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UNITED STATES | |||
SECURITIES AND EXCHANGE COMMISSION | |||
Delaware, D.C. 20549 | |||
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FORM 10-K/A | |||
(AMENDMENT NO. 1 TO FORM 10-K) | |||
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[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) | ||
| OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the Fiscal Year Ended December 31, 2000 | ||
OR | |||
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | ||
| OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the Transition Period from to | ||
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Commission File Number 1-1525 | |||
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GLADSTONE ENERGY, INC. | |||
(Exact name of Registrant as specified in its charter) | |||
Delaware | 91-0234563 | ||
(State of Incorporation) | (I.R.S. Employer Identification No.) | ||
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3500 Oak Lawn, Suite 590 |
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Dallas, Texas | 75219 | ||
(Address of principal executive offices) | (Zip Code) | ||
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(214) 528-9710 | |||
(Registrant's telephone number, | |||
including area code) | |||
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Securities registered pursuant to Section 12(b) of the Act: | |||
None | |||
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Securities registered pursuant to Section 12(g) of the Act: | |||
Common Stock Par Value $.001 Per Share | |||
(Title of Class) | |||
______________________________ | |||
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. | |||
YES [X] NO [ ] | |||
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ ] | |||
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Class: | Common Stock, $.001 par value per share | ||
| Outstanding at March 30, 2001: 848,782 shares | ||
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DOCUMENTS INCORPORATED BY REFERENCE | |||
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None | |||
EXPLANATORY NOTE
This Annual Report on Form 10-K/A ("Form 10-K/A") is being filed as Amendment No. 1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. This Form 10-K/A is filed with the Securities and Exchange Commission (the "Commission") solely for the purpose of revising and restating Part I, Items 1 and 4 in their entirety.
ITEM 1. BUSINESS
General
The principal activity of Gladstone Energy, Inc., a Delaware corporation (the "Company"), formerly known as Gladstone Resources, Inc., has been its involvement in the acquisition of, exploration for and production of oil and natural gas. Historically, the Company has continually reviewed and evaluated potential oil and gas prospects. In evaluating prospects, the Company sometimes obtained engineering and technical assistance from independent consultants at prevailing industry rates.
However, on November 23, 1999, the Board of Directors unanimously elected to pursue a strategic change in corporate direction to maximize shareholder value. As a result the Company sold its oil and gas properties in 2000. On August 31, 2000, the Company sold, in three simultaneous transactions an aggregate of 30% of the Company's interest in and to the Righthand Creek Field in Allen and Beauregard Parishes, Louisiana (the "Righthand Creek Field") for an aggregate purchase price of $201,000. The three purchasers of the interest were i) G. R. Partners, Inc., who acquired 8.1632653% of the Company's interest in and to the Righthand Creek Field for a purchase price of $54,693.88; ii) Bagwell No. 6 Family L. P., who acquired 12.2448980% of the Company's interest in and to the Righthand Creek Field for a purchase price of $82,040.82; and (iii) the Humphrey Children's Trust, who acquired 9.5918367% of the Company's interest in and to the Righthand Creek Field for a purchase price of $64,265.31. On October 10, 2000, the Company disposed of 100% of the Company's interest in and to the Company's San Juan County, New Mexico properties to EXCO Resources, Inc., for a purchase price of $267,000.00. Finally, on December 29, 2000, the Company disposed of the remainder of the Company's 8.575% working interest in and to and to the Righthand Creek Field to EXCO Resources, Inc. for a cash purchase price of $434,000.00.
The sale agreements executed by the Company in connection with the sales to EXCO Resources, Inc. of the Company's interest in the San Juan County, New Mexico properties and the Company's 8.575% working interest in the Righthand Creek Field on October 10, 2000 and December 29, 2000, respectively, contain certain representations and warranties of the Company with respect to such properties and the agreement of the Company to indemnify the buyer for a period of 3 years from all liabilities arising out of or related to any act or omission by the Company with respect to its interest in such properties prior to sale and for any liability caused by the Company's negligence or breach of the sale agreement. Under each such sale agreement, the Company remains liable for all claims relating to drilling, operations, production and sale of hydrocarbons from the property and the accounting and payment by the Company to parties for their interest therein (including any retroactive payments, refunds or penalties) insofar as such claims relate to occurrences before the sale, and the Company agrees to indemnify the buyer from all such claims.
