UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the fiscal year ended: December 31, 2004 |
| |
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______________ to _______________ |
| |
COMMISSION FILE NUMBER: 0-02517
Toreador Resources Corporation
(Exact name of registrant as specified in its charter)
DELAWARE (State or other jurisdiction of incorporation or organization) | 75-0991164 (I.R.S. Employer Identification No.) |
4809 COLE AVENUE SUITE 108 DALLAS, TEXAS (Address of principal executive offices) |
75205 (Zip Code) |
Registrant’s telephone number, including area code: (214) 559-3933
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
| Title of each Class: | Name of each exchange on which registered: | |
COMMON STOCK, PAR VALUE $.15625 PER SHARE | NASDAQ NATIONAL MARKET SYSTEM |
| |
_______________________________
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 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 90 days. YES X NO
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 to this Form 10-K. o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Securities Exchange Act Rule 12b-2)
YES o | NO x |
The aggregate market value of the voting common equity of the registrant held by non-affiliates, computed by reference to the closing sales price of such stock, as of June 30, 2004 was $40,670,512. (For purposes of determination of the aggregate market value, only directors, executive officers and 10% or greater stockholders have been deemed affiliates.)
The number of shares outstanding of the registrant’s common stock, par value $.15625, as of August 5, 2005, was 14,330,947 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
PART II.
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 2 |
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 12 |
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TOREADOR RESOURCES CORPORATION
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A is being filed with regard to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on March 31, 2005 for the purposes of (i) amending and restating Part II, Item 7. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” to modify the section “Critical Accounting Policies” and (ii) amending and restating the Reports of Independent Registered Public Accounting Firms and Consolidated Financial Statements in order to modify the “Consolidated Statements of Changes in Stockholders’ Equity” by changing the title of the column formerly entitled “Preferred Stock” to “Preferred Stock, Shares and $ Amount” and by adding two new columns “Common Shares” and “Treasury Shares” and to modify Note 2. “Significant Accounting Policies” of the Notes to Consolidated Financial Statements regarding revenue recognition.
This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, and does not modify or update the disclosure therein other than as required to reflect the amendments described above and set forth below.
PART II
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS | |
| AND RESULTS OF OPERATIONs |
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions “Business,” “Properties,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this annual report may constitute “forward-looking” statements for purposes of the Securities Act of 1933, and the Securities Exchange Act of 1934 and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words “anticipates,” “estimates,” “plans,” “believes,” “continues,” “expects,” “projections,” “forecasts,” “intends,” “may,” “might,” “could,” “should,” and similar expressions are intended to be among the statements that identify forward-looking statements. Various factors that could cause the actual results, performance or achievements to differ materially from our expectations are disclosed in this report (“Cautionary Statements”), including, without limitation, those statements made in conjunction with the forward-looking statements included under the captions identified above and otherwise herein. All written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the Cautionary Statements.
EXECUTIVE OVERVIEW
We are an independent international energy company engaged in oil and natural gas exploration, development, production, leasing and acquisition activities. Our strategy is to increase our oil and natural gas reserves through a balanced combination of exploratory drilling, development and exploitation projects and acquisitions. We primarily focus on international exploration activities in countries where we can establish large acreage positions. In addition, we target our operations in countries that we believe have stable governments, have attractive fiscal policies and are net-importers of oil and natural gas.
We currently hold interests in permits granting us the right to explore and develop oil and natural gas properties in the Paris Basin, France; onshore and offshore Turkey; onshore Romania; and offshore Trinidad, West Indies. We also own various working-interest properties primarily in Texas, Kansas, New Mexico, Louisiana and Oklahoma.
On January 14, 2004, we sold our U.S. mineral and royalty interests for approximately $45.0 million. Approximately $28.7 million of the net proceeds were used to discharge our two senior secured credit facilities. After taking into account taxes and fees associated with the sale, approximately $6.0 million remaining proceeds were added to our working capital. As a result of discharging our two senior secured credit facilities, we were able to strengthen our balance sheet and implement our long-term strategy of focusing on (i) generating grow of oil and natural gas reserves, production volumes and cash flows through drilling internally generated prospects, primarily in the international arena and (ii) seeking complementary acquisitions of new interests in
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our core geographic areas of operation.
Income applicable to common shares for 2004 was $24.3 million, or $1.97 per diluted share, compared with income applicable to common shares of $1.9 million, or $0.20 per diluted share, in 2003. A noncash currency translation adjustment of $1.1 million was incurred during the fourth quarter of 2004 as a result of a GAAP requirement that we use the U.S. dollar as the functional currency for our Turkish operations rather than the Turkish Lira, as previously was the case. The functional currency is required because Turkey is considered a highly inflationary operating environment under applicable accounting rules. The increased level of our capital expenditures in Turkey during 2004 warranted this currency adjustment. Audit adjustments subsequent to the March 8, 2005 earnings release resulted in a decrease in Income applicable to common shares of approximately $260,000, or $0.02 per diluted share. The adjustments were necessary in order to adjust the foreign depletion calculation and to defer revenue recognition of an unconsolidated investee’s revenue.
Operating income from continuing operations for 2004 was $1.6 million, which included a nonrecurring charge for seismic costs of $1.8 million for the Black Sea’s South Akcakoca sub-basin. Although the seismic survey was part of the area’s development program after our natural gas discovery there in 2004, a strict interpretation of successful efforts accounting pronouncements necessitated the immediate expensing of these seismic costs rather than capitalizing them.
Revenues for the full year 2004 were $21.0 million, a 25% increase over full-year 2003 revenues of $16.8 million.
In 2004, our oil and natural gas production was 634,000 BOE versus production of 665,000 BOE for 2003. Our average realized oil price per barrel for 2004 was $35.24, a 35% increase over the average realized oil price per barrel of $26.02 in 2003. The average realized gas price in 2004 was $5.65 per Mcf, 19% higher than the average realized gas price of $4.74 per Mcf in 2003.
At December 31, 2004, we held interests in approximately 4.4 million gross acres (approximately 3.3 million net acres). For a more detailed description of our properties please see “Item 2. Properties.” At December 31, 2004, our estimated net proved reserves were 13.8 MMBOE.
On February 16, 2005, we sold 1,437,500 shares of our common stock pursuant to a public offering at a price to the public of $24.25 per share. The sale resulted in net proceeds of approximately $32.6 million, which will be used to fund our 2005 capital expenditure budget and for other general corporate purposes.
We will continue to seek opportunities to accelerate our worldwide acquisition and development program by:
• | Exploiting existing properties and developing existing reserves. |
• | Implementing a balanced program of exploration, development and exploitation, thereby managing our risk exposure. |
• | Pursuing new permits and selective property acquisitions under terms that include: |
- High-impact exploration concessions in core geographic areas primarily located in the Euro-Eastern Mediterranean
| region; and |
|
- Established producing properties that offer potentially significant additions to our asset base. | ||
• | Maintaining operational flexibility by adjusting our drilling program and capital expenditure budget during the year when necessary. |
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT’S ESTIMATES
The discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our significant accounting policies are described in Note 2 to our consolidated financial statements included in this Form 10-K/A. We have identified below policies that are of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management. We analyze our estimates, including those related to oil and natural gas revenues, accounts receivable, oil and natural gas properties, income taxes, derivatives, contingencies and litigation, on a periodic basis and base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates
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used in the preparation of our financial statements:
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING
We account for our oil and natural gas exploration and development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and natural gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for oil and natural gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but such costs are charged to expense if and when the well is determined not to have found reserves in commercial quantities. In most cases, a gain or loss is recognized for sales of producing properties.
The application of the successful efforts method of accounting requires management’s judgment to determine the proper designation of wells as either developmental or exploratory, which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze, and the determination that commercial reserves have been discovered requires both judgment and application of industry experience. Wells may be completed that are assumed to be productive and actually deliver oil and natural gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. On occasion, wells are drilled which have targeted geologic structures that are both developmental and exploratory in nature, and in such instances an allocation of costs is required to properly account for the results. Delineation seismic costs incurred to select development locations within a productive oil and natural gas field are typically treated as development costs and capitalized, but often these seismic programs extend beyond the proved reserve areas and therefore management must estimate the portion of seismic costs to expense as exploratory. The evaluation of oil and natural gas leasehold acquisition costs requires management’s judgment to estimate the fair value of exploratory costs related to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.
The successful efforts method of accounting can have a significant impact on the operational results reported when we enter a new exploratory area in hopes of finding oil and natural gas reserves. The initial exploratory wells may be unsuccessful and the associated costs will be expensed as dry hole costs. Seismic costs can be substantial which will result in additional exploration expenses when incurred.
RESERVE ESTIMATES
Proved reserves are estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods as well as oil and natural gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery after testing by a pilot project or after the operation of an installed program has been confirmed through production response that increased recovery will be achieved. Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Proved undeveloped reserves on undrilled acreage is limited (i) to those drilling units offsetting productive units that are reasonably certain of production when drilled and (ii) to other undrilled units where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. We emphasize that the volume of reserves are estimates that, by their nature are subject to revision. The estimates are made using geological and reservoir data, as well as production performance data. These estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data. We had upward reserve revisions equivalent to 5.03%, 2.34% and 29.85% of proved reserves during the years ended December 31, 2004, 2003 and 2002, respectively. These reserve revisions resulted primarily from improved performance from a variety of sources such as additional recoveries below previously established lowest known hydrocarbon levels, improved drainage from natural drive mechanisms, and the realization of improved drainage areas. If the estimates of proved reserves were to decline, the rate at which we record depletion expense would increase. Holding all other factors constant, a reduction in our proved reserve estimate of 1% would result in an annual increase in depreciation, depletion and amortization expense of approximately $341,000.
IMPAIRMENT OF OIL AND NATURAL GAS PROPERTIES
We review our proved oil and natural gas properties for impairment on an annual basis or whenever events and circumstances indicate a potential decline in the recoverability of their carrying value. We estimate the expected future cash flows from our proved
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oil and natural gas properties and compare these future cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to its fair value in the current period. The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected. Unproved properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period. We have recognized impairment expense in 2003 and 2002. Given the complexities associated with oil and natural gas reserve estimates and the history of price volatility in the oil and natural gas markets, events may arise that will require us to record an impairment of our oil and natural gas properties and there can be no assurance that such impairments will not be required in the future nor that they will not be material.
FUTURE DEVELOPMENT AND ABANDONMENT COSTS
Future development costs include costs incurred to obtain access to proved reserves, including drilling costs and the installation of production equipment. Future abandonment costs include costs to dismantle and relocate or dispose of our production equipment, gathering systems, wells and related structures and restoration costs of land. We develop estimates of these costs for each of our properties based upon the type of production structure, depth of water, reservoir characteristics, depth of the reservoir, market demand for equipment, currently available procedures and consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make estimates and judgments that are subject to future revisions based upon numerous factors, including changing technology, the ultimate settlement amount, inflation factors, credit adjusted discount rates, timing of settlement and changes in the political, legal, environmental and regulatory environment. We review our assumptions and estimates of future abandonment costs on an annual basis. The accounting for future abandonment costs changed on January 1, 2003, with the adoption of SFAS 143. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
Holding all other factors constant, if our estimate of future abandonment costs is revised upward, earnings would decrease due to higher depreciation, depletion and amortization expense. Likewise, if these estimates were revised downward, earnings would increase due to lower depreciation, depletion and amortization expense. A hypothetical increase in the present value of our estimated future abandonment cost of approximately $1 million (representing an increase of approximately 43% to our December 31, 2004 asset retirement obligation) would have increased our depreciation, depletion and amortization expense by $63,418, or $0.10 per BOE for the year ended December 31, 2004.
INCOME TAXES
For financial reporting purposes, we generally provide taxes at the rate applicable for the appropriate tax jurisdiction. Because our present intention is to reinvest the unremitted earnings in our foreign operations, we do not provide U.S. income taxes on unremitted earnings of foreign subsidiaries. Management periodically assesses the need to utilize these unremitted earnings to finance our foreign operations. This assessment is based on cash flow projections that are the result of estimates of future production, commodity pricing and expenditures by tax jurisdiction for our operations. Such estimates are inherently imprecise since many assumptions utilized in the cash flow projections are subject to revision in the future.
Management also periodically assesses, by tax jurisdiction, the probability of recovery of recorded deferred tax assets based on its assessment of future earnings outlooks. Such estimates are inherently imprecise since many assumptions utilized in the assessments are subject to revision in the future.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“Statement 146”). Statement 146 requires that a liability for costs associated with an exit or disposal activity should be initially recognized when it is incurred. Under previous standards, such costs were recognized in the period in which an entity committed to a plan of disposal. Under Statement 146, the costs are recognized in the period when an actual disposal is under way. Examples of costs included under Statement 146 include one-time termination benefits, costs to consolidate or close facilities and costs to relocate employees.
