12. Consolidating Financial Statements

As discussed in Note 7, our secured and unsecured notes are fully and unconditionally guaranteed, jointly and severally, by the Company’s present and future direct and indirect wholly owned material domestic subsidiaries. Our foreign wholly-owned subsidiaries are not parties to the guarantees (the ‘‘Non-Guarantor Subsidiaries’’). The following reflects consolidating financial information of the issuer, guarantor subsidiaries, non-guarantor subsidiaries, eliminating entries (to combine the entities) and consolidated results as of and for the same periods our consolidated financial statements are presented herein.

EP ENERGY LLC

CONSOLIDATING STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013

(In millions)

	Successor
	Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues
Oil and condensate	$	—		$	1,283		$	—		$	—		$	1,283
Natural gas	—			331			—			—			331
NGLs	—			78			—			—			78
Financial derivatives	(52		)	—			—			—			(52		)
Total operating revenues	(52		)	1,692			—			—			1,640

Operating expenses
Natural gas purchases	—			25			—			—			25
Transportation costs	—			92			—			—			92
Lease operating expense	—			163			—			—			163
General and administrative	49			179			—			—			228
Depreciation, depletion and amortization	—			618			—			—			618
Impairment and ceiling test charges	—			2			—			—			2
Exploration expense	—			45			—			—			45
Taxes, other than income taxes	—			86			—			—			86
Total operating expenses	49			1,210			—			—			1,259

Operating (loss) income	(101		)	482			—			—			381
Loss from unconsolidated affiliate	—			(13		)	—			—			(13		)
Earnings from consolidated subsidiaries	474			—			—			(474		)	—
Other income	—			1			—			—			1
Affiliated interest (expense) income	(4		)	4			—			—			—
Loss on extinguishment of debt	(9		)	—			—			—			(9		)
Interest expense	(321		)	—			—			—			(321		)
Income from continuing operations before income taxes	39			474			—			(474		)	39
Income tax expense	—			—			—			—			—
Income from continuing operations	39			474			—			(474		)	39
Income (loss) from discontinued operations, net of tax	510			510			(5		)	(505		)	510
Net income (loss)	$	549		$	984		$	(5	)	$	(979	)	$	549

EP ENERGY LLC

CONSOLIDATING STATEMENT OF INCOME

FOR THE PERIOD FROM MARCH 23, 2012 (INCEPTION) TO DECEMBER 31, 2012

(In millions)

	Successor
	Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Operating revenues
Oil and condensate	$	—		$	523		$	—	$	—		$	523
Natural gas	—			234			—		—			234
NGLs	—			32			—		—			32
Financial derivatives	(50		)	(12		)	—		—			(62		)
Total operating revenues	(50		)	777			—		—			727

Operating expenses
Natural gas purchases	—			19			—		—			19
Transportation costs	—			51			—		—			51
Lease operating expense	—			71								71
General and administrative	206			152			—		—			358
Depreciation, depletion and amortization	—			209			—		—			209
Impairment and ceiling test charges	—			1			—		—			1
Exploration expense	—			43			—		—			43
Taxes, other than income taxes	—			41			—		—			41
Total operating expenses	206			587			—		—			793

Operating (loss) income	(256		)	190			—		—			(66		)
Loss from unconsolidated affiliate	—			(1		)	—		—			(1		)
Earnings from consolidated subsidiaries	188			—			—		(188		)	—
Other income (expense)	1			(1		)	—		—			—
Loss on extinguishment of debt	(14		)	—			—		—			(14		)
Interest expense	(218		)	—			—		—			(218		)
(Loss) income from continuing operations before income taxes	(299		)	188			—		(188		)	(299		)
Income tax expense	—			—			—		—			—
(Loss) income from continuing operations	(299		)	188			—		(188		)	(299		)
Income from discontinued operations, net of tax	44			44			12		(56		)	44
Net (loss) income	$	(255	)	$	232		$	12	$	(244	)	$	(255	)

EP ENERGY LLC

CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE PERIOD FROM JANUARY 1, 2012 TO MAY 24, 2012

(In millions)