The Company is now considering other business opportunities, including opportunities in other industries. A business opportunity may involve an acquisition structured as a purchase, merger or sale of stock. A business opportunity may also involve a sale, which may be structured as a merger or sale of stock or assets, or a recapitalization or liquidation of the Company. A merger or sale of stock may be structured as or to include as a preliminary step the sale by the Company's current officers and directors of their controlling interest in the Company. Depending upon the nature of the transaction, the current officers and directors of the Company may resign their positions. In that event, the Company's current management would not have any control over the conduct of the Company's business following such transaction.
Although the Company has not entered into any binding agreements in this regard, nor has the Board of Directors determined any specific course in connection with this action, the Company has been engaged, and expects to continue to be engaged in discussions with third parties as opportunities present themselves. No assurances can be given that the Company will be able to locate or consummate any transaction of this nature, nor can any assurances be given that such a transaction will result in any strategic benefit to the Company or its shareholders.
At December 31, 2000, due to the sale of properties, the Company owned no interests in developed or undeveloped oil and gas properties. As a result of the sale of properties, the Credit Facility that the Company entered into on July 15, 1999, was paid off and terminated.
Operating Activities
Prior to the sale in 2000 of its remaining oil and gas properties, the Company had contracted with other parties, including officers, directors, principal stockholders or other affiliates of the Company, to act as contract operator of the oil and gas prospects in which it owned an interest; provided such transactions were on terms and conditions substantially similar to those offered by nonaffiliated parties. The contract operators supervised production, maintain production records, employ field personnel and perform other functions required in the production and administration of such property. The fees for such services customarily vary from well to well, depending on the nature, depth and location of the well being operated. Generally, the operator of an oil and gas prospect is determined by such factors as the size of the working interest held by a participant in the prospect, a participant's knowledge and experience in the geological area in which the prospect is located and geographical considerations. The wells that the Company previously owned were drilled by independent drilling contractors.
Products, Markets and Revenues
Prior to the sale in 2000 of it remaining oil and gas properties, oil and natural gas were the principal products produced by the Company. The Company did not refine or process the oil and natural gas that it produced. The Company sold the oil it produces under short-term contracts at market prices in the areas in which the producing properties were located, generally at F.0.B. field prices posted by the principal purchaser of oil in such areas.
Natural gas produced from the Company's properties was sold under both short-term and long-term contracts with transmission and utility companies that have pipelines in the vicinity of the producing properties or that will construct pipelines to such properties. The contracts were of a type common within the industry, and a separate contract was usually negotiated for each property. Typically, the Company's contracts were made for terms ranging from day to day up to six months.
The availability of a ready market for oil and gas and the prices of oil and gas depend on a number of factors that are beyond the control of the Company. These factors include, among other things, the level of domestic production and economic activity generally, the availability of imported oil and gas, actions taken by foreign oil producing nations, the availability of gas pipelines with adequate capacity and other transportation facilities, the availability and marketing of other competitive fuels, fluctuating and seasonal demand for oil, gas and refined products and the extent of governmental regulation and taxation (under both present and future legislation) of the production, refining, transportation, pricing, use and allocation of oil, natural gas, refined products and substitute fuels. Accordingly, in view of the many uncertainties affecting the supply and demand for crude oil, natural gas and refined petroleum products, it is not possible to predict accurately the prices or marketability of the oil and gas from any producing well in which the Company had or may have acquired an interest.
Crude oil prices are generally determined by global supply and demand, while natural gas prices are influenced by North American supply and demand. There could be no assurance that the Company would be able to market all oil or gas that it was able to produce or, if such oil or gas could be marketed, that favorable price and contractual terms could be negotiated. Changes in oil and natural gas prices significantly affected the revenues and cash flow of the Company and the value of oil and gas properties it held. Prior to the sale of its remaining oil and gas properties in 2000, significant declines in the prices of oil and natural gas could have a material adverse effect on the business and financial condition of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations."
In certain areas in which the Company engaged in gas exploration and production activities, the supply of natural gas available for delivery from time to time exceeded the demand. During such times companies purchasing gas in such areas reduce the amount of gas that they will purchase or take. If buyers cannot be readily located for newly discovered gas reserves, newly completed gas wells may be shut-in for various periods of time. There could be no assurances that the over-supply of natural gas in certain areas would not cause the Company to experience "take" problems or adversely affect the Company's ability to obtain contracts to market gas discovered in wells in which the Company owned an interest.
The following table sets forth the amount of the Company's oil sales, gas sales and the percent of oil and gas sales to total revenues for the periods indicated.