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Statement 146 is effective for exit or disposal activities initiated after December 31, 2002. On June 17, 2003, Toreador committed to the termination of four employees. Two engineers, one geologist and one part-time employee were terminated in an effort to reduce general and administrative costs. Total severance expense and liability for the year ended December 31, 2003, were approximately $511,000 and $310,000, respectively. On February 2, 2004, we committed to the termination of two landmen as a result of the Royalty Sale in January 2004. Total severance expense and liability for the year ended December 31, 2004, were approximately $172,000 and zero, respectively. The following table provides a reconciliation of the liability:
Exit Cost or Disposal Activity |
| Amount |
|
| (in thousands) |
Employee severance liability June 17, 2003 |
| $ 511 |
Cost incurred |
| — |
Adjustments |
| — |
Less: Payroll payments |
| (201) |
Severance liability December 31, 2003 |
| $ 310 |
|
|
|
Cost incurred |
| 172 |
Adjustments |
| — |
Less: Payroll Payments |
| (482) |
Severance liability December 31, 2004 |
| $ — |
In December 2004, the FASB revised Financial Accounting Standard No. 12, Accounting for Stock Based Compensation. This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This statement establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on the accounting for transactions in which an entity obtains employee services in exchange for its equity instruments. The statement is effective for interim quarters beginning after June 15, 2005. We do not expect that the adoption of this statement will have a significant impact on our future results of operations or financial position.
In November 2004, the FASB issued Financial Accounting Standard No. 151 on Inventory Costs. This statement amends guidance set forth in ARB No. 43, Chapter 4, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The statement is effective for fiscal years beginning after June 15, 2005. The adoption of this statement will not have an impact on our future results of operations or financial position.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 2004 AND 2003
REVENUES
Oil and natural gas sales. For the year ended December 31, 2004, oil and natural gas sales revenues were $22.3 million, increasing approximately $4.5 million, or 25%, from $17.8 million for the year ended December 31, 2003. This was due to an increase in the average prices we received for oil and natural gas sales. In 2004, our average oil price per barrel was $35.24 versus $26.02 in 2003. Our average price for natural gas in 2004 was $5.65 per Mcf, compared with $4.74 in 2003. The increase in revenues was offset by a 5% decrease in overall production of 31,000 BOE from 665,000 BOE in 2003 to 634,000 BOE in 2004. Production in the United States decreased 35,000 BOE, the result of the natural decline of our existing properties and the loss of production on the Vermillion 175 #1. Turkish production decreased by 19,000 BOE due to the natural decline of existing properties and the loss of production on the Cendere #12 well. French production increased 23,000 BOE, a result of the workover program and the addition of the Charmottes 109 during the year.
Gain (loss) on commodity derivatives. We utilize commodity derivative instruments as part of our risk management program and, prior to the repayment of our senior credit facilities in January 2004, we utilized them to comply with the requirements of our senior credit facilities. These transactions are generally structured as either swaps or collar contracts. A swap has the effect of an outright sale at a specific price. A collar has the effect of creating a sale only if a floor or ceiling price is exceeded. These instruments (i) reduce the effect of the price fluctuations of the commodities we produce and sell; and (ii) support our annual capital budgeting and expenditure plans. When we had our senior credit facilities, these instruments protected the amounts required for servicing
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outstanding debt; and maximized the funds available under these facilities. The trading party that represents the other side of each of these transactions is known as a “counterparty.” The counterparty of our United States transactions is Coral Energy Holdings, L.P., an affiliate of Royal Dutch/Shell. The counterparty of our French transactions was Barclays Capital. Currently we do not have any commodity derivative instruments for our production. The following table summarizes the results of our risk-management efforts during 2004 and 2003:
| 2004 | 2003 | Variance | |||||
|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||
| Changes in fair value | $ 1,159 | $ (365 | ) | $ 1,524 | |||
| Realized gain (loss) | (2,481 | ) | (1,956 | ) | (525 | ) | |
| Net | $ (1,322 | ) | $ (2,321 | ) | $ 999 | ||
As noted above, we have structured our commodity derivatives to reduce the effect of price fluctuations of the commodities we produce and sell. As a result, those derivatives decline in value as the underlying commodity prices rise. Any losses incurred on derivatives are offset by higher oil and natural gas sales revenues due to increases in underlying commodity prices. However, under the requirements of Statement of Financial Accounting Standards No. 133 and because we chose not to designate our derivatives as hedges, mark to market loss on the derivatives is generally accrued through earnings prior to the recognition of higher sales prices.
EXPENSES
Lease operating. Lease operating expenses increased $222,000, or 3%, primarily due to the increase in workover costs on our French properties.
Exploration and acquisition. Exploration and acquisition expense increased $991,000, or 41%, from 2003 to 2004, due to the December 2004 seismic program in the Black Sea of Turkey.
Depreciation, depletion and amortization. Depreciation, depletion and amortization increased $292,000, or 9%, compared with 2003 due to decreased reserve balances in Turkey. We calculate depletion on our oil and natural gas properties using the units-of-production method. Current-year production is divided by beginning reserves and then multiplied by the net value of the properties.
Impairment of oil and natural gas properties. Impairment charged in 2004 amounted to zero, compared with $171,000 in 2003. The decrease in the impairment charge is the result of an increase in year-end reserves. Oil and natural gas prices used to estimate the value of our reserves at December 31, 2003, were $27.87 per barrel and $5.90 per Mcf, respectively, compared with $37.55 per barrel and $5.99 per Mcf, respectively, at December 31, 2004.
General and administrative. General and administrative expenses increased $2.5 million, or 84%. The majority of this increase was the result of actual 2003 costs totaling $2.2 million being allocated to discontinued operations. The remaining increase of $300,000 was the result of the final settlement of a severance claim in France.
OTHER INCOME AND EXPENSE
Other income and expense resulted in a net income addition of $2.3 million during 2004 versus $61,000 for 2003. The increase was a result of foreign currency transaction gains of $5.0 million primarily on payments towards the facility we had with Barclays Bank, plc (the “Barclays Facility”). Equity in earnings of unconsolidated subsidiaries had a loss of $18,000 for 2004 compared with a gain of $22,000 for 2003. The decrease was the result of negative earnings from our interest in ePsolutions. Gains were partially offset by a $1.1 million charge for the remeasurement of Turkish currency. The remeasurement was required due to the material nature of our capital expenditures in Turkey. Turkey has been classified as highly-inflationary but the effect in prior years was considered immaterial. The functional currency in Turkey will be the U.S. dollar as long as the country is considered highly-inflationary.
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES
During 2004, we had earnings available to common stockholders of $24.3 million, compared with $1.9 million for 2003. Improved results for 2004 were largely due to an $18.2 million net gain on the sale of U.S. mineral and royalty properties. In addition, we received a benefit from income taxes of $3.6 million compared to $266,000 in 2003. The increase was mainly the result
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of utilizing net operating loss carryforwards from prior years.
OTHER COMPREHENSIVE INCOME
The most significant element of comprehensive income, other than net income (loss), is foreign currency translation. The functional currency of our operations in France is the Eurodollar, and in Turkey the functional currency in 2004 was the U.S. dollar and in 2003 was the Turkish Lira. The exchange rate used to translate the financial position of the French operations at December 31, 2004, was approximately U.S. $1.36 per Eurodollar. At December 31, 2003, the exchange rates were U.S. $1.26 per Eurodollar and U.S. $0.70 per million Turkish Lira. These fluctuations caused an unrealized translation gain of $1.2 million in 2004, compared with an unrealized translation gain of $2.2 million in 2003.
COMPARISON OF YEARS ENDED DECEMBER 31, 2003 AND 2002
The following financial statement analysis is based on results of operations before the Royalty Sale was consummated in January 2004. Amounts applicable to discontinued operations are detailed in Note 14 of the Notes to the Consolidated Financial Statements.
REVENUES
Oil and natural gas sales. For the year ended December 31, 2003, oil and natural gas sales revenues were $25.1 million, increasing approximately $2.0 million, or 9%, from $23.1 million for the year ended December 31, 2002. This was due to an increase in the average prices we received for oil and natural gas sales. In 2003, our average oil price per barrel was $26.30 versus $22.08 in 2002. Our average price for natural gas in 2003 was $4.83 per Mcf, compared with $3.10 in 2002. The increase in revenues was offset by a 14% decrease in overall production of 153,000 BOE from 1,069,000 BOE in 2002 to 916,000 BOE in 2003. Production in the United States decreased 90,000 BOE, the result of the natural decline of our existing properties and the sale of miscellaneous underperforming properties at the end of 2002 and during 2003. French production decreased 41,000 BOE, a result of the temporary loss of producing wells during the year. We were unable to complete necessary workover maintenance on these wells in a timely manner due to financial constraints created by the Barclays Facility.
Gain (loss) on commodity derivatives. We utilize commodity derivative instruments as part of our risk management program and, prior to the repayment of our senior credit facilities in January 2004, we utilized them to comply with the requirements of our senior credit facilities. These transactions are generally structured as either swaps or collar contracts. A swap has the effect of an outright sale at a specific price. A collar has the effect of creating a sale only if a floor or ceiling price is exceeded. These instruments (i) reduce the effect of the price fluctuations of the commodities we produce and sell; and (ii) support our annual capital budgeting and expenditure plans. When we had our senior credit facilities, these instruments protected the amounts required for servicing outstanding debt; and maximized the funds available under these facilities. The trading party that represents the other side of each of these transactions is known as a “counterparty.” The counterparty of our United States transactions was Coral Energy Holdings, L.P., an affiliate of Royal Dutch/Shell. The counterparty of our French transactions was Barclays Capital. Currently we do not have any commodity derivative instruments for our French production. The following table summarizes the results of our risk-management efforts during 2003 and 2002:
| 2003 | 2002 | Variance | |||||
|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||
| Changes in fair value | $ (365 | ) | $ (2,029 | ) | $ 1,664 | ||
| Realized gain (loss) | (1,956 | ) | (2,015 | ) | 59 | ||
| Net | $ (2,321 | ) | $ (4,044 | ) | $ 1,723 | ||
As noted above, we have structured our commodity derivatives to reduce the effect of price fluctuations of the commodities we produce and sell. As a result, those derivatives decline in value as the underlying commodity prices rise. Any losses incurred on derivatives are offset by higher oil and natural gas sales revenues due to increases in underlying commodity prices. However, under the requirements of Statement of Financial Accounting Standards No. 133 and because we chose not to designate our derivatives as hedges, mark to market loss on the derivatives is generally accrued through earnings prior to the recognition of higher sales prices.
Lease bonuses and rentals. Lease bonuses and rentals decreased 56%, or $453,000, from 2002 to 2003, due to reduced leasing activity on the minerals we owned.
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EXPENSES
Lease operating. Lease operating expenses increased $1.0 million, or 15%, primarily due to the increase in value of the Eurodollar against the U.S. dollar in relation to our French leases. Additionally, U.S. production taxes increased in 2003, a result of the increase in oil and natural gas sales prices discussed above.
Exploration and acquisition. Exploration and acquisition expense increased $177,000, or 8%, from 2002 to 2003, due to increased evaluation activity on our prospects in Turkey.
Depreciation, depletion and amortization. Depreciation, depletion and amortization decreased $1.1 million, or 22%, compared with 2002 due to decreased production and decreased reserve balances. We calculate depletion on our oil and natural gas properties using the units-of-production method. Current-year production is divided by beginning reserves and then multiplied by the net value of the properties. Production decreased 14% from 2002 and reserves during the same period decreased 3%, resulting in a lower depletion rate for 2003.
Impairment of oil and natural gas properties. Impairment charged in 2003 amounted to $171,000, compared with $525,000 in 2002, both of which only related to U.S. properties. The decrease in the impairment charge is the result of an increase in year-end pricing offset by a decrease in the value of our reserves. Oil and natural gas prices used to estimate the value of our reserves at December 31, 2002, were $28.00 per barrel and $4.74 per Mcf, respectively, compared with $29.25 per barrel and $5.76 per Mcf, respectively, at December 31, 2003.
General and administrative. General and administrative expenses decreased $2.5 million, or 32%. The majority of this decrease was the result of the cost increase incurred in connection with the acquisition of Madison Oil Company that was expensed in 2002. A significant portion of the expenses associated with the Madison Oil Company acquisition comprised nonrecurring items that were either transaction and transition costs or other one-time expenses. General and administrative costs were also lower in 2003 due to a reduction in personnel costs. One of management’s primary objectives is to continue to reduce expenses.
OTHER INCOME AND EXPENSE
Other income and expense resulted in a net expense of $650,000 during 2003 versus $6.0 million for 2002. Net expense decreased $5.3 million, primarily due to losses on property sales in 2002. We incurred losses on property sales of $2.1 million during 2002, compared with a gain of $80,000 in 2003. The remainder of the decrease was a result of foreign currency transaction gains made on payments towards the Barclays Facility and lower interest expense due to the value of the Eurodollar increasing against the U.S. dollar.
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES
During 2003, we had earnings available to common stockholders of $1.9 million, compared with a net loss of $6.5 million for 2002. Improved results for 2003 were due to an increase in foreign currency transaction gains, a reduction in losses on commodity derivatives (oil and natural gas hedges), an increase in oil and natural gas revenues due to higher average prices, and lower general and administrative expenses. In addition, in 2002 we incurred one-time transaction and transition costs related to the Madison Oil Company acquisition, and the value of our investment in Trinidad Exploration and Development, Ltd. declined.
