UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 8-K

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 4, 2018 (March 29, 2018) WildHorse Resource Development Corporation (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.) incorporation) 9805 Katy Freeway, Suite 400 Houston, TX (Address of principal executive offices) (Zip Code) Registrant s telephone number, including area code: (713) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: Written communications pursuant to Rule 425 under the Securities Act (17 CFR ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR a-12) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR e-4(c)) Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 ( of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 ( b-2 of this chapter). Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

2 Item Completion of Acquisition or Disposition of Assets. On March 29, 2018, WildHorse Resource Development Corporation (the Company ), through its wholly owned subsidiary, WildHorse Resources II, LLC, a Delaware limited liability company, completed the previously disclosed sale of certain producing and non-producing oil and natural gas properties (including the Oakfield gathering system) in Harrison, Milam, Panola, Robertson, and San Augustine Counties, Texas and Bienville, Bossier, Cado, Claiborne, De Soto, Jackson, Lincoln, Ouachita, Red River, Sabine, and Webster Parishes, Louisiana to Tanos Energy Holdings III, LLC for a total net sales price of approximately $206.4 million (the NLA Divestiture ), including $21.7 million previously received as a deposit and customary preliminary purchase price adjustments of $10.6 million primarily related to the net cash flows from the effective date to the closing date. This disposition does not qualify as a discontinued operation. Item Regulation FD Disclosure. On March 29, 2018, the Company issued a press release announcing, among other things, the closing of the NLA Divestiture and 2018 financial and operational guidance. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference into this Item The information in this Item 7.01, including the attached Exhibit 99.1, is being furnished pursuant to General Instruction B.2 of Form 8-K and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any Company filing, whether made before or after the date hereof, regardless of any general incorporation language in such filing. Item 9.01 Financial Statements and Exhibits. (b) Pro Forma Financial Information. The unaudited pro forma condensed consolidated balance sheet of the Company as of December 31, 2017 and the unaudited condensed consolidated pro forma statement of operations for the year ended December 31, 2017, including notes thereto, which gives effect to the NLA Divestiture, are attached hereto as Exhibit 99.2 and incorporated herein by reference. (d) Exhibits. Exhibit Number 99.1 Press release dated March 29, 2018 Description 99.2 WildHorse Resource Development Corporation s Unaudited Pro Forma Condensed Consolidated Financial Statements as of December 31, 2017 and for the year ended December 31,

3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WILDHORSE RESOURCE DEVELOPMENT CORPORATION Dated: April 4, By: /s/ Kyle N. Roane Name: Kyle N. Roane Title: Executive Vice President, General Counsel and Corporate Secretary

4 Exhibit 99.1 News For Immediate Release WildHorse Resource Development Corporation Announces Closing of North Louisiana Divestiture and Completes Borrowing Base Redetermination HOUSTON, March 29, 2018 WildHorse Resource Development Corporation (NYSE: WRD) announced today that it has closed the sale of its previously announced divestiture of its North Louisiana assets. WRD received net proceeds of approximately $217 million, subject to post-closing adjustments. Subsequent to the closing of the divestiture, 100% of WRD s assets are located in the Eagle Ford Shale and Austin Chalk of East Texas. In addition, WRD completed the regularly scheduled semi-annual redetermination of the borrowing base under its revolving credit facility. The redetermination, which includes the impact of the closed North Louisiana divestiture, resulted in an increased borrowing base of $1.05 billion from $875 million. The next regularly scheduled borrowing base redetermination is expected to occur in October The sale of our North Louisiana assets completes the transition of WRD to a pure-play in the Eagle Ford and Austin Chalk, said Jay Graham, Chairman and Chief Executive Officer of WRD. As a pure play, we will be able to focus entirely on our high-return Eagle Ford and Austin Chalk assets and projects such as the construction of our in-field sand mine. Furthermore, the proceeds from the North Louisiana sale and our increased borrowing base will help to fund our Eagle Ford program and bridge the gap to becoming free cash flow positive in the near future. In our 2018 program, we will extensively test various aspects of our completion design and will bring online 60% of our wells on four-well pads testing a variety of spacing assumptions. With a 404,000 net acre position, this year is about setting the groundwork on our completion and pad design in order to methodically develop this tremendous asset with over 30 years of inventory Development Plan As previously announced, WRD projects 2018 average daily production between Mboe/d consisting of Mbbls/d of oil, MMcf/d of natural gas, and 5-7 Mbbls/d of NGLs. At the mid-point of guidance, this represents a total company production growth rate of 54% and an Eagle Ford production growth rate of 90% over 2017 s average daily production. 1