Year |
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| Total | Percent of Oil/Gas | |
December 31, | Oil Sales | Gas Sales | Oil/Gas Sales | Oil | Gas |
2000 | $ 239,333 | $ 56,346 | $ 295,679 | 81% | 19% |
1999 | 161,200 | 62,743 | 223,943 | 72% | 28% |
1998 | 144,311 | 119,691 | 264,002 | 55% | 45% |
1997 | 276,814 | 234,663 | 511,477 | 54% | 46% |
Delivery Commitments
The Company is not presently obligated to provide a fixed and determinable quantity of oil or gas under any existing contract or agreement.
Customers
During fiscal 2000, EXCO Resources, Inc. accounted for 81% and Bledsoe Petro Corp accounted for 16% of the Company's total revenues. During fiscal 1999 EXCO Resources, Inc. accounted for 72% and Bledsoe Petro Corp accounted for 19% of the Company's total revenues. All properties for which revenues were received from EXCO Resources, Inc. were included in the sales that occurred during 2000. See "Item 1. Business - Sale of Developed and Undeveloped Acreage."
Competition
The oil and gas industry is highly competitive. The Company encountered strong competition from other independent operators and from major oil companies in acquiring properties suitable for exploration, in contracting for drilling equipment and in securing trained personnel. Many of these competitors have financial resources and staffs substantially larger than those available to the Company.
Exploration for and production of oil and gas is also affected by competition for drilling rigs and the availability of tubular goods and certain other equipment. While the oil and gas industry has experienced shortages of drilling rigs and equipment, pipe and personnel in the past, the Company did not experience any shortages in 2000.
Competition for attractive oil and gas producing properties, undeveloped leases and drilling rights is also strong. Many major oil companies have publicly indicated their decisions to concentrate on overseas activities and have been actively marketing certain of their existing producing properties for sale to independent producers.
Risks
The Company's oil and gas operations, conducted in 2000 until the sale of its remaining properties were subject to all of the risks normally incident to the exploration for and production of oil and gas, including blowouts, cratering, pollution and fires, each of which could result in damage to or destruction of oil and gas wells or formations or production facilities or damage to persons and property. As is common in the oil and gas industry, the Company was not fully insured against these risks either because insurance was not available or because the Company elected not to procure insurance due to prohibitive premium costs. The occurrence of such an event not fully insured against could have had a material adverse effect on the Company's financial position.
The Company's prior oil and gas activities involved in part exploratory drilling, which carries a significant risk that no commercial oil or gas production will be obtained. The cost of drilling, completing and operating wells is often uncertain. Further, drilling may be curtailed or delayed as a result of many factors, including title problems, weather conditions, delivery delays, shortages of pipe and equipment and the unavailability of drilling rigs.
Employees
At March 30, 2001, the Company had no employees, either in field operations or office and administrative activities. The Company contracts with other parties, including officers, directors, principal stockholders or other affiliates of the Company, to perform the office and administrative activities of the Company; provided such transactions are on terms and conditions substantially similar to those offered by nonaffiliated parties. The Company also utilizes the services of outside consultants on a contract basis.
Regulation
General. Domestic exploration for, and production and sale of, oil and gas are extensively regulated at the national, state and local levels. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue and have issued rules and regulations binding on the oil and gas industry and its individual members, compliance with which are often difficult and costly and which carry substantial penalties for the failure to comply. The heavy and increasing regulatory burden on the oil and gas industry increases its cost of doing business and, consequently, affects its profitability. The following are some specific regulations that may have affected the Company. This summary should by no means be relied upon as a complete review of regulatory matters that may have affected the Company's oil and natural gas production.
Federal Regulation of Natural Gas. The interstate transportation and sale for resale of natural gas is subject to federal regulation, including regulation of tariffs charged and various other matters, by the Federal Energy Regulation Commission (the "FERC") under the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). Beginning in 1978, the NGPA regulated maximum selling prices of certain categories of gas in either interstate or intrastate commerce. The Natural Gas Wellhead Decontrol Act of 1989 terminated all NGA and NGPA price controls on wellhead sales of domestic natural gas on January 1, 1993.