OTHER COMPREHENSIVE INCOME
The most significant element of comprehensive income, other than net income (loss), is foreign currency translation. The functional currency of our operations in France is the Eurodollar, and in Turkey the functional currency is the Turkish Lira. The exchange rates used to translate the financial position of those operations at December 31, 2003, were approximately U.S. $1.26 per Eurodollar and U.S. $0.70 per million Turkish Lira. At December 31, 2002, the exchange rates were U.S. $1.05 per Eurodollar and U.S. $0.62 per million Turkish Lira. These fluctuations caused an unrealized translation gain of $2.2 million in 2003, compared with an unrealized translation gain of $2.2 million in 2002.
9
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY |
Capital expenditures in 2004 were approximately $16.7 million. During 2004, we funded our capital expenditure requirements from cash flow and the $7.5 million we received from the private placement of our 7.85% convertible subordinated notes due June 30, 2009.
We currently expect that our 2005 capital expenditure budget will be approximately $46.0 million which will be spent principally on exploration and development activities, primarily in France, Turkey and Romania. We believe that a significant portion of this amount will be spent to appraise and develop the South Akcakoca gas project in Turkey's Western Black Sea. We also may acquire other producing oil and natural gas properties requiring additional capital.
To fund these capital expenditure requirements, we expect to receive future cash flow through production from existing producing properties and new producing properties that may be discovered through exploration, along with development properties added to existing fields.
In addition, in February 2005, we sold 1,437,500 shares of our common stock in a public offering. The net proceeds of our offering (approximately $32.6 million) will be used, in addition to our cash flow from production and available borrowings, to fund our 2005 capital expenditure budget and for other general corporate purposes, including possible acquisitions. We believe that sufficient funds will be available from operating cash flow, cash on hand, available borrowings under existing facilities, other facilities that we may enter into, the February 2005 public offering and any future public or private issuances of debt or equity securities to meet anticipated capital budget requirements and fund potential acquisitions in 2005.
SENIOR DEBT
On December 23, 2004 we entered into a five-year $15.0 million reserve-based borrowing facility with a French lender to finance the development of our existing French fields, acquisitions of new fields, general working capital and our corporate purposes. The facility bears interest at a floating rate of 2.25-2.75% above LIBOR depending on the principal outstanding. The facility is collateralized by certain of our French assets, including contracts relating to our rights and interests in our French fields, our direct and indirect equity interests in certain of our subsidiaries and payments received from the sale of our French production. Toreador and certain of its U.S. and French subsidiaries have each guaranteed the obligations under the facility. This facility will require monthly interest payments until December 23, 2009, at which time all unpaid principal and interest are due. Under the $15.0 million facility, at March 30, 2005, there were no amounts outstanding and borrowings of approximately $8.0 million were available. The $15.0 million facility contains various affirmative and negative covenants. These covenants, among other things, limit additional indebtedness, the sale of assets, change of control and management, limitations on the distribution of stock dividends and require us to meet certain financial requirements. Specifically, we must maintain an interest cost ratio of not less than 4.00 to 1.00, an indebtedness ratio of not less than 1.00 to 1.00, asset life cover ratio of not less than 1.25 to 1.00, a loan life cover ratio equal to or greater than 1.15 to 1.00 and a debt service coverage ratio equal to or greater than 1.10 to 1.00.
On December 30, 2004, we entered into a five-year $25.0 million reserve-based borrowing facility with a U.S. lender in order to finance the development and acquisition of oil and natural gas interests both domestically and internationally and for working capital purposes. The facility bears interest at a rate of prime less 0.5% and is collateralized by our domestic working interests. At March 30, 2005, there were no amounts outstanding under this facility and borrowings of approximately $ 3.3 million were available. The $25.0 million facility contains various affirmative and negative covenants. These covenants, among other things, limit additional indebtedness, the sale of assets, change of control and management and require us to meet certain financial requirements. Specifically, we must maintain a current ratio of 1.25 to 1.00 (exclusive of amounts due under revolving credit arrangements) and an interest coverage ratio of not less than 3.00 to 1.00. As of December 31, 2004, we were in compliance with all covenants.
PREFERRED STOCK
Toreador had 160,000 shares of nonvoting Series A Convertible Preferred Stock outstanding at September 30, 2004. At the option of the holder, the Series A Convertible Preferred Stock was convertible into common shares at a price of $4.00 per common share (conversion amounted to 1,000,000 Toreador common shares). At any time on or after December 1, 2004, we had the option to
10
redeem for cash any or all shares of Series A Convertible Preferred Stock. On December 6, 2004, we gave a notice of redemption to the holders of the Series A Convertible Preferred Stock. All 160,000 shares of Series A Convertible Preferred Stock were converted into an aggregate of 1,000,000 shares of our common stock on or prior to December 31, 2004.
Toreador had 154,000 shares of nonvoting Series A-1 Convertible Preferred Stock outstanding at December 31, 2004. On February 22, 2005, 82,000 shares of Series A-1 Convertible Preferred Stock were exchanged for an aggregate of 532,664 shares of our common stock. As of March 30, 2005, there are 72,000 shares of Series A-1 Convertible Preferred Stock outstanding. At the option of the holder, the Series A-1 Convertible Preferred Stock may be converted into common shares at a price of $4.00 per common share (conversion would amount to 450,000 Toreador common shares). The Series A-1 Convertible Preferred Stock accrues dividends at an annual rate of $2.25 per share payable quarterly in cash. At any time on or after November 1, 2007, we may elect to redeem for cash any or all shares of Series A-1 Convertible Preferred Stock. The optional redemption price per share is the sum of (1) $25.00 per share of the Series A-1 Convertible Preferred Stock plus (2) any accrued unpaid dividends, and such sum is multiplied by a declining multiplier. The multiplier is 105% until October 31, 2008, 104% until October 31, 2009, 103% until October 31, 2010, 102% until October 31, 2011, 101% until October 31, 2012, and 100% thereafter.
CONVERTIBLE DEBENTURES/NOTES
Prior to the acquisition of Madison Oil Company, Madison Oil Company was party to a convertible debenture in the amount of approximately $2.2 million payable to PHD Partners LP and due on March 31, 2006. The general partner of PHD Partners LP is a corporation wholly-owned by David M. Brewer, a director and significant stockholder of Toreador. The original debenture bore interest at 10% per annum. As of March 31, 2004, the debenture was amended and restated to bear interest at 6% per annum, eliminate Madison Oil Company's right under certain circumstances to force a conversion of the principal into shares of Toreador common stock and eliminate Madison Oil Company's ability to repay principal prior to maturity. At the holder's option, the second amended and restated convertible debenture can be converted into Toreador common stock at a conversion price of $6.75 per share. At March 30, 2005, the outstanding principal amount of the second amended and restated convertible debenture was approximately $1.5 million. We have 219,962 shares of common stock reserved for issuance related to the conversion of the second amended and restated convertible debenture.
In July 2004, we sold to certain institutional investors pursuant to a private offering $7.5 million aggregate principal amount of 7.85% convertible subordinated notes due June 30, 2009. We used the net proceeds of the offering to accelerate our oil development program in France's Paris Basin and for general corporate purposes. The 7.85% convertible subordinated notes due June 30, 2009 bore interest at the rate of 7.85% per annum and were convertible into shares of Toreador common stock at a conversion price of $8.20 per share. Toreador had the right to cause the 7.85% convertible subordinated notes due June 30, 2009 to be converted on or after February 22, 2005, if the closing price of Toreador's common stock was greater than $14.35 for the 30 consecutive trading days prior to the date of Toreador's conversion notice. On January 13, 2005, we offered the option to the holders of the 7.85% convertible subordinated notes due June 30, 2009 to exchange their notes for the aggregate number of shares of our common stock issuable upon conversion of each of their notes and that portion of interest payable pursuant to the notes that would otherwise have been payable to the holders through February 22, 2005 absent conversion of the notes prior to such date. On or prior to January 20, 2005, all of our 7.85% convertible subordinated notes due June 30, 2009 were exchanged for an aggregate of 914,634 shares of our common stock and an aggregate cash payment (in lieu of interest) of approximately $85,000.
DIVIDEND AND INTEREST REQUIREMENTS
Dividends on our common stock may be declared and paid out of funds legally available when and as determined by our board of directors. Our policy is to hold and invest corporate funds on a conservative basis and, thus, we do not anticipate paying cash dividends on our common stock in the foreseeable future. The terms of our Series A-1 Convertible Preferred Stock also prohibit us from paying dividends on the common stock without the approval of the holders of a majority of the then outstanding shares of the Series A-1 Convertible Preferred Stock. The terms of the $15.0 million facility limit our ability to pay dividends on our common stock to twenty-five percent (25%) of net profits (as defined in the facility agreement) less any amounts paid as dividends on our preferred stock.
Dividends on our Series A Convertible Preferred Stock were and dividends on our Series A-1 Convertible Preferred Stock are paid quarterly. Cash dividends totaling $615,000 and $604,000 were paid for the twelve-month periods ended December 31, 2004 and 2003, respectively. As a result of the conversion on or prior to December 31, 2004 of all 160,000 shares of Series A Convertible Preferred Stock, future dividends will be paid in cash only on the Series A-1 Convertible Preferred Stock at the rate of $0.5625 per
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share per full calendar quarter. Interest on the 7.85% convertible subordinated notes due June 30, 2009 was paid quarterly. Interest paid on the 7.85% convertible subordinated notes due June 30, 2009 as of December 31, 2004 was $263,303.
CONTRACTUAL OBLIGATIONS
The following table sets forth our contractual obligations in thousands at December 31, 2004 for the periods shown:
| Due Within | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 1 Year | 2 - 3 Years | 4 - 5 Years | After 5 Years | |||||||
| Debt(1) | $ 8,985 | $ — | $ 1,485 | $ 7,500 | $ – | ||||||
| Leases | 1,032 | 399 | 633 | — | – | ||||||
| Total | $ 10,017 | $ 399 | $ 2,118 | $ 7,500 | $ – | ||||||
__________
(1) | We have recently entered into two new borrowing facilities. At March 30, 2005, there are no amounts outstanding under either facility. However, on March 30, 2005, approximately $8.0 million was available for borrowings under the $15.0 million facility and approximately $3.3 million was available for borrowings under the $25.0 million facility. |
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
We derived the selected historical financial data in the table below from our unaudited interim consolidated financial statements. The sum of net income per share by quarter may not equal the net income per share for the year due to variations in the weighted average shares outstanding used in computing such amounts. The historical data presented here are only a summary and should be read in conjunction with the consolidated financial statements, related notes and other financial information included elsewhere in this annual report.