	Predecessor
	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating revenues
Oil and condensate	$	310		$	—		$	—	$	310
Natural gas	228			—			—		228
NGLs	29			—			—		29
Financial derivatives	365			—			—		365
Total operating revenues	932			—			—		932

Operating expenses
Transportation costs	45			—			—		45
Lease operating expense	80			—			—		80
General and administrative	68			1			—		69
Depreciation, depletion and amortization	307			—			—		307
Impairment and ceiling test charges	—			62			—		62
Taxes, other than income taxes	31			—			—		31
Total operating expenses	531			63			—		594

Operating income (loss)	401			(63		)	—		338
Loss from unconsolidated affiliate	(5		)	—			—		(5		)
Loss from consolidated subsidiaries	(63		)	—			63		—
Other income	2			—			—		2
Interest expense	(14		)	—			—		(14		)
Income (loss) from continuing operations before income taxes	321			(63		)	63		321
Income tax expense	134			—			—		134
Income from continuing operations	187			(63		)	63		187
Loss from discontinued operations, net of tax	(9		)	(8		)	8		(9		)

Net income (loss)	$	178		$	(71	)	$	71	$	178
Cash flow hedging activities:
Reclassification adjustment(1)	3			—			—		3
Comprehensive income (loss)	$	181		$	(71	)	$	71	$	181

(1) Reclassification adjustments are stated net of tax. Taxes recognized for the predecessor period related to January 1, 2012 to May 24, 2012 are $2 million.

EP ENERGY LLC

CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2011

(In millions)

	Predecessor
	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating revenues
Oil and condensate	$	513		$	—		$	—	$	513
Natural gas	901			—			—		901
NGLs	58			—			—		58
Financial derivatives	284			—			—		284
Total operating revenues	1,756			—			—		1,756

Operating expenses
Transportation costs	85			—			—		85
Lease operating expense	177			—			—		177
General and administrative	185			—			—		185
Depreciation, depletion and amortization	579			—			—		579
Impairment and ceiling test charges	6			—			—		6
Taxes, other than income taxes	76			—			—		76
Total operating expenses	1,108			—			—		1,108

Operating income	648			—			—		648
Loss from unconsolidated affiliate	(7		)	—			—		(7		)
Other income	1			—			—		1
Interest (expense) income
Third party	(10		)	1			—		(9		)
Affiliated	(4		)	(1		)	—		(5		)
Income from continuing operations before income taxes	628			—			—		628
Income tax expense	243			—			—		243
Income from continuing operations	385			—			—		385
Loss from discontinued operations, net of tax	(123		)	(123		)	123		(123		)
Net income (loss)	$	262		$	(123	)	$	123	$	262

Cash flow hedging activities:
Reclassification adjustment(1)	7			—			—		7
Comprehensive income (loss)	$	269		$	(123	)	$	123	$	269

(1) Reclassification adjustments are stated net of tax. Taxes recognized for the predecessor period related to the year ended December 31, 2011 are $4 million.

EP ENERGY LLC

CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2013

(In millions)

	Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	15	$	—	$	33	$	—		$	48
Accounts receivable
Customer, net of allowance of less than $1	5		234		—		—			239
Other, net of allowance of $2	1		40		—		—			41
Materials and supplies	—		20		—		—			20
Derivative instruments	47		—		—		—			47
Assets of discontinued operations	—		30		85		(27		)	88
Prepaid assets	—		12		—		—			12
Total current assets	68		336		118		(27		)	495
Property, plant and equipment, at cost
Oil and natural gas properties	—		8,371		—		—			8,371
Other property, plant and equipment	—		63		—		—			63
	—		8,434		—		—			8,434
Less accumulated depreciation, depletion and amortization	—		818		—		—			818
Total property, plant and equipment, net	—		7,616		—		—			7,616
Other assets
Investment in unconsolidated affiliate	8,142		—		—		(8,142		)	—
Derivative instruments	97		—		—		—			97
Assets of discontinued operations	—		—		—		—			—
Notes receivable from consolidated affiliate	—		832		—		(832		)	—
Unamortized debt issue cost	111		—		—		—			111
Other	—		7		—		—			7
	8,350		839		—		(8,974		)	215
Total assets	$	8,418	$	8,791	$	118	$	(9,001	)	$	8,326