In 1992, FERC issued Orders Nos. 636 and 636-A, which generally open access to interstate pipelines by requiring operators of such pipelines to unbundle transportation services from sales services and allow customers to pay for only the services they require, regardless of whether the customer purchases gas from such pipelines or from other suppliers. The orders also require upstream pipelines to permit downstream pipelines to assign upstream capacity to their shippers, and place comparable, unbundled access requirements on the downstream pipelines. The United States Court of Appeals upheld the unbundling provisions and other components of FERC's orders but remanded several issues to that commission for further explanation. On February 27, 1997, the FERC issued Order No. 636-C, addressing the court's concern. Petitions for rehearing on Order No. 636-C were denied on May 28, 1998. That order remains subject to judicial review and may change as a result of that review. Although these regulations should have generally facilitated the transportation of gas produced from the Company's properties it held and the direct access to end-user markets, the impact of these regulations on marketing the Company's production or on its gas transportation business could not be predicted. The Company, however, does not believe that it was affected any differently than other natural gas producers and marketers with which it competed .
Federal Regulation of Oil. Sales of crude oil, condensate and natural gas liquids are not federally regulated and are made at market prices. The net price received from the sale of these products is affected by market transportation costs. A significant part of the Company's oil production was transported by pipeline. The Energy Policy Act of 1992 required the FERC to adopt a simplified ratemaking methodology for interstate oil pipelines. In 1993 and 1994, the FERC issued Order Nos. 561 and 562 adopting rules that establish new rate methods for such pipelines. Under those rules, interstate oil pipelines can change rates based on an inflation index, though other rate mechanisms may be used in specific circumstances. The United States Court of Appeals upheld the FERC's orders in 1996. The Company's cost of transporting oil has not been affected to any significant extent by these rules.
State Regulation. Certain states in which the Company operated regulate the spacing, drilling, plugging and abandonment of wells, limit the number of days in a given month during which a well can produce and otherwise limit the rate of allowable production from a well on the basis of a number of factors, including market demand for gas. The Company did not experience any material reductions in production due to proration. Nevertheless, these measures could materially affect the Company's production. Local, state and federal environmental controls could also effect the Company's operations through regulations enacted to protect against waste, conserve natural resources, prevent pollution and otherwise guard against abusing the environment. Such regulations could require spending funds on environmental protection measures and remedial measures. Further, penalties imposed on the Company for violating such regulations could seriously inhibit the Company's financial condition.
Environmental Regulation. Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, directly impact oil and gas exploration, development and production operations and consequently may impact the Company. It is not anticipated that the Company will be required in the near future to expend amounts that are material in relation to its total capital expenditure program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are constantly being changed, the Company is unable to predict the ultimate cost to it of complying with present and future environmental laws and regulations.
Other Proposed Legislation. In the past, Congress has been very active in the area of natural gas regulation. There are legislative proposals pending in the legislatures of various states which, if enacted, could significantly affect the petroleum industry. It is currently impossible to predict what proposals, if any, might actually be enacted by Congress or the various state legislatures and what effect, if any, such proposals might have on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on December 29, 2000, the stockholders were asked to elect five directors to serve on the Board of Directors and approve and adopt the Sale and Purchase Agreement between the Company and EXCO Resources, Inc. ("Buyer") dated October 25, 2000, ("sale agreement") pursuant to which the Company proposed to sell for cash the 8.575% working interest in the Right Hand Creek Field in the Beauregard and Allen Parishes of Louisiana (the "Right Hand Creek property") that constituted substantially all of the remaining assets of the Company ("asset sale").
- Directors. The following members were elected to the Board of Directors:
Name | Votes For | Votes Withheld |
Johnathan M. Hill | 736,831 | 400 |
Charles B. Humphrey | 736,831 | 400 |
Fred Oliver | 736,831 | 400 |
H. Wayne Gifford | 736,831 | 400 |
Katherine R. Murphy | 736,831 | 400 |
- Sale. The stockholders voted to approve the sale agreement and the asset sale. The votes were cast as follows:
For | Against | Abstain | Broker Nonvotes |
725,831 | 150 | 410 | 10,840 |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to Form 10-K on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dallas, Texas on the 2nd of April, 2001.
GLADSTONE ENERGY, INC.
By: /s/ Johnathan M. Hill
Johnathan M. Hill
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 1 to Form 10-K on Form 10-K/A has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
April 2, 2001 /s/ Johnathan M. Hill
Johnathan M. Hill, President (Chief
Executive Officer) and a Director
April 2, 2001 /s/ Katherine R. Murphy
Katherine R. Murphy, Director, Treasurer
and Assistant Secretary
April 2, 2001 /s/ Sheila Irons
Sheila Irons, Vice President and Secretary
April 2, 2001 /s/ H. Wayne Gifford
H. Wayne Gifford, Director
April 2, 2001 /s/ C. B. Humphrey
Charles B. Humphrey, Director
April 2, 2001 /s/ Fred L. Oliver
Fred L. Oliver, Director