| Three Months Ended | |||||||||
| December |
| September 30, |
| June 30, |
| March 31, |
|
| |
| (in thousands, except per share data) | |||||||||
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
| |
Total revenues | $ 6,401 |
| $ 5,631 |
| $ 5,134 |
| $ 3,862 |
|
| |
Impairment of oil and natural gas properties | — |
| — |
| — |
| — |
|
| |
Total costs and expenses | 7,020 |
| 4,070 |
| 3,880 |
| 4,489 |
|
| |
Net income (loss) | (188) |
| 1,886 |
| 1,335 |
| 21,986 |
|
| |
Income (loss) attributable to common shares | (362) |
| 1,706 |
| 1,155 |
| 21,806 |
|
| |
Basic income (loss) per share | (0.04) |
| 0.18 |
| 0.12 |
| 2.31 |
|
| |
Diluted income (loss) per share | (0.04) |
| 0.15 |
| 0.11 |
| 1.84 |
|
| |
|
|
|
|
|
|
|
|
|
| |
| Year ended December 31, 2003: |
|
|
|
|
|
|
|
|
|
Total revenues | $ 3,237 |
| $ 5,620 |
| $ 3,582 |
| $ 4,408 |
|
| |
Impairment of oil and natural gas properties | 171 |
| — |
| — |
| — |
|
| |
Total costs and expenses | 4,256 |
| 4,257 |
| 3,881 |
| 3,580 |
|
| |
Net income (loss) | (61) |
| 1,071 |
| 556 |
| 815 |
|
| |
Income (loss) attributable to common shares | (214) |
| 946 |
| 445 |
| 704 |
|
| |
Basic income (loss) per share | (0.02) |
| 0.10 |
| 0.05 |
| 0.08 |
|
| |
Diluted income (loss) per share | (0.02) |
| 0.09 |
| 0.05 |
| 0.07 |
|
| |
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PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
(a) | The following documents are filed as part of this report: |
1. | Index to Consolidated Financial Statements, Reports of Independent Registered Public Accounting Firms, Consolidated Balance Sheets as of December 31, 2004 and 2003, Consolidated Statements of Operations for the three years ended December 31, 2004, Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2004, Consolidated Statements of Cash Flows for the three years ended December 31, 2004, and Notes to Consolidated Financial Statements |
2. | The financial statement schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes to Consolidated Financial Statements. |
3. | Exhibits: |
1.1 | - | Underwriting Agreement, dated February 10, 2005, between Toreador Resources Corporation and Morgan Keegan & Co., Inc. (previously filed as Exhibit 1.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2005, File No. 0-2517, and incorporated herein by reference). |
2.1 | - | Certificate of Ownership and Merger, effective June 5, 2000, merging Toreador Resources Corporation into Toreador Royalty Corporation (previously filed as Exhibit 2.1 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
2.2 | - | Agreement and Plan of Merger, dated as of October 3, 2001, between Toreador Resources Corporation and Madison Oil Company (previously filed as Exhibit 2.1 to Toreador Resources Corporation Registration Statement on Form S-4, No. 333-72314, filed on October 26, 2001, and incorporated herein by reference). |
2.3 | - | Agreement for Purchase and Sale, dated December 17, 2003, by and among Toreador Resources Corporation and Tormin, Inc., as Sellers, and Black Stone Acquisitions Partners I, L.P., as Buyer (previously filed as Exhibit 2.1 to Toreador Resources Corporation Current Report on Form 8-K filed on January 15, 2004, File No. 0-2517, and incorporated herein by reference). |
3.1 | - | Restated Certificate of Incorporation, of Toreador Resources Corporation (previously filed as Exhibit 3.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
3.2 | - | Third Amended and Restated Bylaws of Toreador Resources Corporation (previously filed as Exhibit 3.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
4.1 | - | Settlement Agreement, dated June 25, 1998, among the Gralee Persons, the Dane Falb Persons and Toreador Royalty Corporation (previously filed as Exhibit 4.1 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
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4.2 | - | Warrant, dated July 22, 2004, issued by Toreador Resources Corporation to Nigel Lovett (previously filed as Exhibit 4.14 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
4.3 | - | Warrant, dated July 22, 2004, issued by Toreador Resources Corporation to Rich Brand (previously filed as Exhibit 4.13 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
4.4 | - | Registration Rights Agreement, effective February 22, 2005, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 4.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2005, File No. 0-2517, and incorporated herein by reference). |
4.5 | - | Registration Rights Agreement, effective February 22, 2005, between Toreador Resources Corporation and Karen Anderson (previously filed as Exhibit 4.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2005, File No. 0-2517, and incorporated herein by reference). |
4.6 | - | Registration Rights Agreement, effective February 22, 2005, between Toreador Resources Corporation and Roger A. Anderson (previously filed as Exhibit 4.3 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2005, File No. 0-2517, and incorporated herein by reference). |
4.7 | - | Registration Rights Agreement, effective November 1, 2002, among Toreador Resources Corporation and persons party thereto (previously filed as Exhibit 4.5 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2002, File No. 0-2517, and incorporated herein by reference). |
4.8 | - | Registration Rights Agreement, dated July 26, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 4.7 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 0-2517, and incorporated herein by reference). |
4.9 | - | Registration Rights Agreement, dated August 13, 2003, between Toreador Resources Corporation and Karen Anderson (previously filed as Exhibit 4.8 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
4.10 | - | Registration Rights Agreement, dated October 20, 2003, between Toreador Resources Corporation and William I. Lee and Wilco Properties, Inc. (previously filed as Exhibit 4.9 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
4.11 | - | Registration Rights Agreement, dated December 15, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 4.9 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
4.12 | - | Registration Rights Agreement, dated December 15, 2003, between Toreador Resources Corporation and Roger A. Anderson (previously filed as Exhibit 4.10 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
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4.13 | - | Registration Rights Agreement, dated December 22, 2003, between Toreador Resources Corporation and Wilco Properties Inc (previously filed as Exhibit 4.11 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
4.14 | - | Registration Rights Agreement, dated July 20, 2004, between Toreador Resources Corporation and the Investors party thereto (previously filed as Exhibit 4.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2004, File No. 0-2517, and incorporated herein by reference). |
4.15 | - | Registration Rights Agreement, dated July 22, 2004, between Toreador Resources Corporation and the Investors party thereto (previously filed as Exhibit 4.9 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
4.16 | - | Warrant, dated July 22, 2004, issued by Toreador Resources Corporation to RP&C International (Securities), Inc. (previously filed as Exhibit 4.12 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
10.1+ | - | Employment letter agreement between Madison Oil Company and Michael J. FitzGerald dated September 10, 2001 (previously filed as Exhibit 10.1 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, File No. 0-2517, and incorporated herein by reference). |
10.2+ | - | Toreador Royalty Corporation 1990 Stock Option Plan (previously filed as Exhibit 10.2 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
10.3+ | - | Amendment to Toreador Royalty Corporation 1990 Stock Option Plan, effective as of May 15, 1997 (previously filed as Exhibit 10.3 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
10.4+ | - | Toreador Royalty Corporation Amended and Restated 1990 Stock Option Plan, effective as of September 24, 1998 (previously filed as Exhibit 10.4 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
10.5+ | - | Amendment Number One to Toreador Resources Corporation Amended and Restated 1990 Stock Option Plan (previously filed as Exhibit 10.1 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.6+ | - | Amendment Number Two to Toreador Resources Corporation Amended and Restated 1990 Stock Option Plan (previously filed as Exhibit 10.4 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.7+ | - | Toreador Royalty Corporation 1994 Non-Employee Director Stock Option Plan (previously filed as Exhibit 10.7 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
15
10.8+ | - | Toreador Resources Corporation Amended and Restated 1994 Non-employee Director Stock Option Plan (previously filed as Exhibit 10.2 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.9+ | - | Toreador Resources Corporation 2002 Stock Option Plan (previously filed as Exhibit 10.16 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2001, File No. 0-2517, and incorporated herein by reference). |
10.10+ | - | Amendment Number One to the Toreador Resources Corporation 2002 Stock Option Plan (previously filed as Exhibit 10.5 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.11+ | - | Form of Indemnification Agreement, dated as of April 25, 1995, between Toreador Royalty Corporation and each of the members of our Board of Directors (previously filed as Exhibit 10.11 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
10.12 | - | Contract for the Supply of Crude Oil from the Parisian Basin, effective January 1, 1997, between Elf Antwar France and Midland Madison Petroleum Company (n/k/a Madison Energy France) (previously filed as Exhibit 10.14 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2001, File No. 0-2517, and incorporated herein by reference). |
10.13 | - | Second Amended and Restated Convertible Debenture, dated March 31, 2004, between Madison Oil Company and PHD Partners L.P. (previously filed as Exhibit 10.2 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the year ended March 31, 2004, File No. 0-2517, and incorporated herein by reference). |
10.14 | - | Subordinated Revolving Credit Agreement, dated as of October 3, 2001, between Madison Oil Company and Toreador Resources Corporation (previously filed as Exhibit 2.2 to Toreador Resources Corporation Registration Statement on Form S-4, No. 333-72314, filed on October 26, 2001, and incorporated herein by reference). |
10.15 | - | Subordinated Revolving Credit Note, dated as of October 3, 2001, between Toreador Resources Corporation and Madison Oil Company (previously filed as Exhibit 2.3 to Toreador Resources Corporation Registration Statement on Form S-4, No. 333-72314, filed on October 26, 2001, and incorporated herein by reference). |
10.16 | - | Securities Purchase Agreement, effective November 1, 2002, among Toreador Resources Corporation and persons party thereto (previously filed as Exhibit 10.24 to Toreador Resources Corporation Current Report on Form 10-K for the year ended December 31, 2002, File No. 0-2517, and incorporated herein by reference). |
10.17 | - | Securities Purchase Agreement, dated October 20, 2003, between Toreador Resources Corporation and William I. Lee and Wilco Properties, Inc. (previously filed as Exhibit 10.5 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
10.18 | - | Securities Purchase Agreement, dated December 15, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 10.20 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
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10.19 | - | Securities Purchase Agreement, dated December 15, 2003, between Toreador Resources Corporation and Roger A. Anderson (previously filed as Exhibit 10.21 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
10.20 | - | Securities Purchase Agreement, dated December 22, 2003, between Toreador Resources Corporation and Wilco Properties, Inc. (previously filed as Exhibit 10.22 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
10.21 | - | Master Qualified Escrow Agreement by and among Toreador Resources Corporation, Bank of Texas and Petroleum Strategies, Inc., dated January 9, 2004 (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2004, File No. 0-2517, and incorporated herein by reference). |
10.22 | - | Letter Agreement, dated August 11, 2004, by and between Toreador Resources Corporation and David M. Brewer (previously filed as Exhibit 10.6 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, File No. 0-2517, and incorporated herein by reference). |
10.23 | - | Reserve Base Revolving Facility Agreement, dated December 23, 2004, by and among Toreador Resources Corporation, Madison Energy France, Madison Oil France, Madison Oil Company Europe and Natexis Banques Populaires and the other Lenders party thereto (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2004, File No. 0-2517, and incorporated herein by reference). |
10.24 | - | Credit Agreement, dated December 30, 2004, by and among Toreador Resources Corporation, Toreador Acquisition Corporation, Toreador Exploration and Production, Inc. and Texas Capital Bank, N.A. (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2005, File No. 0-2517, and incorporated herein by reference). |
10.25 | - | Guaranty, dated December 30, 2004, executed by Toreador Resources Corporation in favor of Texas Capital Bank, N.A. (previously filed as Exhibit 10.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2005, File No. 0-2517, and incorporated herein by reference). |
10.26 | - | Securities Purchase Agreement, dated July 26, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 10.8 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 0-2517, and incorporated herein by reference). |
10.27 | - | Securities Purchase Agreement, dated August 13, 2003, between Toreador Resources Corporation and Karen Anderson (previously filed as Exhibit 10.4 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
10.28 | - | 7.85% Convertible Subordinated Note due June 30, 2009, dated July 22, 2004, executed by Toreador Resources Corporation (previously filed as Exhibit 10.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2004, File No. 0-2517, and incorporated herein by reference). |
17
10.29 | - | Purchase Agreement, dated July 20, 2004, by and among Toreador Resources Corporation and the Investors party thereto (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2004, File No. 0-2517, and incorporated herein by reference). |
10.30 | - | Summary Sheet: Executive Officer Annual Base Salaries (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
10.31 | - | Summary Sheet: Short-Term Incentive Compensation Plan (previously filed as Exhibit 10.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
10.32 | - | Summary Sheet: Director Compensation (previously filed as Exhibit 10.3 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
16.1 | - | Letter on Change in Certifying Accountant from Ernst and Young LLP, dated September 26, 2003 (previously filed as Exhibit 16.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2003, File No. 0-2517, and incorporated herein by reference). |
16.2 | - | Letter on Change in Certifying Accountant from Ernst and Young LLP, dated October 8, 2003 (previously filed as Exhibit 16.1 to Amendment No. 1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on October 8, 2003, File No. 0-2517, and incorporated herein by reference). |
21.1 | - | Subsidiaries of Toreador Resources Corporation (previously filed as Exhibit 21.1 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
23.1* | - | Consent of Ernst & Young LLP. |
23.2* | - | Consent of Hein & Associates LLP. |
23.3* | - | Consent of LaRoche Petroleum Consultants, Ltd. |
24.1 | - | Power of Attorney (previously filed as part of the Signatures in Part IV of Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-2517, and incorporated herein by reference). |
31.1* | - | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* | - | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* | - | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith
+ Management contract or compensatory plan
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.
TOREADOR RESOURCES CORPORATION
Date: August 9, 2005
By: | /s/ G. Thomas Graves III |
G. Thomas Graves III, President and Chief Executive Officer
19
EXHIBIT
NUMBER DESCRIPTION
1.1 | – Underwriting Agreement, dated February 10, 2005, between Toreador Resources Corporation and Morgan Keegan & Co., Inc. (previously filed as Exhibit 1.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2005, File No. 0-2517, and incorporated herein by reference). |
2.1 | – Certificate of Ownership and Merger, effective June 5, 2000, merging Toreador Resources Corporation into Toreador Royalty Corporation (previously filed as Exhibit 2.1 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
2.2 | – Agreement and Plan of Merger, dated as of October 3, 2001, between Toreador Resources Corporation and Madison Oil Company (previously filed as Exhibit 2.1 to Toreador Resources Corporation Registration Statement on Form S-4, No. 333-72314, filed on October 26, 2001, and incorporated herein by reference). |
2.3 | – Agreement for Purchase and Sale, dated December 17, 2003, by and among Toreador Resources Corporation and Tormin, Inc., as Sellers, and Black Stone Acquisitions Partners I, L.P., as Buyer (previously filed as Exhibit 2.1 to Toreador Resources Corporation Current Report on Form 8-K filed on January 15, 2004, File No. 0-2517, and incorporated herein by reference). |
3.1 | – Restated Certificate of Incorporation of Toreador Resources Corporation (previously filed as Exhibit 3.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
3.2 | – Third Amended and Restated Bylaws of Toreador Resources Corporation (previously filed as Exhibit 3.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
4.1 | – Settlement Agreement, dated June 25, 1998, among the Gralee Persons, the Dane Falb Persons and Toreador Royalty Corporation (previously filed as Exhibit 4.1 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
4.2 | – Warrant, dated July 22, 2004, issued by Toreador Resources Corporation to Nigel Lovett (previously filed as Exhibit 4.14 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
4.3 | – Warrant, dated July 22, 2004, issued by Toreador Resources Corporation to Rich Brand (previously filed as Exhibit 4.13 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
4.4 | – Registration Rights Agreement, effective February 22, 2005, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 4.1 to Toreador Resources Corporation Current Report on Form |
8-K filed with the Securities and Exchange Commission on February 24, 2005, File No. 0-2517, and incorporated herein by reference).
