EX-99 4 exhibit99-2.htm EXHIBIT 99.2 Exhibit 99.2

 

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL

STATEMENTS

The following unaudited pro forma condensed combined financial statements are presented to show the effects of the September 2005 acquisition (“the Acquisition”) by Maritech Resources, Inc. (“Maritech”) of certain oil and gas property interests from Devon Energy Production Company, L.P., Devon Louisiana Corporation and Devon Energy Petroleum Pipeline Company (collectively “Devon Energy”) pursuant to a Purchase and Sale Agreement dated July 22, 2005 (“the Agreement”). Maritech is a wholly owned subsidiary of TETRA Technologies, Inc. (“TETRA”). The properties acquired are herein referred to as the “Acquired Properties."

The following unaudited pro forma condensed combined financial statements have been prepared by recording pro forma adjustments to the historical consolidated financial statements of TETRA. These unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes thereto, TETRA’s Annual Report on Form 10-K for the year ended December 31, 2004, TETRA’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and the Statements of Combined Revenues and Direct Operating Expenses of the Oil and Gas Properties Sold to Maritech Resources, Inc.

The following unaudited pro forma condensed combined balance sheet reflects the pro forma adjustments necessary to be made to the historical consolidated balance sheet of TETRA and its subsidiaries to give effect to the Acquisition as if it had occurred on June 30, 2005 as an acquisition by TETRA of the Acquired Properties using the purchase method of accounting. Pro forma adjustments that are attributable to the Acquisition are described below and in the accompanying notes to the following unaudited pro forma condensed combined financial statements.

The following unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2005 and for the years ended December 31, 2004 and 2003, reflect the pro forma adjustments necessary to the historical consolidated statements of operations of TETRA and its subsidiaries to give effect to the Acquisition as if it had occurred on January 1 of the period presented as an acquisition by TETRA of the Acquired Properties using the purchase method of accounting. Pro forma adjustments that are attributable to the Acquisition are described below and in the accompanying notes to the following unaudited pro forma condensed combined financial statements.

The pro forma adjustments are based upon available information and assumptions that TETRA’s management believes are reasonable. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are based on the estimates and assumptions set forth in the notes accompanying those statements.

1


The unaudited pro forma condensed combined financial statements and supplemental oil and gas reserve disclosures are not necessarily indicative of the historical results that would have been achieved had the Acquisition occurred on the dates referenced above and should not be viewed as indicative of operations in future periods, due to the expected production declines of the properties, the changes in the business and the omission of various operating and administrative expenses.

The unaudited pro forma condensed combined financial statements were prepared based on the following assumptions:

• Pursuant to the Agreement, Maritech purchased the Acquired Properties in exchange for the assumption of approximately $66.1 million fair value of associated decommissioning liabilities plus a cash purchase price of $4.0 million. The cash portion of the consideration was subject to adjustment for the effects of preferential purchase right elections and the Acquired Properties’ cash flows from January 1, 2005. As a result of such cash adjustments primarily relating to the Acquired Properties’ cash flows from January 1, 2005, Maritech received a net cash settlement at closing of approximately $18.3 million.

• The unaudited pro forma balance sheet has been prepared as if the Acquisition occurred on June 30, 2005. The unaudited pro forma statements of operations for the six months ended June 30, 2005, and for the years ended December 31, 2004 and 2003 have been prepared as if the Acquisition occurred on January 1 of each of the periods presented.

• The Acquisition was accounted for as a purchase of the Acquired Properties by TETRA.

 

2


Unaudited Pro Forma Condensed Combined Balance Sheet

June 30, 2005

 

TETRA

Pro Forma

Combined

 
 

Historical

Adjustments

Pro Forma

 

 

(In Thousands)

Cash and cash equivalents

$5,302

$18,267

(a)

$23,569

 

Accounts receivable, net

107,424

107,424

Inventories

60,131

 

237

(a)

60,368

Deferred tax assets

1,624

1,624

Prepaid expenses and other

8,223

8,223

 

182,704

201,208

 

Property, plant and equipment, net

224,464

51,766

(a)

276,230

Other assets

124,480

124,480

 

Total assets

$531,648

$601,918

 

Trade accounts payable

$40,989

$40,989

Accrued liabilities

36,696

4,177

(a)

