WLL » Topics » 1. BASIS OF PRESENTATION

These excerpts taken from the WLL 8-K filed Nov 16, 2005.

1.    BASIS OF PRESENTATION

In October 2004, Celero Energy, LP (“Celero”) acquired certain producing oil and gas properties (the “North Ward Estes and Ancillary Properties”) from Crown Oil Partners II, LP (“Crown”). In October 2003, Crown purchased the primary asset in this property set, properties in the North Ward Estes Field, from ChevronTexaco.

On July 25, 2005, Celero entered into an agreement with Whiting Petroleum Corporation (“Whiting”), whereby Celero agreed to sell the North Ward Estes and Ancillary Properties, effective July 1, 2005, for approximately $459.2 million, subject to certain post-closing adjustments. The sales transaction closed on October 4, 2005. The accompanying statements of revenues and direct operating expenses for the North Ward Estes and Ancillary Properties do not include general and administrative expenses, interest income or expense, a provision for depreciation, depletion and amortization, or any provision for income taxes since historical expenses of this nature incurred by Celero. Accordingly, the accompanying statements of revenues and direct operating expenses are not necessarily indicative of the costs to be incurred by Whiting.

Oil and natural gas revenues in the accompanying statements of revenues and direct operating expenses are recognized on the sales method. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. Direct operating expenses are recognized on the accrual method.

During the period presented in the accompanying statements of revenues and direct operating expenses, the North Ward Estes and Ancillary Properties were not accounted for or operated as a separate division by the owners. Accordingly, full separate financial statements prepared in accordance with generally accepted accounting principles do not exist and are not practicable to obtain in these circumstances.

These statements vary from an income statement in that they do not show certain expenses, which were incurred in connection with the ownership of the North Ward Estes and Ancillary Properties, such as general and administrative expenses, and income taxes. These costs were not separately allocated to the North Ward Estes and Ancillary Properties in the previous owners’ historical financial records and any pro forma allocation would be both time consuming and expensive and would not be a reliable estimate of what these costs would actually have been had the North Ward Estes and Ancillary Properties been operated historically as a stand alone entity. In addition, these allocations, if made using historical general and administrative structures and tax burdens, would not produce allocations that would be indicative of the historical performance of the North Ward Estes and Ancillary Properties had they been assets of Whiting, due to the greatly varying size, structure, and operations between Whiting and previous owners. These statements also do not include provisions for depreciation, depletion and amortization as such amounts would not be indicative of future costs and those costs which would be incurred by Whiting upon allocation of the purchase price. Accordingly, the accompanying statements of revenues and direct operating expenses are not indicative of the financial condition of the North Ward Estes and Ancillary Properties.

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1.     BASIS OF PRESENTATION

        On October 4, 2005, Whiting Petroleum Corporation (the “Company”) completed its acquisition of the operated interest in the North Ward Estes field in the Permian Basin of West Texas and certain other fields (“North Ward Estes and Ancillary Properties”) from Celero Energy, LP (“Celero”). The purchase price for the North Ward Estes and Ancillary Properties was approximately $459.2 million, which was comprised of $442 million in cash and 441,500 shares of the Company’s common stock. On August 4, 2005, the Company completed its acquisition of the operated interest in the Postle field in Texas County, Oklahoma (the “Postle Properties”) from Celero for $343 million in cash. The effective date of both purchases was July 1, 2005.

        During 2005, the Company also completed two other property acquisitions (collectively, “Other Properties”). On March 31, 2005, the Company acquired operated interests in five producing gas fields in the Green River Basin of Wyoming for a purchase price of $65 million (“Green River Basin”), which was funded by borrowings under the Company’s credit agreement. On June 23, 2005, the Company acquired all of the limited partnership interests in three institutional partnerships, having properties in Louisiana, Texas, Arkansas, Oklahoma and Wyoming, for a purchase price of $30.5 million, which was funded using cash on hand.