4.5 | – Registration Rights Agreement, effective February 22, 2005, between Toreador Resources Corporation and Karen Anderson (previously filed as Exhibit 4.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2005, File No. 0-2517, and incorporated herein by reference). |
4.6 | – Registration Rights Agreement, effective February 22, 2005, between Toreador Resources Corporation and Roger A. Anderson (previously filed as Exhibit 4.3 to Toreador Resources Corporation Current Report on Form |
20
EXHIBIT
NUMBER DESCRIPTION
8-K filed with the Securities and Exchange Commission on February 24, 2005, File No. 0-2517, and incorporated herein by reference).
4.7 | – Registration Rights Agreement, effective November 1, 2002, among Toreador Resources Corporation and persons party thereto (previously filed as Exhibit 4.5 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2002, File No. 0-2517, and incorporated herein by reference). |
4.8 | – Registration Rights Agreement, dated July 26, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 4.7 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 0-2517, and incorporated herein by reference). |
4.9 | – Registration Rights Agreement, dated August 13, 2003, between Toreador Resources Corporation and Karen Anderson (previously filed as Exhibit 4.8 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
4.10 | – Registration Rights Agreement, dated October 20, 2003, between Toreador Resources Corporation and William I. Lee and Wilco Properties, Inc. (previously filed as Exhibit 4.9 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
4.11 | – Registration Rights Agreement, dated December 15, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 4.9 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
4.12 | – Registration Rights Agreement, dated December 15, 2003, between Toreador Resources Corporation and Roger A. Anderson (previously filed as Exhibit 4.10 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
4.13 | – Registration Rights Agreement, dated December 22, 2003, between Toreador Resources Corporation and Wilco Properties Inc (previously filed as Exhibit 4.11 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
4.14 | – Registration Rights Agreement, dated July 20, 2004, between Toreador Resources Corporation and the Investors party thereto (previously filed as Exhibit 4.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2004, File No. 0-2517, and incorporated herein by reference). |
4.15 | – Registration Rights Agreement, dated July 22, 2004, between Toreador Resources Corporation and the Investors party thereto (previously filed as Exhibit 4.9 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
4.16 | – Warrant, dated July 22, 2004, issued by Toreador Resources Corporation to RP&C International (Securities), Inc. (previously filed as Exhibit 4.12 to Toreador Resources Corporation Registration Statement on Form S-3 filed with the Securities and Exchange Commission on August 20, 2004, File No. 0-2517, and incorporated herein by reference). |
10.1+ | – Employment letter agreement between Madison Oil Company and Michael J. FitzGerald dated September 10, 2001 (previously filed as Exhibit 10.1 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, File No. 0-2517, and incorporated herein by reference). |
21
EXHIBIT
NUMBER DESCRIPTION
10.2+ | – Toreador Royalty Corporation 1990 Stock Option Plan (previously filed as Exhibit 10.2 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
10.3+ | – Amendment to Toreador Royalty Corporation 1990 Stock Option Plan, effective as of May 15, 1997 (previously filed as Exhibit 10.3 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference) . |
10.4+ | – Toreador Royalty Corporation Amended and Restated 1990 Stock Option Plan, effective as of September 24, 1998 (previously filed as Exhibit 10.4 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
10.5+ | – Amendment Number One to Toreador Resources Corporation Amended and Restated 1990 Stock Option Plan (previously filed as Exhibit 10.1 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.6+ | – Amendment Number Two to Toreador Resources Corporation Amended and Restated 1990 Stock Option Plan (previously filed as Exhibit 10.4 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.7+ | – Toreador Royalty Corporation 1994 Non-Employee Director Stock Option Plan (previously filed as Exhibit 10.7 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
10.8+ | – Toreador Resources Corporation Amended and Restated 1994 Non-employee Director Stock Option Plan (previously filed as Exhibit 10.2 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.9+ | – Toreador Resources Corporation 2002 Stock Option Plan (previously filed as Exhibit 10.16 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2001, File No. 0-2517, and incorporated herein by reference). |
10.10+ | – Amendment Number One to the Toreador Resources Corporation 2002 Stock Option Plan (previously filed as Exhibit 10.5 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-2517, and incorporated herein by reference). |
10.11+ | – Form of Indemnification Agreement, dated as of April 25, 1995, between Toreador Royalty Corporation and each of the members of our Board of Directors (previously filed as Exhibit 10.11 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
10.12 | – Contract for the Supply of Crude Oil from the Parisian Basin, effective January 1, 1997, between Elf Antwar France and Midland Madison Petroleum Company (n/k/a Madison Energy France) (previously filed as Exhibit 10.14 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2001, File No. 0-2517, and incorporated herein by reference). |
10.13 | – Second Amended and Restated Convertible Debenture, dated March 31, 2004, between Madison Oil Company and PHD Partners LP (previously filed as Exhibit 10.2 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, File No. 0-2517, and incorporated herein by reference). |
22
EXHIBIT
NUMBER DESCRIPTION
10.14 | – Subordinated Revolving Credit Agreement, dated as of October 3, 2001, between Madison Oil Company and Toreador Resources Corporation (previously filed as Exhibit 2.2 to Toreador Resources Corporation Registration Statement on Form S-4, No. 333-72314, filed on October 26, 2001, and incorporated herein by reference). |
10.15 | – Subordinated Revolving Credit Note, dated as of October 3, 2001, between Toreador Resources Corporation and Madison Oil Company (previously filed as Exhibit 2.3 to Toreador Resources Corporation Registration Statement on Form S-4, No. 333-72314, filed on October 26, 2001, and incorporated herein by reference). |
10.16 | – Securities Purchase Agreement, effective November 1, 2002, among Toreador Resources Corporation and persons party thereto (previously filed as Exhibit 10.24 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2002, File No. 0-2517, and incorporated herein by reference). |
10.17 | – Securities Purchase Agreement, dated October 20, 2003, between Toreador Resources Corporation and William I. Lee and Wilco Properties, Inc. (previously filed as Exhibit 10.5 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
10.18 | – Securities Purchase Agreement, dated December 15, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 10.20 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
10.19 | – Securities Purchase Agreement, dated December 15, 2003, between Toreador Resources Corporation and Roger A. Anderson (previously filed as Exhibit 10.21 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
10.20 | – Securities Purchase Agreement, dated December 22, 2003, between Toreador Resources Corporation and Wilco Properties, Inc. (previously filed as Exhibit 10.22 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2003, File No. 0-2517, and incorporated herein by reference). |
10.21 | – Master Qualified Escrow Agreement by and among Toreador Resources Corporation, Bank of Texas and Petroleum Strategies, Inc., dated January 9, 2004 (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2004, File No. 0-2517, and incorporated herein by reference). |
10.22 | – Letter Agreement, dated August 11, 2004, by and between Toreador Resources Corporation and David M. Brewer (previously filed as Exhibit 10.6 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, File No. 0-2517, and incorporated herein by reference). |
10.23 | – Reserve Base Revolving Facility Agreement, dated December 23, 2004, by and among Toreador Resources Corporation, Madison Energy France, Madison Oil France, Madison Oil Company Europe and Natexis Banques Populaires and the other Lenders party thereto (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2004, File No. 0-2517, and incorporated herein by reference). |
10.24 | – Credit Agreement, dated December 30, 2004, by and among Toreador Resources Corporation, Toreador Acquisition Corporation, Toreador Exploration and Production, Inc. and Texas Capital Bank, N.A. (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2005, File No. 0-2517, and incorporated herein by reference). |
10.25 | – Guaranty, dated December 30, 2004, executed by Toreador Resources Corporation in favor of Texas Capital Bank, N.A. (previously filed as Exhibit 10.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2005, File No. 0-2517, and incorporated herein by reference). |
23
EXHIBIT
NUMBER DESCRIPTION
10.26 | – Securities Purchase Agreement, dated July 26, 2003, between Toreador Resources Corporation and James R. Anderson (previously filed as Exhibit 10.8 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 0-2517, and incorporated herein by reference). |
10.27 | – Securities Purchase Agreement, dated August 13, 2003, between Toreador Resources Corporation and Karen Anderson (previously filed as Exhibit 10.4 to Toreador Resources Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 0-2517, and incorporated herein by reference). |
10.28 | – 7.85% Convertible Subordinated Note due June 30, 2009, dated July 22, 2004, executed by Toreador Resources Corporation (previously filed as Exhibit 10.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2004, File No. 0-2517, and incorporated herein by reference). |
10.29 | – Purchase Agreement, dated July 20, 2004, by and among Toreador Resources Corporation and the Investors party thereto (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2004, File No. 0-2517, and incorporated herein by reference). |
10.30 | – Summary Sheet: Executive Officer Base Annual Salaries (previously filed as Exhibit 10.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
10.31 | – Summary Sheet: Short-Term Incentive Compensation Plan (previously filed as Exhibit 10.2 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
10.32 | – Summary Sheet: Director Compensation (previously filed as Exhibit 10.3 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on March 29, 2005, File No. 0-2517, and incorporated herein by reference). |
16.1 | – Letter on Change in Certifying Accountant from Ernst and Young LLP, dated September 26, 2003 (previously filed as Exhibit 16.1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2003, File No. 0-2517, and incorporated herein by reference). |
16.2 | – Letter on Change in Certifying Accountant from Ernst and Young LLP, dated October 8, 2003 (previously filed as Exhibit 16.1 to Amendment No. 1 to Toreador Resources Corporation Current Report on Form 8-K filed with the Securities and Exchange Commission on October 8, 2003, File No. 0-2517, and incorporated herein by reference). |
21.1 | – Subsidiaries of Toreador Resources Corporation (previously filed as Exhibit 21.1 to Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
23.1* | – Consent of Ernst & Young LLP. |
23.2* | – Consent of Hein & Associates LLP. |
23.3* | – Consent of LaRoche Petroleum Consultants, Ltd. |
24.1 | – Power of Attorney (previously filed as part of the Signatures in Part IV of Toreador Resources Corporation Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission, File No. 0-2517, and incorporated herein by reference). |
24
EXHIBIT
NUMBER DESCRIPTION
31.1* | – Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* | – Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* | – Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
_______________
* | Filed herewith |
|
+ | Management contract or compensatory plan | |
25
TOREADOR RESOURCES CORPORATION
ITEM 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||
|---|---|---|---|
| Reports of Independent Registered Public Accounting Firms | F-2 | ||
| Financial Statements | |||
| Consolidated Balance Sheets as of December 31, 2004 and 2003 | F-4 | ||
| Consolidated Statements of Operations for each of the three years in the period ended | |||
| December 31, 2004 | F-5 | ||
| Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the | |||
| period ended December 31, 2004 | F-6 | ||
| Consolidated Statements of Cash Flows for each of the three years in the period ended | |||
| December 31, 2004 | F-8 | ||
| Notes to Consolidated Financial Statements | F-10 | ||
F-1
TOREADOR RESOURCES CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Toreador Resources Corporation
We have audited the accompanying consolidated balance sheets of Toreador Resources Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with United States generally accepted accounting principles.