5 This guidance remains unchanged from the February 12, 2018 press release which presented a case for the successful closing of the North Louisiana divestiture. WRD estimates a fiscal year 2018 D&C capex budget of approximately $700 - $800 million. Drilling and completion activity will be weighted toward the first half of 2018 as WRD transitions from 7.0 rigs at the beginning of the year to 4.0 rigs at mid-year for an average of 4.8 rigs in the Eagle Ford and Austin Chalk during WRD has no commitments on its drilling rig fleet. In addition, WRD expects to transition from 4.0 completion crews in the first half of the year to 3.0 completion crews in the second half of The budget also allocates between $65 - $75 million of non-d&c capital expenditure for the acquisition and construction of WRD s recently announced sand mine which is expected to produce savings of $400,000 to $600,000 per well upon completion by the first quarter of WRD expects its capital budget to be funded by cash on hand, the proceeds of the North Louisiana divestiture, and borrowings under its revolving credit facility. For the full year 2018, WRD expects to spud 100 to 110 gross wells and to bring online 100 to 110 gross wells which include Eagle Ford wells and 8 Austin Chalk wells. For wells brought online in 2018, WRD estimates an average working interest of approximately 93% in the Eagle Ford and 96% in the Austin Chalk. The table below shows WRD s fiscal year 2018 guidance updated for the North Louisiana divestiture. Because the North Louisiana divestiture closed on March 29, 2018, the earnings results for the first quarter of 2018 will include between MMcfe/d of production from the North Louisiana asset. The effective date of the divestiture is January 1,

6 FY 2018 Guidance Low High Net Average Daily Production (Mboe/d) Oil (Mbbls/d) Natural Gas (MMcf/d) NGLs (Mbbls/d) 5-7 Average Costs (per Boe) Lease Operating Expense ($2.90) - ($3.40) Gathering, Processing, and Transportation ($1.10) - ($1.40) Cash General and Administrative (1) ($2.00) - ($2.50) Taxes Other than Income (% of oil & gas revenue) 5.0% - 6.0% Commodity Price Realizations (Unhedged) (2) Crude Oil Realized Price (% of WTI NYMEX) 98% - 102% Natural Gas Realized Price (% of NYMEX to Henry Hub) 90% - 94% NGL Realized Price (% of WTI NYMEX) 33% - 37% Drilling Program Wells Spud (Gross) Wells Completed (Gross) D&C Capital Expenditure ($MM) $700 - $800 Sand Mine Capital Expenditure ($MM) $65 - $75 Note: Guidance as of February 12, 2018 (1) Excludes non-cash compensation charges associated with grants under our LTIP and incentive units issued to certain of our officers and employees. WRD does not guide to anticipated average non-cash general and administrative costs. Please see cautionary language in the appendix for additional disclosures. See Cautionary Statements and Additional Disclosures in the Appendix section of this press release for more information. (2) Based on strip pricing as of February 9, First Quarter 2018 Earnings Conference Call WRD will report its first quarter 2018 financial and operating results after the market closes for trading on May 9, On the morning of May 10, 2018, management will host a first quarter 2018 earnings conference call at 8 a.m. Central (9 a.m. Eastern). Interested parties are invited to participate on the call by dialing (877) (Conference ID: ), or (412) for international calls, (Conference ID: ) at least 15 minutes prior to the start of the call or via the internet at A replay of the call will be available on WRD s website or by phone at (877) (Conference ID: ) for a seven-day period following the call. 3