        The following unaudited pro forma financial information shows the pro forma effects of i) the consummation of the North Ward Estes and Ancillary Properties acquisition, ii) the offering of 6,612,500 shares of the Company’s common stock that closed on October 4, 2005 (the “Common Stock Offering”), iii) the private placement of $250 million of the Company’s senior subordinated notes that also closed on October 4, 2005 (the “Senior Subordinated Notes Private Placement”), iv) the use of the net proceeds from the Common Stock Offering and Senior Subordinated Notes Private Placement to pay the remaining cash portion of the purchase price for the North Ward Estes and Ancillary Properties and related fees and expenses, and v) the use of the remaining net proceeds from the Common Stock Offering and Senior Subordinated Notes Private Placement to repay $100 million of the Company’s debt under its credit facility (collectively, the “Transactions”).

        The unaudited pro forma combined statement of operations for the nine months ended September 30, 2005 was prepared as if the Transactions and the acquisitions of the Postle Properties and Other Properties all occurred on January 1, 2005 and includes the pro forma results of the Postle Properties through August 4, 2005 and the pro forma results of the Other Properties from January 1, 2005 up to their respective acquisition dates. The unaudited pro forma combined statement of operations for the for the year ended December 31, 2004 was prepared as if the Transactions and the acquisitions of the Postle Properties and Other Properties all occurred at January 1, 2004. The unaudited pro forma combined balance sheet as of September 30, 2005 assumes that the Transactions all occurred on September 30, 2005. The Company’s historical results include the results from its recent acquisitions beginning on the following dates: Green River Basin of Wyoming, March 31, 2005; limited partnership interests, June 23, 2005; and Postle Properties, August 4, 2005.

        The Company has prepared the unaudited combined pro forma financial statements to give effect to the following:

  the sale of 6,612,500 shares of the Company’s common stock at the public offering price of $43.60 per share, generating net proceeds of approximately $277.0 million, after deducting approximately $11.3 million of estimated offering related fees and expenses, including the underwriting discount and commissions; and

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  the sale of $250 million aggregate principal amount of the Company’s senior subordinated notes maturing in 2014 bearing interest at 7%, generating net proceeds of approximately $244.5 million, after deducting approximately $5.5 million of estimated offering related fees and expenses, including the underwriting discount and commissions.

        The pro forma financial information also includes the effects of the Company’s $1.2 billion bank credit agreement, which was entered into on August 31, 2005 in connection with the acquisitions of the North Ward Estes and Ancillary Properties and the Postle Properties. The credit agreement had an initial borrowing base of $675 million, which increased to $850 million upon the closing of the North Ward Estes and Ancillary Properties and was then offset by a reduction of $62.5 million upon the closing of the Senior Subordinated Notes Private Placement, thereby resulting in a borrowing base of $787.5 million.

        The statements of revenues and direct operating expenses for the North Ward Estes and Ancillary Properties and the Postle Properties were derived from the historical accounting records of the sellers and prior operators. Although the statements do not include depreciation, depletion and amortization, exploration expense, general administrative expenses, income taxes or interest expense, as described in Notes 3 and 4, these costs have been included on a pro forma basis. The pro forma statements of operations, however, are not necessarily indicative of the Company’s operations going forward, because these statements necessarily exclude various operating expenses attributable to the North Ward Estes and Ancillary Properties and the Postle Properties.

        The Company believes that the assumptions used provide a reasonable basis for presenting the significant effects directly attributable to such transactions.

        These unaudited pro forma financial statements do not purport to represent what the Company’s financial position or results of operations would have been if the Transactions had occurred on September 30, 2005, January 1, 2005 or January 1, 2004, respectively. These unaudited pro forma financial statements should be read in conjunction with the Company’s historical financial statements and related notes for the periods presented.

        Earnings Per Share – Basic net income per common share of stock is calculated by dividing net income by the weighted average of common shares outstanding during each period. Diluted net income per common share of stock is calculated by dividing net income by the weighted average of common shares outstanding and other dilutive securities. The only securities considered dilutive are unvested restricted stock awards.

EXCERPTS ON THIS PAGE:

8-K (2 sections)
Nov 16, 2005
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