Section 2.02. Results of Operations and Financial Condition.
As reported in a Current Report on Form 8-K filed with the U.S. Securities and
Exchange Commission ("SEC") by Crescent Energy Company (the "Company") on
April 5, 2022, as amended on a Form 8-K/A filed with the SEC on May 19, 2022, on
March 30, 2022, the Company consummated the transactions contemplated by the
Membership Interest Purchase Agreement (the "Purchase Agreement") dated
February 15, 2022, by and among Javelin VentureCo, LLC (the "Purchaser"), a
subsidiary of the Company, Crescent Energy OpCo LLC, a Delaware limited
liability company, and Verdun Oil Company II LLC, a Delaware limited liability
company (the "Seller"), pursuant to which the Purchaser agreed to purchase from
Seller all of the issued and outstanding membership interests of Javelin Uinta,
LLC, a Texas limited liability company and wholly-owned subsidiary of the Seller
that holds certain exploration and production assets located in the State of
Utah (such transactions contemplated by the Purchase Agreement, collectively,
the "Uinta Acquisition").
This Current Report on Form 8-K provides a pro forma statement of operations of
the Company, as described in Item 9.01 below and which is incorporated into this
Item 2.02 by reference, giving effect to the Uinta Acquisition as if it has been
consummated on January 1, 2021. This Current Report on Form 8-K should be read
in connection with the Company's April 5 and May 19 filings referenced above,
which together provide a more complete description of the Uinta Acquisition.
In addition, to the extent required, the information contained in Section 8.01 of this Current Report on Form 8-K is incorporated into this Section 2.02 by reference.
The information contained in this Item 2.02 shall not be deemed to be "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or otherwise subject to the liabilities of that section,
and is not incorporated by reference into any filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act.
Item 7.01. FD Regulation Disclosure.
The information contained in Section 8.01 of this Current Report on Form 8-K is incorporated into this Section 7.01 by reference.
Information contained in this Section 7.01 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the responsibilities of that Section, and shall not be incorporated by reference into any filing under the Securities Act or the Exchange Act.
Section 8.01 Other Events.
Pro forma financial statements
This current report on Form 8-K provides a pro forma statement of operations, as described in Section 9.01 below, which is incorporated into this Section 8.01 by reference.
Disclosure of Registration Statements
On or about the date of this Current Report on Form 8-K, the Company intends to
file Amendment No. 4 to its Registration Statement on Form S-1 ("Amendment
No. 4") relating to the proposed offering by the Company and a selling
stockholder of shares of Class A common stock, par value $0.0001 per share. In
connection with the filing of Amendment No. 4, the Company is providing certain
additional disclosures to potential investors, the relevant excerpts of which
are set forth below. Capitalized terms used but not defined herein shall have
the meaning assigned thereto in Amendment No. 4.
The Cut Inflation Act of 2022 could accelerate the transition to a low-carbon economy and will impose new costs on our operations.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022
("IRA 2022") into law pursuant to the budget reconciliation process. The IRA
2022 contains hundreds of billions of dollars in incentives for the development
of renewable energy, clean hydrogen, clean fuels, electric vehicles and
supporting infrastructure and carbon capture and sequestration, amongst other
provisions. These incentives could further accelerate the transition of the U.S.
economy away from the use of fossil fuels towards lower- or zero-carbon
emissions alternatives, which could decrease demand for the oil and gas we
produce and consequently materially and adversely affect our business and
results of operations. In addition, the IRA 2022 imposes the first ever federal
fee on the emission of greenhouse gases ("GHGs") through a methane emissions
charge. The IRA 2022 amends the federal Clean Air Act to impose a fee on the
emission of methane from sources required to report their GHG emissions to the
U.S. Environmental Protection Agency ("EPA"), including those sources in the
onshore petroleum and natural gas production and gathering and boosting source
categories. The methane emissions charge will start in calendar year 2024 at
$900 per ton of methane, increase to $1,200 in 2025, and be set at $1,500 for
2026 and each year thereafter. Calculation of the fee is based on certain
thresholds established in the IRA 2022. The methane emissions charge could
increase our operating costs and adversely affect our business and results of
Summary reserve data based on NYMEX prices
The following table provides historical reserves, PV-0 and PV-10 as of
December 31, 2021 for Crescent Energy Company and the reserves acquired in the
Uinta Acquisition using average annual NYMEX forward-month contract pricing in
effect as of June 30, 2022 ("NYMEX Pricing"). We have included this reserve
sensitivity in order to provide an additional method of presentation of the fair
value of our assets and the cash flows that we expect to generate from those
assets based on the market's forward-looking pricing expectations as of June 30,
2022. The historical 12-month pricing average in our 2021 disclosures under the
heading "Summary Reserve Data based on SEC Pricing" does not reflect the oil and
natural gas futures. We believe that the use of forward prices provides
investors with additional useful information about our reserves, as the forward
prices are based on the market's forward-looking expectations of oil and natural
gas prices as of a certain date, although we caution investors that this
information should be viewed as a helpful alternative, not a substitute, for the
data presented based on SEC Pricing. In addition, we believe strip pricing
provides relevant and useful information because it is widely used by investors
in our industry as a basis for comparing the relative size and value of our
proved reserves to our peers and in particular addresses the impact of
differentials compared with our peers. Our estimated historical reserves, PV-0
and PV-10 based on NYMEX Pricing, were otherwise prepared on the same basis as
our estimations based on SEC Pricing reserves for the comparable period. Reserve
estimates using NYMEX Pricing are calculated using the internal systems of the
management of the Company and have not been prepared or audited by an
independent, third-party reserve engineer, but otherwise contain the same
parameters, except for price and minor system differences.