EP ENERGY LLC

CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2013

(In millions)

	Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Trade	$	2	$	138	$	—	$	—		$	140
Other	—		387		—		—			387
Derivative instruments	35		—		—		—			35
Accrued interest	54		—		—		—			54
Asset retirement obligations	—		3		—		—			3
Liabilities of discontinued operations	—		—		91		—			91
Other accrued liabilities	1		64		—		—			65
Total current liabilities	92		592		91		—			775

Long-term debt	4,039		—		—		—			4,039
Notes payable to consolidated affiliate	832		—		—		(832		)	—
Other long-term liabilities
Derivative instruments	—		—		—		—			—
Liabilities of discontinued operations	—		—		—		—			—
Asset retirement obligations	—		50		—		—			50
Other	—		7		—		—			7
Total non-current liabilities	4,871		57		—		(832		)	4,096
Commitments and contingencies
Member’s equity	3,455		8,142		27		(8,169		)	3,455
Total liabilities and equity	$	8,418	$	8,791	$	118	$	(9,001	)	$	8,326

EP ENERGY LLC

CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(In millions)

	Successor
	Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	—	$	49	$	14	$	—		$	63
Accounts receivable
Customer, net of allowance of less than $1	6		152		—		—			158
Other, net of allowance of $1	—		14		—		—			14
Materials and supplies	—		16		—		—			16
Derivative instruments	108		—		—		—			108
Assets of discontinued operations	—		998		39		(3		)	1,034
Prepaid assets	—		10		—		—			10
Total current assets	114		1,239		53		(3		)	1,403
Property, plant and equipment, at cost
Oil and natural gas properties	—		6,513		—		—			6,513
Other property, plant and equipment	—		52		—		—			52
	—		6,565		—		—			6,565
Less accumulated depreciation, depletion and amortization	—		214		—		—			214
Property, plant and equipment, net	—		6,351		—		—			6,351
Other assets
Investment in unconsolidated affiliate	—		220		—		—			220
Investments in consolidated affiliates	7,124		—		—		(7,124		)	—
Derivative instruments	88		—		—		—			88
Assets of discontinued operations	—		46		93		(46		)	93
Notes receivable from consolidated affiliate	45		—		—		(45		)	—
Unamortized debt issue cost	134		—		—		—			134
Other	—		4		—		—			4
	7,391		270		93		(7,215		)	539
Total assets	$	7,505	$	7,860	$	146	$	(7,218	)	$	8,293

EP ENERGY LLC

CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(In millions)

	Successor
	Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Trade	$	—	$	98	$	—	$	—		$	98
Other accrued liabilities	—		302		—		—			302
Derivative instruments	10		7		—		—			17
Accrued interest	57		—		—		—			57
Asset retirement obligations	—		4		—		—			4
Liabilities of discontinued operations	—		156		58		(3		)	211
Other accrued liabilities	—		74		—		—			74
Total current liabilities	67		641		58		(3		)	763

Long-term debt	4,346		—		—		—			4,346
Notes payable to consolidated affiliate	—		45		—		(45		)	—
Other long-term liabilities
Derivative instruments	7		7		—		—			14
Liabilities of discontinued operations	—		—		42		—			42
Asset retirement obligations	—		40		—		—			40
Other	—		3		—		—			3
Total non-current liabilities	4,353		95		42		(45		)	4,445
Commitments and contingencies
Member’s equity	3,085		7,124		46		(7,170		)	3,085
Total liabilities and equity	$	7,505	$	7,860	$	146	$	(7,218	)	$	8,293

EP ENERGY LLC

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2013

(In millions)