40,873

Liabilities of discontinued operations

253

253

Current portion of long-term debt

1

1

 

77,939

82,116

 

Long-term debt

125,231

125,231

Deferred income taxes

31,963

31,963

Decommissioning liabilities

38,546

66,093

(a)

104,639

Other liabilities

5,818

5,818

 

201,558

267,651

 

Stockholders' equity

252,151

252,151

 

Total liabilities and stockholders' equity

$531,648

$601,918

 

3


Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2003

 

Acquired

 
 

TETRA

Properties

Pro Forma

Combined

 
 

Historical

Historical

Adjustments

Pro Forma

 
 

(In Thousands)

 

Product sales revenues

$144,011

$86,371

$230,382

Services sales revenues

174,658

 

174,658

Total revenues

318,669

86,371

405,040

 

Cost of product sales

110,361

28,418

56,836

(b)

195,615

Cost of services

134,512

 

134,512

Total cost of revenues

244,873

28,418

330,127

 

Gross profit

73,796

57,953

74,913

 

General and administrative expenses

44,718

 

2,906

(c)

47,624

Operating income

29,078

57,953

27,289

 

Interest expense, net

312

312

Other income (expense)

565

 

565

Income before taxes, discontinued operations and cumulative effect of accounting change

29,331

57,953

27,542

 

Provision for income taxes

9,931

 

320

(d)

10,251

Income before discontinued operations and cumulative effect of accounting change

$19,400

$57,953

$17,291

 

Income before discontinued operations per share:

Basic

$0.59

$0.61

Diluted

$0.56

$0.58

 

4


Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2004

 

Acquired

 
 

TETRA

Properties

Pro Forma

Combined

 
 

Historical

Historical

Adjustments

Pro Forma

 
 

(In Thousands)

 

Product sales revenues

$187,090

$71,214

$258,304

Services sales revenues

166,096

 

166,096

Total revenues

353,186

71,214

424,400

 

Cost of product sales

147,268

21,397

38,594

(b)

207,259

Cost of services

124,549

 

124,549

Total cost of revenues

271,817

21,397

331,808

 

Gross profit

81,369

49,817

92,592

 

General and administrative expenses

53,799

 

2,906

(c)

56,705

Operating income

27,570

49,817

35,887

 

Interest expense, net

1,676

1,676

Other income (expense)

465

 

465

Income before taxes, discontinued operations and cumulative effect of accounting change

26,359

49,817

34,676

 

Provision for income taxes

8,303

 

2,911

(d)

11,214

Income before discontinued operations and cumulative effect of accounting change

$18,056

$49,817

$23,462

 

Income before discontinued operations per share:

Basic

$0.54

$0.70

Diluted

$0.51

$0.66

 

5


Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended June 30, 2005

 

Acquired

 
 

TETRA

Properties

Pro Forma

Combined

 
 

Historical

Historical

Adjustments

Pro Forma

 

 

(In Thousands)

Product sales revenues

$141,425

$22,653

$164,078

Services sales revenues

121,495

 

121,495

Total revenues

262,920

22,653

285,573

 

Cost of product sales

108,714

10,647

10,555

(b)

129,916

Cost of services

83,930

 

83,930

Total cost of revenues

192,644

10,647

213,846

 

Gross profit

70,276

12,006

71,727

 

General and administrative expenses

37,160

 

1,453

(c)

38,613

Operating income

33,116

12,006

33,114

 

Interest expense, net

2,912

2,912

Other income (expense)

1,787

 

1,787

Income before taxes, discontinued operations and cumulative effect of accounting change

31,991

12,006

31,989

 

Provision for income taxes

11,037

 

(1

)(d)

11,036

Income before discontinued operations and cumulative effect of accounting change

$20,954

$12,006

$20,953

 

Income before discontinued operations per share:

Basic

$0.62

$0.62

Diluted

$0.59

$0.59

 

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Notes to Unaudited Pro Forma Condensed Combined Financial Statements

1. Basis of Presentation

The accompanying unaudited pro forma balance sheet and statements of operations present the pro forma effects of the Acquisition. The balance sheet is presented as though the Acquisition occurred on June 30, 2005. The statements of operations are presented as though the Acquisition occurred on January 1 of each of the periods presented.

2. Method of Accounting for the Merger

TETRA will account for the Acquisition using the purchase method of accounting for business combinations.