Crescent Energy Company
Acquisition of Uinta
As of December 31, 2021(1)
Net Proved Reserves:
Oil (MBbls) 209,908 43,142
Natural gas (MMcf) 1,534,371 141,098
NGLs (MBbls) (3) 78,615 -
Total Proved Reserves (MBoe) 544,252 66,659
PV-0 (millions) (2) $ 12,183 $ 2,110
PV-10 (millions) (2) $ 7,091 $ 1,551
Net Proved Developed Reserves:
Oil (MBbls) 157,868 25,062
Natural gas (MMcf) (3) 1,468,815 93,735
NGLs (MBbls) (3) 68,499 -
Total Proved Developed Reserves (MBoe) 471,169 40,685
PV-0 (millions) (2) $ 9,930 $ 1,362
Crescent Energy Company Uinta Acquisition
As of December 31, 2021(1)
PV-10 (millions) (2) $ 5,939 $ 1,091
Net Proved Undeveloped Reserves:
Oil (MBbls) 52,040 18,080
Natural gas (MMcf) 65,556 47,363
NGLs (MBbls) (3) 10,116 -
Total Proved Undeveloped Reserves
(MBoe) 73,083 25,974
PV-0 (millions) (2) $ 2,253 $ 748
PV-10 (millions) (2) $ 1,152 $ 460
(1) NYMEX, PV-0 and PV-10 reserves of Crescent Energy Company and the Uinta
Acquisition were determined using index prices for oil and natural gas,
respectively, without giving effect to derivative transactions and were
calculated based on settlement prices to better reflect the market
expectations as of that date, as adjusted for our estimates of quality,
transportation fees, and market differentials. The NYMEX reserves
calculations are based on NYMEX futures prices at close on June 30, 2022
for oil and natural gas. The average adjusted prices of the products on the
the remaining life of the properties is $70.17 per barrel of oil, $4.45 by Mcf
of natural gas and $29.40 per barrel of NGL at December 31, 2021. We
believe that the use of futures prices offers investors
useful information about our reserves, as futures prices are based on
forward-looking market expectations for oil and natural gas prices at
certain date, although we caution investors that this information should be
considered a useful alternative, not a substitute, for the data presented
based on SEC price. See “Item 1A. Risk Factors-Risks Related to Petroleum and
the natural gas industry and our operations – Reserve estimates are dependent on many
assumptions which may prove to be inaccurate. Any material inaccuracy in
reserves estimates or underlying assumptions will have a material effect on the
quantities and present value of our reserves” in our annual report on form
10-K for the year ended December 31, 2021.
(2) Present value (discounted at PV-0 and PV-10) is not a financial measure
calculated in accordance with GAAP as it does not include the effects of
taxes on future net income. Neither PV-0 nor PV-10 represent a
estimate of the fair market value of our oil and gas properties. Our
The PV-0 measure does not provide a discount rate for estimated future cash
flows. The PV-0 therefore does not reflect the risk associated with future cash
flow projections like PV-10 does. PV-0 should therefore only be evaluated in
as part of an assessment of our discounted future net cash PV-10
flows. We believe that the presentation of PV-0 and PV-10 is relevant and
useful to our investors on the future net cash flows of our reserves in
the absence of a comparable measure such as a standardized measure. We and
others in our industry use PV-0 and PV-10 as a measure to compare the
the relative size and value of proved reserves held by companies without regard to
to the tax specificities of these entities. Investors should be
cautioned that neither PV-0 nor PV-10 represents an estimate of the fair
market value of our proved reserves. GAAP does not prescribe any
corresponding measure for PV-10 of reserves based on pricing other than SECOND
Pricing. Therefore, it is not possible for us to reconcile our PV-10
using NYMEX pricing at a standardized measure as determined in accordance with
(3) Natural gas reserves acquired as part of the Uinta acquisition are presented in “wet”
MMcf, which includes NGLs. Crescent Energy Company uses the three-stream reserve
information, with NGL reserves reported separately. Therefore, book
estimates of Crescent Energy Company are not comparable to reserve estimates
for the Uinta Acquisition.
* * * * *
On a pro forma basis for the Transactions, our capital expenditures, excluding acquisitions, incurred during the year December 31, 2021 and the six months ended June 30, 2022 totaled approximately $231.6 million and $278.9 millionrespectively.
* * * * *
Item 9.01 Financial statements and supporting documents.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed combined financial information of
the Company, giving effect to the Uinta Acquisition, attached as Exhibit 99.1
• Unaudited pro forma condensed combined income statement for the
six months ended June 30, 2022; and
• Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
99.1* Unaudited pro forma condensed combined income statement for
the six months ended June 30, 2022.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
* Filed herewith.
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