	Successor
	Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities
Net income (loss)	$	549		$	984		$	(5	)	$	(979	)	$	549
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Depreciation, depletion and amortization	—			659			7			—			666
Gain on sale of assets	—			(468		)	—			—			(468		)
Loss from unconsolidated affiliate, net of cash distributions	—			37			—			—			37
Deferred income taxes	—			—			1			—			1
Earnings from consolidated affiliates	(984		)	5			—			979			—
Impairment and ceiling test charges	—			12			34			—			46
Loss on extinguishment of debt	9			—			—			—			9
Amortization of equity compensation expense	22			—			—			—			22
Non-cash portion of exploration expense	—			39			—			—			39
Equity distributions from consolidated affiliate	—			15			—			(15		)	—
Other non-cash income items	22			—			—			—			22
Asset and liability changes
Accounts receivable	—			(58		)	10			(3		)	(51		)
Accounts payable	1			85			(9		)	3			80
Derivative instruments	56			—			—			—			56
Accrued interest	(3		)	—			—			—			(3		)
Other asset changes	—			(8		)	(2		)	—			(10		)
Other liability changes	—			(18		)	(2		)	—			(20		)
Net cash (used in) provided by operating activities	(328		)	1,284			34			(15		)	975
Cash flows from investing activities
Capital expenditures	(19		)	(1,905		)	—			—			(1,924		)
Net proceeds from the sale of assets and investments	—			1,451			—			—			1,451
Cash paid for acquisitions, net of cash acquired	—			(2		)	—			—			(2		)
Change in note receivable with affiliate	45			(832		)	—			787			—
Net cash provided by (used in) investing activities	26			(1,288		)	—			787			(475		)
Cash flows from financing activities
Proceeds from long-term debt	1,880			—			—			—			1,880
Repayment of long-term debt	(2,190		)	—			—			—			(2,190		)
Distributions to member	(200		)	—			—			—			(200		)
Dividends to affiliate	—			—			(15		)	15			—
Change in note payable with affiliate	832			(45		)	—			(787		)	—
Debt issuance costs	(5		)	—			—			—			(5		)
Net cash provided by (used in) financing activities	317			(45		)	(15		)	(772		)	(515		)
Change in cash and cash equivalents	15			(49		)	19			—			(15		)
Cash and cash equivalents
Beginning of period	—			49			14			—			63
End of period	$	15		$	—		$	33		$	—		$	48

EP ENERGY LLC

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM MARCH 23, 2012 (INCEPTION) TO DECEMBER 31, 2012

(In millions)

	Successor
	Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities
Net (loss) income	$	(255	)	$	232		$	12		$	(244	)	$	(255	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation, depletion and amortization	—			260			8			—			268
Deferred income tax expense	—			—			1			—			1
Loss from unconsolidated affiliates, net of cash distributions	—			15			—			—			15
Earnings from consolidated affiliates	(232		)	(12		)	—			244			—
Equity distributions from consolidated affiliates	—			15			—			(15		)	—
Impairment and ceiling test charges	—			1			—			—			1
Loss on extinguishment of debt	14			—			—			—			14
Amortization of equity compensation expense	17			—			—			—			17
Non-cash portion of exploration expense	—			23			—			—			23
Amortization of debt issuance costs	13			—			—			—			13
Asset and liability changes
Accounts receivable	(6		)	(59		)	(11		)	3			(73		)
Accounts payable	1			55			13			(3		)	66
Derivative instruments	131			150			—			—			281
Accrued Interest	57			—			—			—			57
Other asset changes	—			(17		)	(1		)	—			(18		)
Other liability changes	—			35			4			—			39
Net cash (used in) provided by operating activities	(260		)	698			26			(15		)	449
Cash flows from investing activities
Capital expenditures	(12		)	(860		)	(5		)	—			(877		)
Net proceeds from the sale of assets	—			110			—			—			110
Cash paid for acquisitions, net of cash acquired	(7,213		)	—			—			87			(7,126		)
Change in note receivable with affiliate	(23		)	4			—			19			—
Net cash (used in) provided by investing activities	(7,248		)	(746		)	(5		)	106			(7,893		)
Cash flows from financing activities
Proceeds from long-term debt	5,477			—			—			—			5,477
Repayment of long-term debt	(1,138		)	(1		)	—			—			(1,139		)
Dividends paid to affiliate	—			—			(15		)	15			—
Contributed member equity	3,323			—			—			—			3,323
Change in note payable with affiliate	—			23			(4		)	(19		)	—
Debt issuance costs	(154		)	—			—			—			(154		)
Net cash provided by (used in) financing activities	7,508			22			(19		)	(4		)	7,507
Change in cash and cash equivalents	—			(26		)	2			87			63
Cash and cash equivalents
Beginning of period	—			75			12			(87		)	—
End of period	$	—		$	49		$	14		$	—		$	63