Hein & Associates LLP
Dallas, Texas
March 8, 2005
F-2
TOREADOR RESOURCES CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Toreador Resources Corporation:
We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Toreador Resources Corporation for the year ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of Toreador Resources Corporation operations and their cash flows for the year ended December 31, 2002, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
April 11, 2003
F-3
TOREADOR RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
| December 31, | ||
| 2004 |
| 2003 |
ASSETS | (in thousands, except per share data) | ||
Current assets: |
|
|
|
Cash and cash equivalents | $ 4,977 |
| $ 2,819 |
Accounts and notes receivable | 3,230 |
| 4,053 |
Royalty properties held for sale | — |
| 13,157 |
Other | 1,187 |
| 2,863 |
Total current assets | 9,394 |
| 22,892 |
|
|
|
|
Oil and natural gas properties, net, using the |
|
|
|
successful efforts method of accounting | 79,667 |
| 64,459 |
|
|
|
|
Investments in unconsolidated entities | 1,467 |
| 529 |
Goodwill | 2,487 |
| 3,293 |
Other assets | 1,659 |
| 369 |
Total assets | $ 94,674 |
| $ 91,542 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued liabilities | $ 6,634 |
| $ 6,881 |
Unrealized losses on commodity derivatives | — |
| 1,159 |
Current portion of long-term debt | 37 |
| 28,816 |
Income taxes payable | 1,633 |
| 757 |
Total current liabilities | 8,304 |
| 37,613 |
|
|
|
|
Long-term accrued liabilities | 1,136 |
| 958 |
Long-term asset retirement obligation | 2,331 |
| 1,698 |
Deferred tax liability | 10,660 |
| 11,791 |
Convertible subordinated notes | 7,500 |
| — |
Convertible debenture | 1,485 |
| 2,160 |
Total liabilities | 31,416 |
| 54,220 |
|
|
|
|
Commitments and contingencies (See Note 12) |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
Preferred stock, Series A & A-1, $1.00 par value, 4,000,000 |
|
|
|
shares authorized; liquidation preference of $3,850,000 and $8,000,000; 154,000 and 320,000 shares issued | 154 |
| 320 |
Common stock, $0.15625 par value, 30,000,000 |
|
|
|
shares authorized; 11,724,146 and 10,058,544 shares issued | 1,832 |
| 1,572 |
Capital in excess of par value | 37,523 |
| 33,562 |
Retained earnings | 24,323 |
| 18 |
Accumulated other comprehensive income | 1,960 |
| 4,384 |
| 65,792 |
| 39,856 |
Treasury stock at cost: |
|
|
|
721,027 shares | (2,534) |
| (2,534) |
Total stockholders' equity | 63,258 |
| 37,322 |
Total liabilities and stockholder’s equity | $ 94,674 |
| $ 91,542 |
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-4
TOREADOR RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year ended December 31, | ||||
| 2004 |
| 2003 |
| 2002 |
| (in thousands, except per share data) | ||||
Revenues: |
|
|
|
|
|
Oil and natural gas sales | $ 22,336 |
| $ 17,845 |
| $ 17,456 |
Loss on commodity derivatives | (1,322) |
| (1,017) |
| (2,150) |
Lease bonuses and rentals | 14 |
| 18 |
| 69 |
Total revenues | 21,028 |
| 16,846 |
| 15,375 |
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
Lease operating | 6,873 |
| 6,651 |
| 6,071 |
Exploration and acquisition | 3,402 |
| 2,411 |
| 2,234 |
Depreciation, depletion and amortization | 3,538 |
| 3,246 |
| 3,797 |
Impairment of oil and natural gas properties | — |
| 171 |
| 525 |
Reduction in force | 172 |
| 511 |
| — |
General and administrative | 5,474 |
| 2,983 |
| 5,270 |
Total costs and expenses | 19,459 |
| 15,973 |
| 17,897 |
|
|
|
|
|
|
Operating income (loss) | 1,569 |
| 873 |
| (2,522) |
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
Equity in earnings (loss) of unconsolidated investments | (18) |
| 22 |
| (1,186) |
Gain (loss) on sale of properties and other assets | (336) |
| 80 |
| (2,143) |
Foreign currency exchange gain | 5,044 |
| 979 |
| 437 |
Turkish currency remeasurement | (1,140) |
| — |
| — |
Other income (expense) | 396 |
| 173 |
| (621) |
Interest expense | (1,611) |
| (1,193) |
| (1,692) |
Total other income (expense) | 2,335 |
| 61 |
| (5,205) |
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes | 3,904 |
| 934 |
| (7,727) |
Benefit from income taxes | (3,576) |
| (266) |
| (2,061) |
Income (loss) from continuing operations, net of income taxes | 7,480 |
| 1,200 |
| (5,666) |
Income (loss) from discontinued operations, net of income taxes (See Note 14) | 17,539 |
| 1,182 |
| (441) |
Income (loss) | 25,019 |
| 2,382 |
| (6,107) |
Dividends on preferred shares | 714 |
| 500 |
| 374 |
Net income (loss) applicable to common shares | $ 24,305 |
| $ 1,882 |
| $ (6,481) |
|
|
|
|
|
|
Basic income (loss) per share from: |
|
|
|
|
|
Continuing operations | $ 0.71 |
| $ 0.07 |
| $ (0.65) |
Discontinued operations | 1.83 |
| 0.13 |
| (0.04) |
| $ 2.54 |
| $ 0.20 |
| $ (0.69) |
|
|
|
|
|
|
Diluted income (loss) per share from: |
|
|
|
|
|
Continuing operations | $ 0.60 |
| $ 0.07 |
| $ (0.65) |
Discontinued operations | 1.37 |
| 0.13 |
| (0.04) |
| $ 1.97 |
| $ 0.20 |
| $ (0.69) |
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
Basic | 9,571 |
| 9,338 |
| 9,343 |
Diluted | 12,817 |
| 9,347 |
| 9,343 |
See accompanying notes to the consolidated financial statements.
F-5
TOREADOR RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Preferred | Common | Common | Capital in | Retained | Accumulated Other Comprehensive Income (Loss) | Treasury | |
| (in thousands) | |||||||
Balance at December 31, 2001 | 160 | $ 1,572 | 10,059 | $ 29,593 | $ 4,617 | $ (33) | $ (2,354) | |
Issuance of preferred stock | 37 | - | - | 854 | - | - | - | |
Payment of preferred dividends | - | - | - | - | (374) | - | - | |
Purchase of treasury stock | - | - | - | - | - | - | (180) | |
Other | - | - | - | 63 | - | - | - | |
Comprehensive loss: |
|
|
|
|
|
|
| |
Net loss | - | - | - | - | (6,107) | - | - | |
Foreign currency translation adjustment | - | - | - | - | - | 2,228 | - | |
Change in fair value of available- |
|
|
|
|
|
|
| |
for-sale securities | - | - | - | - | - | (62) | - | |
Losses reclassified to net loss | - | - | - | - | - | 7 | - | |
Total comprehensive loss |
|
|
|
|
|
|
| |
Balance at December 31, 2002 | 197 | $ 1,572 | 10,059 | $ 30,510 | $ (1,864) | $ 2,140 | $ (2,534) | |
Issuance of preferred stock | 123 | - | - | 2,952 | - | - | - | |
Payment of preferred dividends | - | - | - | - | (500) | - | - | |
Issuance of warrants | - | - | - | 100 | - | - | - | |
Comprehensive income: |
|
|
|
|
|
|
| |
Net income | - | - | - | - | 2,382 | - | - | |
Foreign currency translation adjustment | - | - | - | - |
| 2,206 | - | |
Change in fair value of available- |
|
|
|
|
|
|
| |
for-sale securities | - | - | - | - | - | 8 | - | |
Losses reclassified to net income | - | - | - | - | - | 30 | - | |
Total comprehensive income |
|
|
|
|
|
| - | |
Balance at December 31, 2003 | 320 | $ 1,572 | 10,059 | $ 33,562 | $ 18 | $ 4,384 | $ (2,534)
| |
Issuance of preferred stock | - | - | - | - | - | - | - | |
Payment of preferred dividends | - | - | - | - | (714) | - | - | |
Conversion of preferred stock | (166) | 162 | 1038 | 4 | - | - | - | |
Conversion of convertible debenture | - | 16 | 100 | 659 | - | - | - | |
Issuance of common stock | - | 82 | 527 | 2,286 | - | - | - | |
Tax benefit from exercise of stock options | - | - | - | 1,012 | - | - | - | |
Comprehensive income: |
|
|
|
|
|
|
| |
Net income | - | - | - | - | 25,019 | - | - | |
Realized gain on foreign currency transactions | - | - | - | - | - | (5,044) | - | |
Foreign currency translation adjustment | - | - | - | - | - | 1,197 | - | |
Change in tax deferred liabilities | - | - | - | - | - | 1,423 | - | |
Total comprehensive income |
|
|
|
|
|
| - | |
Balance at December 31, 2004 | 154 | $ 1,832 | 11,724 | $ 37,523 | $ 24, 323 | $ 1,960 | $ (2,534) | |
See accompanying notes to the consolidated financial statements.
F-6
TOREADOR RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(CONTINUED)
| Treasury Shares | Total Stockholders’ Equity |
| |
| (in thousands) | |||
Balance at December 31, 2001 | 681 | $ 33,555 |
| |
Issuance of preferred stock | - | 891 |
| |
Payment of preferred dividends | - | (374) |
| |
Purchase of treasury stock | 40 | (180) |
| |
Other | - | 63 |
| |
Comprehensive loss: |
|
|
| |
Net loss | - | (6,107) |
| |
Foreign currency translation adjustment | - | 2,228 |
| |
Change in fair value of available- |
|
|
| |
for-sale securities | - | (62) |
| |
Losses reclassified to net loss | - | 7 |
| |
Total comprehensive loss |
| (3,934) |
| |
Balance at December 31, 2002 | 721 | $ 30,021 |
| |
Issuance of preferred stock | - | 3,075 |
| |
Payment of preferred dividends | - | (500) |
| |
Issuance of warrants | - | 100 |
| |
Comprehensive income: |
|
|
| |
Net income | - | 2,382 |
| |
Foreign currency translation adjustment | - | 2,206 |
| |
Change in fair value of available- |
|
|
| |
for-sale securities | - | 8 |
| |
Losses reclassified to net income | - | 30 |
| |
Total comprehensive income |
| 4,626 |
| |
Balance at December 31, 2003 | 721 | $ 37,322 |
| |
Issuance of preferred stock | - | - |
| |
Payment of preferred dividends | - | (714) |
| |
Conversion of preferred stock | - | - |
| |
Conversion of convertible debenture | - | 675 |
| |
Issuance of common stock | - | 2,368 |
| |
Tax benefit from exercise of stock options | - | 1,012 |
| |
Comprehensive income: |
|
|
| |
Net income | - | 25,019 |
| |
Realized gain on foreign currency transactions | - | (5,044) |
| |
Foreign currency translation adjustment | - | 1,197 |
| |
Change in tax deferred liabilities | - | 1,423 |
| |
Total comprehensive income |
| 22,595 |
| |
Balance at December 31, 2004 | 721 | $ 63,258 |
| |
F-7
TOREADOR RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31, | ||||
| 2004 |
| 2003 |
| 2002 |
| (in thousands) | ||||
Cash flows from operating activities: |
|
|
|
|
|
Net income (loss) | $ 25,019 |
| $ 2,382 |
| $ (6,107) |
Adjustments to reconcile net income (loss) to |
|
|
|
|
|
net cash provided by operating activities: |
|
|
|
|
|
Depreciation, depletion and amortization | 3,538 |
| 3,925 |
| 5,034 |
Amortization of deferred debt issuance cost | 384 |
| — |
| — |
Remeasurement of Turkish currency | 1,140 |
| — |
| — |
Impairment of oil and natural gas properties | — |
| 171 |
| 529 |
Loss (gain) on sale of properties | (28,406) |
| (120) |
| 2,129 |
Dry holes and abandonments | 583 |
| 1,271 |
| 1,084 |
Realized gain of foreign currency transactions | (5,044) |
| — |
| — |
Unrealized gains (losses) on commodity derivatives | (1,159) |
| 123 |
| 2,029 |
Equity in (earnings) loss of unconsolidated investments | 18 |
| (22) |
| 1,186 |
Other operating activities | — |
| 39 |
| 65 |
Cash flows (used by) from operating activities before changes |
|
|
|
|
|
in working capital | (3,927) |
| 7,769 |
| 5,949 |
Decrease (increase) in operating assets: |
|
|
|
|
|
Accounts and notes receivable | 960 |
| (21) |
| (266) |
Income taxes receivable | — |
| 512 |
| (512) |
Other current assets | 1,260 |
| (1,321) |
| (13) |
Other assets | (431) |
| 75 |
| 124 |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
Accounts payable and accrued liabilities | (354) |
| (318) |
| 2,615 |
Income taxes payable | 1,379 |
| 757 |
| (279) |
Deferred tax liabilities | 1,181 |
| (574) |
| (1,319) |
Other | 26 |
| — |
| 63 |
Net cash provided by operating activities | 94 |
| 6,879 |
| 6,362 |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Expenditures for oil and natural gas properties | (16,743) |
| (3,713) |
| (6,178) |
Proceeds from the sale of oil and natural gas properties | 42,125 |
| 424 |
| 4,628 |
Purchase of marketable securities | — |
| — |
| (51) |
Proceeds from sale of marketable securities | — |
| 48 |
| 253 |
Distributions from unconsolidated entities | 255 |
| — |
| — |
Investment in and advances to unconsolidated entities, net | (1,211) |
| — |
| (320) |
Net cash provided by (used in) investing activities | 24,426 |
| (3,241) |
| (1,668) |
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-8
TOREADOR RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Cash flows from financing activities: |
|
|
|
|
|
Payment for debt issuance costs | (1,239) |
| — |
| (175) |
Borrowings under revolving credit arrangements | 136 |
| 3,384 |
| 4,686 |
Repayments under revolving credit arrangements | (28,915) |
| (7,928) |
| (10,825) |
Proceeds from issuance of stock, net | 2,368 |
| 3,075 |
| 891 |
Purchase of treasury stock | — |
| — |
| (180) |
Issuance of warrants | — |
| 100 |
| — |
Proceeds from issuance of notes payable | 7,500 |
| — |
| — |
Payment of preferred dividends | (714) |
| (500) |
| (270) |
Net cash used in financing activities | (20,864) |
| (1,869) |
| (5,873) |
Net increase (decrease) in cash and cash equivalents | 3,656 |
| 1,769 |
| (1,179) |
Effects of foreign currency on cash and cash equivalents | (1,498) |
| 74 |
| — |
Cash and cash equivalents, beginning of period | 2,819 |
| 976 |
| 2,155 |
Cash and cash equivalents, end of period | $ 4,977 |
| $ 2,819 |
| $ 976 |
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
Cash paid during the period for interest | $ 1,736 |
| $ 1,541 |
| $ 2,089 |
Cash paid during the period for income taxes | 5,250 |
| 629 |
| (128) |
See accompanying notes to the consolidated financial statements.