The purchase method of accounting requires that the Acquired Properties’ assets and liabilities assumed by TETRA be recorded at their estimated fair values. The purchase price of the Acquired Properties will be based primarily on the fair value of the associated decommissioning liabilities assumed of approximately $66.1 million, less the amount of net cash received at closing.

3. Pro Forma Adjustments Related to the Acquisition

The unaudited pro forma condensed combined balance sheet includes the following adjustments:

(a) This adjustment records the purchase of the Acquired Properties in exchange for the assumption of approximately $66.1 million of associated decommissioning liabilities, other assumed liabilities and transaction costs. In addition, Maritech received a net cash settlement of approximately $18.3 million, consisting primarily of the Acquired Properties’ net cash flows received by Devon Energy subsequent to the effective date, and which is net of $4.0 million of purchase consideration paid by Maritech.

The unaudited pro forma condensed combined statements of operations include the following adjustments:

(b) This adjustment records the additional depreciation, depletion and amortization associated with the Acquired Properties.

(c) This adjustment records the additional accretion expense related to the decommissioning liabilities assumed associated with the Acquired Properties.

(d) This adjustment records the income tax impact of the Acquired Properties, using TETRA’s consolidated statutory income tax rate.

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Pro Forma Supplemental Oil and Gas Disclosures

(unaudited)

The following table sets forth certain unaudited pro forma information concerning TETRA’s proved oil and gas reserves as of December 31, 2004 and 2003, giving effect to the purchase of the Acquired Properties from Devon Energy as if it had occurred on January 1 of the periods presented. The reliability of reserve information is considerably affected by several factors. Reserve information is imprecise due to the inherent uncertainties in, and the limited nature of, the database upon which the estimating of reserve information is predicated. Moreover, the methods and data used in estimating reserve information are often necessarily indirect or analogical in character, rather than direct or deductive. Furthermore, estimating reserve information, by applying generally accepted petroleum engineering and evaluation principles, involves numerous judgments based upon the engineer’s educational background, professional training and professional experience. The extent and significance of the judgments to be made are, in themselves, sufficient to render reserve information inherently imprecise.

Estimated Quantities of Proved Oil and Gas Reserves

 

Oil (MBbls)

 
 

Acquired

 
 

TETRA

Properties

Pro Forma

 

Total proved reserves at December 31, 2002

902

2,211

3,113

Revisions of previous estimates

645

316

961

Production

(473

)

(935

)

(1,408

)

Extensions and discoveries

1,314

1

1,315

Purchases of reserves in place

887

887

Sales of reserves in place

 

Total proved reserves at December 31, 2003

3,275

1,593

4,868

Revisions of previous estimates

(301

)

1,009

708

Production

(502

)

(833

)

(1,335

)

Extensions and discoveries

64

64

Purchases of reserves in place

110

110

Sales of reserves in place

 

Total proved reserves at December 31, 2004

2,646

1,769

4,415

 

Proved developed reserves

December 31, 2003

1,593

1,352

2,945

December 31, 2004

1,127

1,450

2,577

 

8


 

 

Gas (MMcf)

 
 

Acquired

 
 

TETRA

Properties

Pro Forma

 

Total proved reserves at December 31, 2002

10,004

22,877

32,881

Revisions of previous estimates

(556

)

9,661

9,105

Production

(3,953

)

(10,399

)

(14,352

)

Extensions and discoveries

1,654

4,533

6,187

Purchases of reserves in place

6,776

6,776

Sales of reserves in place

 

Total proved reserves at December 31, 2003

13,925

26,672

40,597

Revisions of previous estimates

1,223

(4,272

)

(3,049

)

Production

(4,101

)

(6,522

)

(10,623

)

Extensions and discoveries

6,615

6,615

Purchases of reserves in place

4,986

4,986

Sales of reserves in place

(243

)

(243

)

 

Total proved reserves at December 31, 2004

22,405

15,878

38,283

 

Proved developed reserves

December 31, 2003

10,332

24,961

35,293

December 31, 2004

15,356

13,783

29,139

 

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

The standardized measure of discounted future net cash flows and changes in such cash flows are prepared using procedures prescribed by Statement of Financial Accounting Standards No. 69 (“SFAS No. 69”). As prescribed by SFAS No. 69, “standardized measure” relates to the estimated discounted future net cash flows and major components of that calculation relating to proved reserves at the end of the year in the aggregate, based on year end prices, costs, and statutory tax rates and using a 10% annual discount rate.