7 WRD also announced that members of WRD s management team intend to participate in the Tudor Pickering Holt s Hotter N Hell Conference in Houston, Texas on May 14-16, Presentation materials for the conference will be available on WRD s website at under the Investor Relations tab. About WildHorse Resource Development Corporation WildHorse Resource Development Corporation is an independent oil and natural gas company focused on the acquisition, exploration, development and production of oil, natural gas and NGL properties primarily in the Eagle Ford Shale and Austin Chalk in East Texas. For more information, please visit our website at Cautionary Statements and Additional Disclosures This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as anticipates, intends, will, plans, seeks, believes, estimates, could, expects and similar references to future periods. Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond WRD s control. All statements, other than historical facts included in this press release, that address activities, events or developments that WRD expects or anticipates will or may occur in the future, including such things as WRD s future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, future drilling locations and inventory, competitive strengths, goals, expansion and growth of WRD s business and operations, plans, successful consummation and integration of acquisitions and other transactions, market conditions, references to future success, references to intentions as to future matters and other such matters are forward-looking statements. All forward-looking statements speak only as of the date of this press release. Although WRD believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. 4

8 WRD cautions you that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond WRD s control, incident to the exploration for and development, production, gathering and sale of natural gas and oil. These risks include, but are not limited to: commodity price volatility; inflation; lack of availability of drilling and production equipment and services; environmental risks; drilling and other operating risks; regulatory changes; the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, cash flow and access to capital; and the timing of development expenditures. Information concerning these and other factors can be found in WRD s filings with the SEC, including its Forms 10-K, 10-Q and 8-K. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurances that the actual results or developments anticipated by WRD will be realized, or even if realized, that they will have the expected consequences to or effects on WRD, its business or operations. WRD has no intention, and disclaims any obligation, to update or revise any forwardlooking statements, whether as a result of new information, future results or otherwise. Initial production rates are subject to decline over time and should not be regarded as reflective of sustained production levels. Some of the above results are preliminary. Such preliminary results are based on the most current information available to management. As a result, WRD s final results may vary from these preliminary estimates. Such variances may be material; accordingly, you should not place undue reliance on these preliminary estimates. Cash General and Administrative Expenses per Boe Our presentation of cash G&A expenses is a non-gaap measure. We define cash G&A as total G&A determined in accordance with GAAP less non-cash equity compensation expenses, and we may express it on a per Boe basis. We report and provide guidance on cash G&A because we believe this measure is commonly used by management, analysts and investors as an indicator of cost management and operating efficiency on a comparable basis from period to period. In addition, management believes cash G&A is used by analysts and others in valuation, comparison and investment recommendations of companies in the oil and natural gas industry to allow for analysis of G&A spend without regard to stock-based compensation programs which can vary substantially from company to company. Cash G&A should not be considered as an 5

9 alternative to, or more meaningful than, total G&A as determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. Contact: WildHorse Resource Development Corporation Pearce Hammond, CFA (713) Vice President, Investor Relations 6

10 INDEX TO FINANCIAL STATEMENTS Exhibit 99.2 WildHorse Resource Development Corporation Unaudited Pro Forma Condensed Consolidated Financial Statements Introduction F-2 Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2017 F-3 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2017 F-4 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements F-5 F-1 Page