F-9
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS |
Toreador Resources Corporation (“Toreador,” “we,” “us,” “our,” or the “Company”) is an independent energy company engaged in foreign and domestic oil and natural gas exploration, development, production, leasing and acquisition activities. The accompanying consolidated financial statements are presented in U.S. dollars and in accordance with accounting principles generally accepted in the United States.
In January 2004, we sold our U.S. mineral and royalty assets to Black Stone Acquisitions Partners I, L.P. (“Royalty Sale”). We retained all of our working-interest properties. From the approximate $45.0 million cash consideration that we received, we discharged our outstanding credit facilities. The financial results for those assets sold are classified as discontinued operations in the accompanying financial statements. Please see further discussion in Note 14 to the consolidating financial statements.
BASIS OF PRESENTATION
The accompanying consolidated financial statements and related footnotes are presented in U.S. dollars and in accordance with accounting principles generally accepted in the United States. Certain prior-year amounts have been reclassified to conform to the 2004 presentation, with no effect on net income.
2. | SIGNIFICANT ACCOUNTING POLICIES |
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
Toreador consolidates all of its majority-owned subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation. We account for our investments in entities in which we hold less than a majority interest under the equity method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and all highly liquid investments with original maturities of three months or less. We maintain our cash in bank deposit accounts, which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts and believe we are not exposed to any significant risk of loss.
CONCENTRATION OF CREDIT RISK AND ACCOUNTS RECEIVABLE
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash, accounts receivable, and our hedging and derivative financial instruments. We place our cash with high credit quality financial institutions. We sell oil and natural gas to various customers. Historically, we have not experienced any losses related to accounts receivable, and accordingly, we do not believe an allowance for doubtful accounts is warranted either at December 31, 2004 or 2003. Substantially all of our accounts receivable are due from purchasers of oil and natural gas. We place our hedging and derivative financial instruments with financial institutions and other firms that we believe have high credit ratings. For a discussion of the credit risks associated with our hedging activities, please see "Derivative Financial Instruments” below.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash equivalents, short-term investments, accounts receivable, marketable securities, accounts payable and accrued liabilities, long-term debt, and the convertible debenture approximate fair value, unless otherwise stated, as of December 31, 2004 and 2003.
F-10
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
DERIVATIVE FINANCIAL INSTRUMENTS
We use various swap and option contracts to (i) reduce the effect of the volatility of price changes on the commodities we produce and
sell; and (ii) support our annual capital budgeting and expenditure plans. In order to accomplish this objective, we periodically enter into oil and natural gas swap and option agreements that fix the price of oil and natural gas sales within ranges determined acceptable at the time we execute the contracts. We may also, from time to time, enter into hedges of foreign currency. Losses from these hedges totaled $63,000 in 2004. We did not enter into any foreign currency hedges in 2003.
We are exposed to credit losses in the event of nonperformance by the counterparties to our financial instruments. We anticipate, however, that such counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk but we monitor the credit standing of the counterparties. At December 31, 2004 and 2003, we had no amounts receivable from our counterparties.
We have elected not to designate the derivative financial instruments to which we are a party as hedges, and accordingly, we record such contracts at fair value and recognize changes in such fair value in current earnings as they occur.
INVENTORIES
At December 31, 2004 and 2003, other current assets included $530,000 and $854,000 of inventory, respectively. Those amounts consist of technical equipment and crude oil held in storage tanks. We record inventories at the lower of actual cost or market.
OIL AND NATURAL GAS PROPERTIES
We follow the successful efforts method of accounting for oil and natural gas exploration and development expenditures. Under this method, costs of successful exploratory wells and all development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves are expensed. In the absence of a determination as to whether the reserves that have been found can be classified as proved, we carry the costs of drilling such exploratory wells as an asset for no more than one year following completion of drilling. If, after that year has passed, a determination that proved reserves have been found cannot be made, we will assume that the well is impaired, and charge the cost to expense. Significant costs associated with the acquisition of oil and natural gas properties are capitalized. Upon sale or abandonment of units of property or the disposition of miscellaneous equipment, the cost is removed from the asset account, net of the accumulated depreciation or depletion, and the gain or loss is credited to or charged against operations.
Maintenance and repairs are charged to expense; betterments of property are capitalized and depreciated as described below.
DEPRECIATION, DEPLETION AND AMORTIZATION
We provide depreciation, depletion and amortization of our investment in producing oil and natural gas properties on the units-of-production method, based upon independent reserve engineers' estimates of recoverable oil and natural gas reserves from the property. Depreciation expense for fixed assets is generally calculated on a straight-line basis based upon estimated useful lives of three to seven years.
IMPAIRMENT OF ASSETS
We evaluate producing property costs for impairment and reduce such costs to fair value if the sum of expected undiscounted future cash flows is less than net book value pursuant to Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”). On January 1, 2002 we adopted Statement 144. At December 31, 2003, we had properties held for sale of $13.2 million. These assets were sold for approximately $45.0 million cash in January 2004. We assess impairment of non-producing leasehold costs and undeveloped mineral and royalty interests periodically on a property-by-property basis. We charge any impairment in value to expense in the period incurred. We incurred impairment losses on our United States oil and natural gas producing properties of zero in 2004, $171,000 in 2003, and $525,000 in 2002. The impairments in 2003 were the result of overall decreases in the quantity of reserves on maturing properties. The impairments in 2002 were the result of several properties depleting faster than expected. There were no properties with individually significant impairments, nor was there any particular group of properties that were impaired.
F-11
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
ASSET RETIREMENT OBLIGATIONS
On August 15, 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations (“Statement 143”). Initiated in 1994 as a project to account for the costs of nuclear decommissioning, the FASB expanded the scope to include similar closure or removal-type costs in other industries that are incurred at any time during the life of an asset. That standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard became effective for fiscal years beginning after June 15, 2002. We adopted Statement 143 on January 1, 2003. Upon adoption of Statement 143, we recorded an increase to Property and Equipment and an offsetting entry to Asset Retirement Obligations of approximately $1,716,000 and $1,690,000, respectively, as a result of the Company separately accounting for salvage values and recording the estimated fair value of its plugging and abandonment obligation on the balance sheet. The impact of adopting Statement 143 was determined to be immaterial. We do not expect the effects of adopting Statement 143 to have a material impact on our financial position or results of operations in future years.
The following tables describe on a pro forma basis our asset retirement liability as if Statement 143 had been adopted on January 1, 2002: |
| 2004 | 2003 | |||||
|---|---|---|---|---|---|---|
| (in thousands) | ||||||
| Asset retirement obligation January 1 | $ 1,789 | $ 1,690 | ||||
| Asset retirement accretion expense | 127 | 105 | ||||
| Plus: foreign currency exchange gain | 436 | — | ||||
| Plus property additions | 39 | — | ||||
| Less: plugging cost | (37) | (5) | ||||
| Less: property sold | (23) | (1) | ||||
| Asset retirement obligation at December 31 | $ 2,331 | $ 1,789 | ||||
Asset retirement obligations are recorded as current or non-current liabilities based on our estimate of plugging and abandonment dates of the related wells.
| Year Ended |
| (in thousands, except per share data) |
Net loss, reported | $ (6,481) |
Less: retirement obligation accretion expense | 116 |
Plus: depreciation on salvage value | — |
Net loss pro forma | $ (6,597) |
|
|
Loss per share: |
|
As reported |
|
Basic | $ (0.69) |
Diluted | $ (0.69) |
|
|
Pro forma |
|
Basic | $ (0.70) |
Diluted | $ (0.70) |
GOODWILL |
On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”). Under Statement 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives (but with no maximum life). Prior to our acquisition of Madison Oil Company, we had no goodwill, so the adoption of this standard had no impact on our financial position or results of operations.
F-12
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
As the result of adopting Statement 142, we will review annually the value of goodwill recorded as a result of the acquisition Madison Oil Company, or more frequently if impairment indicators arise. We recognized no goodwill impairment during 2004 or 2003. Goodwill was reduced by $929,000 in 2004 for a corresponding reduction in deferred tax liabilities which resulted from the recognition of prior Madison Oil Company net operating losses that were reserved at the date of acquisition. At the end of 2003, we made a commitment to be fully reinvested in our international subsidiaries. Accordingly, we reversed the deferred tax liability originally booked as a result of the acquisition of Madison Oil Company against goodwill in the amount of $2.4 million. This amount represented the tax effect of the difference between the financial reporting and tax basis of the net assets of Madison Oil Company at the time of the acquisition. The balance of goodwill at December 31, 2004 is approximately $2.5 million.
REVENUE RECOGNITION
Our French crude oil production accounts for the majority of our sales. We sell our French crude oil to Elf Antar France S.A. (“ELF”), and recognize the related revenues when the production is delivered to ELF’s refinery, typically via truck. At the time of delivery to the plant, title to the crude oil transfers to ELF. The terms of the contract with ELF state that the price received for oil sold will be the arithmetic mean of all average daily quotations of Dated Brent published in Platt’s Oil Market Wire for the month of production less a specified differential per barrel. The pricing of oil sales is done on the first day of the month following the month of production. In accordance with the terms of the contract, payment is made within six working days of the date of issue of the invoice. The contract with ELF is automatically extended for a period of one year unless either party cancels it in writing no later than six months prior to the beginning of the next year. We periodically review ELF’s payment timing to ensure that receivables from ELF for crude oil sales are collectible.
We recognize revenue for our remaining production when the quantities are delivered to or collected by the respective purchaser. Title to the produced quantities transfers to the purchaser at the time the purchaser collects or receives the quantities. Prices for such production are defined in sales contracts and are readily determinable based on certain publicly available indices. The purchasers of such production have historically made payment for crude oil and natural gas purchases within thirty and sixty days of the end of each production month, respectively. We periodically review the difference between the dates of production and the dates we collect payment for such production to ensure that receivables from those purchasers are collectible. All transportation costs are accounted for as a reduction of oil and natural gas sales revenue.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"), encourages, but does not require, the adoption of a fair value-based method of accounting for employee stock-based compensation transactions. We have elected to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("Opinion 25"), and related interpretations, in accounting for our employee stock-based compensation plans. Under Opinion 25, compensation cost is measured as the excess, if any, of the quoted market price of our stock at the date of the grant above the amount an employee must pay to acquire the stock.
Had compensation costs for employees under our two stock-based compensation plans been determined based on the fair value at the grant dates under those plans consistent with the method proscribed by Statement 123, our net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts listed below:
F-13
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2004 | 2003 | 2002 | |||||
|---|---|---|---|---|---|---|---|
| (in thousands, except per share data) | |||||||
| Net income (loss), applicable to common shares, as | |||||||
| reported | $ 24,305 | $ 1,882 | $ (6,481 | ) | |||
| Basic earnings (loss) per share reported | 2.54 | 0.20 | (0.69 | ) | |||
| Diluted earnings (loss) per share reported | 1.97 | 0.20 | (0.69 | ) | |||
| Stock-based compensation costs under the intrinsic | |||||||
| value method included in net income (loss) | |||||||
| reported, net of related tax | — | — | — | ||||
| Pro-forma stock-based compensation costs under the | |||||||
| fair value method, net of related tax | 1,049 | 249 | 432 | ||||
| Pro-forma income (loss) applicable to common | |||||||
| shares, as under the fair-value method | 23,256 | 1,633 | (6,913 | ) | |||
| Pro-forma basic earnings (loss) per share under the | |||||||
| fair value method | 2.43 | 0.17 | (0.74 | ) | |||
| Pro-forma diluted earnings (loss) per share under | |||||||
| the fair value method | 1.89 | 0.17 | (0.74 | ) | |||
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
| 2004 |
| 2003 |
| 2002 |
Dividend yield per share |
| — |
| — |
| — |
Volatility |
| 43 – 54% |
| 42% |
| 34% |
Risk-free interest rate |
| 3.3 – 4.6% |
| 2.8% |
| 2.8% |
Expected lives |
| 3 years |
| 10 years |
| 10 years |
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
FOREIGN CURRENCY TRANSLATION
The functional currency of the countries in which we operate is the U.S. dollar in the United States, the Eurodollar in France and the U.S. dollar in Turkey. Gains and losses resulting from the translations of local currencies into U.S. dollars are included in other comprehensive income for the current period. We periodically review the operations of our entities to ensure the functional currency of each entity is the currency of the primary economic environment in which we operate.
