the continuation of existing economic, operating and contractual conditions at December 31, 2023. Therefore, the following estimated pro forma standardized measure is not necessarily indicative of the results that might have occurred had the Transactions been completed on January 1, 2023 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected herein.

 

Discounted Future Net Cash Flows

 

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the year ended December 31, 2023 are as follows:

 

   For the Year Ended December 31, 2023 
   Civitas   Vencer   Civitas Pro Forma Combined 
Future cash flows  $27,947,743   $7,457,509   $35,405,252 
Future production costs   (11,038,268)   (1,797,884)   (12,836,152)
Future development costs   (2,366,582)   (609,755)   (2,976,337)
Future income tax expense   (1,605,756)   (752,922)   (2,358,678)
Future net cash flows   12,937,137    4,296,948    17,234,085 
10% annual discount for estimated timing of cash flows   (4,667,858)   (2,154,941)   (6,822,799)
Standardized measure of discounted future net cash flows  $8,269,279   $2,142,007   $10,411,286 

 

The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves are as follows:

 

   For the Year Ended December 31, 2023 
   Civitas   Vencer   Civitas Pro
Forma
Combined		 
Beginning of period  $7,927,490   $8,463,912   $16,391,402 
Crude oil, natural gas, and NGL sales, net of production costs   (2,558,095)   (701,920)   (3,260,015)
Net changes in prices and production costs   (4,385,615)   (3,357,812)   (7,743,427)
Net changes in extensions, discoveries, and other additions   363,594    -    363,594 
Development costs incurred   447,181    311,777    758,958 
Changes in estimated development cost   (39,386)   (119,612)   (158,998)
Acquisition of reserves   5,199,814    23,837    5,223,651 
Divestiture of reserves   (32,483)   -    (32,483)
Revisions of previous quantity estimates   (529,185)   (2,745,465)   (3,274,650)
Net change in income taxes   796,068    (287,729)   508,339 
Accretion of discount   983,428    853,037    1,836,465 
Changes in production rates and other   96,468    (298,018)   (201,550)
End of period  $8,269,279   $2,142,007   $10,411,286 

 

15