EP ENERGY LLC

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM JANUARY 1, 2012 TO MAY 24, 2012

(In millions)

	Predecessor
	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities
Net income (loss)	$	178		$	(71	)	$	71		$	178
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation, depletion and amortization	307			12			—			319
Deferred income tax expense	199			—			—			199
Loss from unconsolidated affiliates, net of cash distributions	12			—			—			12
Earnings from consolidated affiliates	71			—			(71		)	—
Impairment and ceiling test charges	—			62			—			62
Amortization of debt issuance costs	7			—			—			7
Asset and liability changes
Accounts receivable	132			2			(2		)	132
Accounts payable	(54		)	(4		)	2			(56		)
Derivative instruments	(201		)	—			—			(201		)
Accrued interest	(1		)	—			—			(1		)
Other asset changes	(7		)	—			—			(7		)
Other liability changes	(63		)	(1		)	—			(64		)
Net cash provided by operating activities	580			—			—			580

Cash flows from investing activities
Capital expenditures	(628		)	(8		)	—			(636		)
Net proceeds from the sale of assets	9			—			—			9
Change in note receivable with affiliates	(1		)	—			1			—
Cash paid for acquisitions, net of cash acquired	(1		)	—			—			(1		)
Net cash used in investing activities	(621		)	(8		)	1			(628		)

Cash flows from financing activities
Proceeds from long-term debt	215			—			—			215
Repayment of long-term debt	(1,065		)	—			—			(1,065		)
Contribution from parent	960			—			—			960
Change in note payable with affiliate	—			1			(1		)	—
Net cash provided by financing activities	110			1			(1		)	110

Change in cash and cash equivalents	69			(7		)	—			62

Cash and cash equivalents
Beginning of period	6			19			—			25
End of period	$	75		$	12		$	—		$	87

EP ENERGY LLC

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2011

(In millions)

	Predecessor
	Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities
Net income (loss)	$	262		$	(123	)	$	123		$	262
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation, depletion and amortization	581			31			—			612
Deferred income tax expense	303			1			—			304
Earnings from unconsolidated affiliates, net of cash distributions	53			—			—			53
Earnings from consolidated affiliates	123			—			(123		)	—
Impairment and ceiling test charges	30			128			—			158
Amortization of debt issuance costs	3			—			—			3
Other non-cash income items	1			—			—			1
Asset and liability changes
Accounts receivable	(18		)	(2		)	—			(20		)
Accounts payable	(61		)	(6		)	—			(67		)
Affiliate income taxes	83			—			—			83
Derivative instruments	47			—			—			47
Accrued interest	(1		)	—			—			(1		)
Other asset changes	7			5			—			12
Other liability changes	(14		)	(7		)	—			(21		)
Net cash provided by operating activities	1,399			27			—			1,426

Cash flows from investing activities
Capital expenditures	(1,555		)	(36		)	—			(1,591		)
Net proceeds from the sale of assets	612			—			—			612
Cash paid for acquisitions, net of cash acquired	(21		)	(1		)	—			(22		)
Investment in subsidiary	(6		)	—			6			—
Change in note receivable with affiliates	(252		)	—			16			(236		)
Net cash used in investing activities	(1,222		)	(37		)	22			(1,237		)

Cash flows from financing activities
Proceeds from long-term debt	2,030			—			—			2,030
Repayment of long-term debt	(1,480		)	—			—			(1,480		)
Contribution from parent	—			6			(6		)	—
Change in note payable with affiliate	(781		)	16			(16		)	(781		)
Debt issuance costs	(7		)	—			—			(7		)
Net cash (used in) provided by financing activities	(238		)	22			(22		)	(238		)

Change in cash and cash equivalents	(61		)	12			—			(49		)

Cash and cash equivalents
Beginning of period	67			7			—			74
End of period	$	6		$	19		$	—		$	25