Main content

Upstream: Complex Financial Reporting: Derivatives Valuation

Parsley Energy Inc. (Parsley) is an exploration and production company with operations in the Permian Basin and is based in Midland, Texas.  Opportune was engaged to assist Parsley through its initial public offering (IPO) process, including filing a registration statement on Form S-1 (S-1) with the U.S. Securities and Exchange Commission (SEC).

Opportune’s derivative specialists worked with the complex financial reporting team to convert Parsley’s records from a cash basis to a mark to market basis in accordance with the requirements of U.S. GAAP.  The derivatives group also assisted with the preparation of the appropriate derivative balances to be reported in Parsley’s financial statements, footnote disclosures, and Management’s Discussion and Analysis, all in accordance with U.S. GAAP and the SEC’s rules and regulations.

The conversion of Parsley’s derivatives records from a cash basis to a mark to market basis presented a uniquely complex set of challenges.  U.S GAAP requires that companies report their derivative portfolios at their fair values with the changes in fair value recognized in earnings during the period of change, unless they qualify for very specific and challenging exemptions.  The work performed by the derivatives group involved reviewing Parsley’s historical records going back 3 years from the filing date and revising them to reflect the appropriate credit adjusted fair values of their derivatives portfolio on their Balance Sheet.  In addition, the team had to determine the impact of the changes in fair values of the derivatives portfolio as well as the settlement of their derivative contracts on their income statement and statement of cash flows for interim and annual reporting periods that were presented in the S-1.  Parsley was able to file its S-1 with the SEC without any issues on its derivative related disclosures and successfully closed a $925 million IPO on May 29, 2014.

The complex-financial-reporting team at Opportune has extensive experience working with financial statements and footnotes, including SEC filings, and we understand the fine print. Financial footnotes and management discussion and analysis are among the most complex and critical pieces of financial data. Knowing how to interpret and construct these disclosures is crucial to SEC compliance, and Opportune can offer deep expertise in this area, along with a specific focus on energy-industry interests.  For more information click here.

Carl Wimberley

PartnerOpportune LLP