11 Introduction WILDHORSE RESOURCE DEVELOPMENT CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WildHorse Resource Development Corporation is a publicly traded Delaware corporation, the common shares of which are listed on the New York Stock Exchange ( NYSE ) under the symbol WRD. Unless the context requires otherwise, references to we, us, our, WRD, or the Company are intended to mean the business and operations of WildHorse Resource Development Corporation and its consolidated subsidiaries. We are an independent oil and natural gas company focused on the acquisition, exploitation, development and production of oil, natural gas and NGL resources. On March 29, 2018, the Company, through its wholly owned subsidiary, WildHorse Resources II, LLC, a Delaware limited liability company, completed the previously disclosed sale of certain producing and non-producing oil and natural gas properties (including the Oakfield gathering system) in Harrison, Milam, Panola, Robertson, and San Augustine Counties, Texas and Bienville, Bossier, Cado, Claiborne, De Soto, Jackson, Lincoln, Ouachita, Red River, Sabine, and Webster Parishes, Louisiana to Tanos Energy Holdings III, LLC for a total net sales price of approximately $206.4 million (the NLA Divestiture ), including $21.7 million previously received as a deposit and customary preliminary purchase price adjustments of $10.6 million primarily related to the net cash flows from the effective date to the closing date. The Company used the net proceeds to repay borrowings outstanding under its revolving credit facility. This disposition does not qualify as a discontinued operation. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2017 gives effect to the NLA Divestiture and the use of the net proceeds to repay borrowings outstanding under our revolving credit facility as if they both occurred on December 31, The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017 gives effect to the NLA Divestiture and the use of the net proceeds to repay borrowings outstanding under our revolving credit facility as if they both occurred on January 1, The unaudited pro forma condensed consolidated financial statements do not purport to represent what the Company s financial position or results of operations would have been had the NLA Divestiture and the repayment of borrowings outstanding under its revolving credit facility actually occurred on the dates indicated above, nor are they indicative of future financial position or results of operations. The pro forma data presented reflects events directly attributable to the above described transactions and certain assumptions that the Company believes are reasonable. The pro forma adjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual adjustments may differ from the pro forma adjustments. However, management believes that the pro forma assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated financial statements and related notes are presented for illustrative purposes only and should be read in conjunction with the notes thereto and with the audited financial statements and related notes of the Company. F-2

12 WILDHORSE RESOURCE DEVELOPMENT CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2017 (in thousands) WRD Historical Pro Forma Adjustments WRD Pro Forma ASSETS Current Assets: Cash and cash equivalents $ 226 $ 206,406 a) $ 226 (206,406) b) Accounts receivable, net 84,103 84,103 Short-term derivative instruments 2,336 (2,336) c) Prepaid expenses and other current assets 3,290 3,290 Total current assets 89,955 (2,336) 87,619 Property and equipment: Oil and gas properties 2,999,728 (516,459) d) 2,483,269 Other property and equipment 53,003 (30,360) d) 22,643 Accumulated depreciation, depletion and amortization (368,245) 125,867 d) (242,378) Total property and equipment, net 2,684,486 (420,952) 2,263,534 Other noncurrent assets: Long-term derivative instruments 86 (86) c) Debt issuance costs 3,573 3,573 Total assets $ 2,778,100 $ (423,374) $ 2,354,726 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 53,005 $ (3,896) e) $ 49,109 Accrued liabilities 199,952 3,550 i) 203,502 Short-term derivative instruments 58,074 58,074 Total current liabilities 311,031 (346) 310,685 Noncurrent liabilities: Long-term debt 770,596 (206,406) b) 564,190 Asset retirement obligations 14,467 (6,845) f) 7,622 Deferred tax liabilities 71,470 (23,113) g) 48,357 Long-term derivative instruments 18,676 (115) c) 18,561 Other noncurrent liabilities 1,085 1,085 Total noncurrent liabilities 876,294 (236,479) 639,815 Total liabilities 1,187,325 (236,825) 950,500 Commitments and contingencies Series A perpetual convertible preferred stock, $0.01 par value: 50,000,000 shares authorized; 435,000 shares issued and outstanding at December 31, , ,483 Stockholders equity: Common stock, $0.01 par value 500,000,000 shares authorized; 101,137,277 shares issued and outstanding at December 31, ,012 1,012 Additional paid-in capital 1,118,507 1,118,507 Accumulated earnings (deficit) 25,773 (182,999) h) (160,776) (3,550) i) Total stockholders equity 1,145,292 (186,549) 958,743 Total liabilities and equity $ 2,778,100 $ (423,374) $ 2,354,726 The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. F-3