The standardized measure is not an estimate of the fair value of proved oil and gas reserves. Probable and possible reserves, which may become proved in the future, are excluded from the calculations. Furthermore, yearend prices, used to determine the standardized measure, are influenced by seasonal demand and other factors and may not be the more representative in estimating future revenues or reserve data.

The following is a summary of pro forma standardized measure of discounted future net cash flows from proved oil and gas reserves of TETRA as of December 31, 2004 and 2003, giving effect to the acquisition of the Acquired Properties as if it had occurred at January 1 of each of the periods presented:

9


 

 

December 31, 2003

 
 

Acquired

 
 

TETRA

Properties

Pro Forma

 

 

(In Thousands)

Future cash inflows

$184,121

$207,763

$391,884

Future costs

Production

50,446

53,832

104,278

Development and abandonment

47,472

82,656

130,128

Future net cash flows before income taxes

86,203

71,275

157,478

Future income taxes

(25,908

)

(28,904

)

(54,812

)

Future net cash flows

60,295

42,371

102,666

Discount at 10% annual rate

(10,433

)

1,254

(9,179

)

Standardized measure of discounted future net cash flows

$49,862

$43,625

$93,487

 

 

December 31, 2004

 
 

Acquired

 
 

TETRA

Properties

Pro Forma

 

 

(In Thousands)

Future cash inflows

$257,459

$172,203

$429,662

Future costs

Production

70,689

57,833

128,522

Development and abandonment

65,933

89,595

155,528

Future net cash flows before income taxes

120,837

24,775

145,612

Future income taxes

(39,671

)

(16,393

)

(56,064

)

Future net cash flows

81,166

8,382

89,548

Discount at 10% annual rate

(11,275

)

6,612

(4,663

)

Standardized measure of discounted future net cash flows

$69,891

$14,994

$84,885

 

The following is a summary of the changes in the pro forma standardized measure of discounted future net cash flows from proved oil and gas reserves of TETRA as of December 31, 2004 and 2003, giving effect to the acquisition of the Acquired Properties as if it had occurred at January 1 of each of the periods presented:

10


 

 

Year Ended December 31, 2003

 
 

Acquired

 
 

TETRA

Properties

Pro Forma

 

 

(In Thousands)

Standardized measure, beginning of year

$20,726

$8,596

$29,322

Sales, net of production costs

(19,635

)

(57,953

)

(77,588

)

Net change in prices, net of production costs

2,013

25,433

27,446

Changes in future development costs

(86

)

10,384

10,298

Development costs incurred

473

759

1,232

Accretion of discount

2,073

860

2,933

Net change in income taxes

(12,793

)

(4,277

)

(17,070

)

Purchases of reserves in place

32,570

32,570

Extensions and discoveries

15,538

16,284

31,822

Sales of reserves in place

Net change due to revision in quantity estimates

11,107

35,936

47,043

Changes in production rates (timing) and other

(2,124

)

7,603

5,479

Subtotal

29,136

35,029

64,165

 

Standardized measure, end of year

$49,862

$43,625

$93,487

 

 

Year Ended December 31, 2004

 
 

Acquired

 
 

TETRA

Properties

Pro Forma

 

 

(In Thousands)

Standardized measure, beginning of year

$49,862

$43,625

$93,487

Sales, net of production costs

(19,882

)

(49,817

)

(69,699

)

Net change in prices, net of production costs

5,381

2,481

7,862

Changes in future development costs

(1,738

)

(10,202

)

(11,940

)

Development costs incurred

2,750

6,685

9,435

Accretion of discount

4,986

4,363

9,349

Net change in income taxes

(11,811

)

11,683

(128

)

Purchases of reserves in place

12,882

12,882

Extensions and discoveries

29,171

29,171

Sales of reserves in place

(115

)

(115

)

Net change due to revision in quantity estimates

(2,233

)

7,532

5,299

Changes in production rates (timing) and other

638

(1,356

)

(718

)

Subtotal

20,029

(28,631

)

(8,602

)

 

Standardized measure, end of year

$69,891

$14,994

$84,885

 

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