13 WILDHORSE RESOURCE DEVELOPMENT CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017 (in thousands) WRD Historical Pro Forma Adjustments WRD Pro Forma Revenues and other income: Oil sales $ 342,868 $ (3,127) j) $ 339,741 Natural gas sales 59,924 (44,944) j) 14,980 NGL sales 22,964 (1,037) j) 21,927 Other income 1,431 (1,345) j) 86 Total operating revenues and other income 427,187 (50,453) 376,734 Operating expenses: Lease operating expenses 39,770 (7,481) j) 32,289 Gathering, processing and transportation 11,897 (4,882) j) 7,015 Taxes other than income tax 24,158 (3,129) j) 21,029 Depreciation, depletion and amortization 168,250 (31,301) j) 136,949 General and administrative 40,663 1,425 j) 42,088 Exploration expense 36,911 (7,714) j) 29,197 Other operating (income) expense 73 (73) j) Total operating expense 321,722 (53,155) 268,567 Income (loss) from operations 105,465 2, ,167 Other income (expense): Interest expense, net (31,934) 7,431 k) (24,503) Debt extinguishment costs Gain (loss) on derivative instruments (55,483) (4,315) j) (59,798) North Louisiana settlement (7,000) (7,000) Other income (expense) (3) 75 j) 72 Total other income (expense) (94,409) 3,191 (91,218) Income (loss) before income taxes 11,056 5,893 16,949 Income tax benefit (expense) 38,824 (13,266) l) 25,558 Net income (loss) available to WildHorse Resources 49,880 (7,373) 42,507 Preferred stock dividends 13,146 13,146 Undistributed earnings allocated to participating securities 5,612 (1,126) m) 4,486 Net income (loss) available to common shareholders $ 31,122 $ (6,247) $ 24,875 Earnings per common share: Basic $ 0.32 $ (0.06) $ 0.26 Diluted $ 0.32 $ (0.06) $ 0.26 Weighted-average common shares outstanding: Basic 96,324 96,324 96,324 Diluted 96,324 96,324 96,324 The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. F-4

14 WILDHORSE RESOURCE DEVELOPMENT CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Pro Forma Presentation On March 29, 2018, the Company, through its wholly owned subsidiary, WildHorse Resources II, LLC, a Delaware limited liability company, completed the previously disclosed sale of certain producing and non-producing oil and natural gas properties (including the Oakfield gathering system) in Harrison, Milam, Panola, Robertson, and San Augustine Counties, Texas and Bienville, Bossier, Cado, Claiborne, De Soto, Jackson, Lincoln, Ouachita, Red River, Sabine, and Webster Parishes, Louisiana to Tanos Energy Holdings III, LLC for a total net sales price of approximately $206.4 million, including $21.7 million previously received as a deposit and customary preliminary purchase price adjustments of $10.6 million primarily related to the net cash flows from the effective date to the closing date. The Company used the net proceeds to repay borrowings outstanding under its revolving credit facility. This disposition does not qualify as a discontinued operation. The unaudited pro forma condensed consolidated financial information has been derived from the Company s historical consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2017 gives effect to the NLA Divestiture and the use of the net proceeds to repay borrowings outstanding under our revolving credit facility as if they both occurred on December 31, The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017 gives effect to the NLA Divestiture and the use of the net proceeds to repay borrowings outstanding under our revolving credit facility as if they both occurred on January 1, The unaudited pro forma condensed consolidated financial statements do not purport to represent what the Company s financial position or results of operations would have been had the NLA Divestiture and the repayment of borrowings outstanding under its revolving credit facility actually occurred on the dates indicated above, nor are they indicative of future financial position or results of operations. The unaudited pro forma condensed consolidated financial statements reflect pro forma adjustments that are described in Note 2 below and are based on available and certain assumptions that the Company believes are reasonable. However, actual results may differ from those reflected in these statements. In our opinion, all adjustments that are necessary to present fairly the pro forma information have been made. These unaudited pro forma condensed consolidated statements do not purport to represent what the financial position or results of operations would have been if the transaction had actually occurred on the dates indicated above, nor are they indicative of our future financial position or results of operations. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with our audited historical financial statements and the related notes. Note 2. Pro Forma Adjustments and Assumptions The following pro forma adjustments have been applied to the Company s historical consolidated financial statements to depict the Company s consolidated balance sheet as if the NLA Divestiture had occurred on December 31, 2017 and the consolidated statement of operations as if the NLA Divestiture had occurred on January 1, The pro forma adjustments were based on then-available information and assumptions that management believed to be appropriate in the circumstances. Unaudited Pro Forma Condensed Consolidated Balance Sheet The following adjustments were made in the preparation of the unaudited pro forma condensed consolidated balance sheet at December 31, 2017: a. Pro forma adjustment to reflect the closing of the NLA Divestiture, including the receipt of $206.4 million in net proceeds, subject to customary postclosing adjustments. b. Pro forma adjustment to reflect the use of the $206.4 million in net proceeds to repay borrowings under the Company s revolving credit facility. c. Pro forma adjustments to record reflect the elimination of natural gas commodity derivative instruments that were associated with the NLA Divestiture and novated to the purchaser. d. Pro forma adjustment to eliminate the oil and gas properties, other property and equipment, and accumulated depreciation, depletion and amortization associated with the NLA Divestiture. e. Pro forma adjustment to eliminate the revenue suspense associated with the NLA Divestiture. F-5

15 WILDHORSE RESOURCE DEVELOPMENT CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS f. Pro forma adjustment to reflect the elimination of asset retirement obligations associated with the NLA Divestiture. g. Pro forma adjustment to reflect the removal of the deferred tax liability associated with the NLA Divestiture using a combined tax rate of 27.3% for both federal taxes and state taxes. The tax rate reflects the impact of Public Law No , commonly referred to as the Tax Cuts and Jobs Act (the Tax Act ), which was enacted in December h. Pro forma adjustment to reflect the net loss of approximately $183.0 million arising from the NLA Divestiture as of December 31, The net loss was not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2017 as this nonrecurring item is not expected to have a continuing impact. i. Pro forma adjustment to reflect estimated professional fees and closing costs related to the NLA Divestiture. Unaudited Pro Forma Condensed Consolidated Statement of Operations The following adjustments were made in the preparation of the unaudited pro forma condensed consolidated statement of operations for year ended December 31, 2017: j. Pro forma adjustment to reflect the removal of operating revenues and other income, operating expenses (including $1.4 million of Council for Petroleum Accountants Societies overhead for drilling and producing wells) and gain on derivative instruments related to the NLA Divestiture. k. Pro forma adjustment to reflect the elimination of interest expense on $206.4 million of borrowings under our revolving credit facility repaid with the NLA Divesture net proceeds. For the year ended December 31, 2017, pro forma interest expense was based on a weighted-average interest rate of 3.60%. The table below represents the effects of a one-eighth percentage point change in the interest rate on the pro forma interest associated with these repaid borrowings (dollars in thousands): Interest Rate Year Ended December 31, 2017 Weighted-average interest rate 3.600% $ 7,431 Weighted-average interest rate - increase 0.125% 3.725% $ 7,689 Weighted-average interest rate - decrease 0.125% 3.475% $ 7,173 l. Pro forma adjustment to reflect a $10.9 million deferred tax benefit resulting from the Tax Act and $2.4 million tax benefit associated with the pro forma pre-tax loss. m. Pro forma adjustment to reflect a reduction in undistributed earnings allocated to participating securities. F-6