The functional currency in Turkey has been the Turkish lira historically. Turkey is deemed to be a highly inflationary economy, which is why the functional currency has now been changed to the U.S. dollar. The activity level and capital spent in Turkey was immaterial to the overall operations until the last quarter of 2004. Accordingly, we did not convert the functional currency to the U.S. dollar until the fourth quarter of 2004 even though Turkey’s economy has been highly inflationary for several years.
INCOME TAXES
We are subject to income taxes in the United States, France, and Turkey. The current provision for taxes on income consists primarily of income taxes based on the tax laws and rates of the countries in which operations were conducted during the periods presented. We compute our provision for deferred income taxes using the liability method. Under the liability method, deferred income tax assets and liabilities are determined based on differences between financial reporting and income tax basis of assets and liabilities and are measured using the enacted tax rates and laws. The measurement of deferred tax assets is adjusted by a valuation allowance, if necessary, to recognize the future tax benefits to the extent, based on available evidence it is more likely than not deferred tax assets will be realized. Goodwill was reduced by $929,000 in 2004 for a corresponding reduction in deferred tax liabilities which resulted from the recognition of prior Madison Oil Company net operating losses. At the end of 2003, we made a commitment to be fully reinvested in our international subsidiaries. Accordingly, in 2003, we reversed the deferred tax liability originally booked as a result of the acquisition of Madison Oil Company against goodwill in the amount of $2.4 million. This amount represented the tax effect of the difference between the financial reporting and tax basis of the net assets of Madison Oil Company at the time of the acquisition. The balance of the deferred tax liability at December 31, 2004 is $10.7 million.
F-14
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REDUCTION IN FORCE
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“Statement 146”). Statement 146 requires that a liability for costs associated with an exit or disposal activity should be initially recognized when it is incurred. Under previous standards, such costs were recognized in the period in which an entity committed to a plan of disposal. Under Statement 146, the costs are recognized in the period when an actual disposal is under way. Examples of costs included under Statement 146 include one-time termination benefits, costs to consolidate or close facilities and costs to relocate employees. Statement 146 is effective for exit or disposal activities initiated after December 31, 2002. On June 17, 2003, Toreador committed to the termination of four employees. Two engineers, one geologist and one part-time employee were terminated in an effort to reduce general and administrative costs. On February 2, 2004, we committed to the termination of two landmen as a result of the Royalty Sale in January 2004. The following table provides a reconciliation of the liability:
Exit Cost or Disposal Activity |
| Amount |
|
| (in thousands) |
Employee severance liability June 17, 2003 |
| $ 511 |
Cost incurred |
| — |
Adjustments |
| — |
Less: Payroll payments |
| (201) |
Severance liability December 31, 2003 |
| $ 310 |
|
|
|
Cost incurred |
| 172 |
Adjustments |
| — |
Less: Payroll Payments |
| (482) |
Severance liability December 31, 2004 |
| $ — |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
NEW ACCCOUNTING PRONOUNCEMENTS
In December 2004, the FASB revised Financial Accounting Standard No. 123, Accounting for Stock Based Compensation. This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This statement establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on the accounting for transactions in which an entity obtains employee services in exchange for its equity instruments. The statement is effective for interim quarters beginning after June 15, 2005. We do not expect that the adoption of this statement will have a significant impact on our future results of operations or financial position.
In November 2004, the FASB issued Financial Accounting Standard No. 151 on Inventory Costs. This statement amends guidance set forth in ARB No. 43, Chapter 4, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The statement is effective for fiscal years beginning after June 15, 2005. The adoption of this statement will not have an impact on our future results of operations or financial position.
F-15
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. | EARNINGS PER SHARE |
In accordance with the provisions of FASB Statement of Financial Accounting Standards No. 128, Earnings per Share (“Statement 128”), basic earnings per share is computed on the basis of the weighted-average number of common shares outstanding during the periods. Diluted earnings per share is computed based upon the weighted-average number of common shares plus the assumed issuance of common shares for all potentially dilutive securities.
| Year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2002 | |||||||||
| (in thousands, except per share data) | |||||||||||
| Basic earnings (loss) per share: | |||||||||||
| Numerator | |||||||||||
| Net income (loss) from continuing operations, net of income tax | $ 7,480 | $ 1,200 | $ (5,666 | ) | |||||||
| Income from discontinued operations, net of income tax | 17,539 | 1,182 | (441 | ) | |||||||
| Net income (loss) | 25,019 | 2,382 | (6,107 | ) | |||||||
| Less: dividends on preferred shares | 714 | 500 | 374 | ||||||||
| Net income (loss) applicable to common shares | $ 24,305 | $ 1,882 | $ (6,481 | ) | |||||||
| Denominator | |||||||||||
| Common shares outstanding | 9,571 | 9,338 | 9,343 | ||||||||
| Basic earnings (loss) per share from: | |||||||||||
| Continuing operations | $ 0.71 | $ 0.07 | $ (0.65 | ) | |||||||
| Discontinued operations | 1.83 | 0.13 | (0.04 | ) | |||||||
| Net income (loss) per share applicable to common shares | $ 2.54 | $ 0.20 | $ (0.69 | ) | |||||||
| Diluted earnings (loss) per share: | |||||||||||
| Numerator | |||||||||||
| Net income (loss) from continuing operations, net of income tax | $ 7,480 | $ 1,200 | $ (5,666 | ) | |||||||
| Income from discontinued operations, net of income tax | 17,539 | 1,182 | (441 | ) | |||||||
| Net income (loss) | 25,019 | 2,382 | (6,107 | ) | |||||||
| Plus: interest on convertible debt | 265 | N/A | (1) | N/A | (1) | ||||||
| Less: dividends on preferred shares | N/A | (2) | 500 | 374 | |||||||
| Net income (loss) applicable to commons share | $ 25,284 | $ 1,882 | $ (6,481 | ) | |||||||
| Denominator | |||||||||||
| Common shares outstanding | 9,571 | 9,338 | 9,343 | ||||||||
| Common stock options and warrants | 523 | 9 | N/A | (1) | |||||||
| Conversion of preferred shares | 1,997 | N/A | (1) | N/A | (1) | ||||||
| Conversion of notes payable | 410 | N/A | (1) | N/A | (1) | ||||||
| Conversion of debentures | 316 | N/A | (1) | N/A | (1) | ||||||
| Diluted shares outstanding | 12,817 | 9,347 | 9,343 | ||||||||
| Diluted earnings (loss) per share from: | |||||||||||
| Continuing operations | $ 0.60 | $ 0.07 | $ (0.65 | ) | |||||||
| Discontinued operations | 1.37 | 0.13 | (0.04 | ) | |||||||
| Net income (loss) per share applicable to common shares | $ 1.97 | $ 0.20 | $ (0.69 | ) | |||||||
__________
(1) Conversion of these securities would be antidilutive therefore there are no dilutive shares. |
|
(2) Conversion of preferred shares would be dilutive therefore we assume no dividends would have been paid. | |
F-16
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. | ACCOUNTS AND NOTES RECEIVABLE |
Accounts and notes receivable consist of the following:
| December 31, | |||||
|---|---|---|---|---|---|
| 2004 | 2003 | ||||
| (in thousands) | |||||
| Accrued oil and natural gas sales receivable | $ 2,566 | $ 3,978 | |||
| Taxes receivable | 611 | — | |||
| Trades receivables | 26 | 46 | |||
| Other receivables | 27 | 29 | |||
| $ 3,230 | $ 4,053 | ||||
5. | PROPERTIES AND EQUIPMENT |
Oil and Natural Gas Properties consist of the following:
| December 31, | |||||
|---|---|---|---|---|---|
| 2004 | 2003 | ||||
| (in thousands) | |||||
| Licenses and concessions | $ 3,505 | $ 3,407 | |||
| Non-producing leaseholds | 11,556 | 3,675 | |||
| Producing leaseholds and intangible drilling costs | 74,847 | 64,372 | |||
| Lease and well equipment | 1,926 | 2,052 | |||
| Furniture, fixtures and office equipment | 1,449 | 1,093 | |||
| 93,283 | 74,599 | ||||
| Accumulated depreciation, depletion and amortization | (13,616 | ) | (10,140 | ) | |
| 79,667 | 64,459 | ||||
| Royalty properties held available for sale, net (See Note 14) | — | 13,157 | |||
| Total oil and natural gas properties | $ 79,667 | $ 77,616 | |||
During 2004, we sold various properties and equipment for $42.1 million (net of closing costs) resulting in a gain of $28.4 million before tax. During 2003, we sold various properties and equipment for $424,000 (net of closing costs) resulting in a gain of $120,000 before tax.
F-17
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. | INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES |
In February 2004, we acquired 45% of ePsolutions. Based in Austin, Texas, ePsolutions is a software and energy services company driven by a professional team with over 40 years of combined experience in the electric industry and deregulated energy markets. ePsolutions is the developer of emPower system, a CIS, EDI and Billing solution for energy companies within deregulated energy markets. At December 31, 2004 our investment in ePsolutions amounted to $799,000. We recorded equity in the loss of ePsolutions of $312,000 in 2004.
In July 2000, we acquired 35% of EnergyNet.com, Inc. (“EnergyNet”), an Internet based oil and natural gas property auction company. At December 31, 2004 and 2003, our investment in EnergyNet amounted to $554,000 and $406,000, respectively. We recorded equity in the gain/(loss) of EnergyNet of $279,000 in 2004, $6,500 in 2003, and ($64,000) in 2002.
In April 2000, we acquired a 50% interest in Capstone Royalty, LLC (“Capstone”), a joint venture formed to acquire mineral interests at county auctions in west Texas and develop those interests. Our investment in Capstone amounted to $112,000 and $123,000 at December 31, 2004 and 2003, respectively. We recorded equity in the earnings of Capstone amounting to $15,000 in 2004, $15,000 in 2003 and zero in 2002. We received a distribution of $25,000 from Capstone in both 2003 and 2002.
As part of our acquisition of Madison Oil Company, we acquired a 25% interest in Trinidad Exploration and Development, Ltd. (“TED”). TED is involved in oil exploration in the Southwest Cedros Peninsula of Trinidad. Our investment in TED amounted to $2,652,000 at December 31, 2002 before any impairment. In addition to our investment in TED, we also had a note receivable of $500,000 from TED. During 2002, we were unsuccessful in our arbitration case against TED’s majority shareholder, and our interest was diluted from 25% to 16.33%. Due to the reduction in our ownership, we recorded a charge of approximately $920,000 in 2003 as equity in earnings of unconsolidated investments, reflecting the diminished valuation of the ultimate amount estimated to be recovered from our investment. Additionally, we evaluated our ability to collect our receivable from TED and reserved 50% of the receivable, or $250,000. During 2003, our interest in TED was converted from an equity interest to a 1% overriding royalty interest. Accordingly, our investment in TED, the note receivable and the related contra receivable were reclassified as oil and natural gas properties in 2003. Our investment in TED amounted to zero at December 31, 2004.
F-18
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. | LONG-TERM DEBT |
Long-term debt consists of the following:
| December 31, | |||||
|---|---|---|---|---|---|
| 2004 | 2003 | ||||
| (in thousands) | |||||
| Revolving line of credit with Bank of Texas, N.A. | $ — | $ 17,016 | |||
| Revolving line of credit with Barclays Bank, PLC | — | 11,800 | |||
| Revolving line of credit with Texas Capital Bank, N.A. | 37 | — | |||
| 37 | 28,816 | ||||
| Less: current portion | (37 | ) | 28,816 | ||
| $ — | $ — | ||||
REVOLVING LINE OF CREDIT WITH NATEXIS BANQUES POPULAIRES
On December 23, 2004, we entered into a five-year $15.0 million reserve-based borrowing facility with a French lender to finance the development of our existing French fields, acquisitions of new fields, general working capital and our corporate purposes. The facility bears interest at a floating rate of 2.25-2.75% above LIBOR (2.40% at December 31, 2004) depending on the principal outstanding. The facility is collateralized by certain of our French assets, including contracts relating to our rights and interests in our French fields, our direct and indirect equity interests in certain of our subsidiaries and payments received from the sale of our French production. Toreador and certain of its U.S. and French subsidiaries have each guaranteed the obligations under the facility. This facility will require monthly interest payments until December 23, 2009, at which time all unpaid principal and interest are due. Under the $15.0 million facility borrowings of approximately $8.0 million are available at March 30, 2005. The $15.0 million facility contains various affirmative and negative covenants. These covenants, among other things, limit additional indebtedness, the sale of assets, change of control and management, limitations on the distribution of stock dividends and require us to meet certain financial requirements. Specifically, we must maintain an interest cost ratio of not less than 4.00 to 1.00, an indebtedness ratio of not less than 1.00 to 1.00, asset life cover ratio of not less than 1.25 to 1.00, a loan life cover ratio equal to or greater than 1.15 to 1.00 and a debt service coverage ratio equal to or greater than 1.10 to 1.00. As of December 31, 2004, we were in compliance with all covenants.
REVOLVING LINE OF CREDIT WITH TEXAS CAPITAL BANK, N.A.
On December 30, 2004, we entered into a five-year $25.0 million reserve-based borrowing facility with Texas Capital Bank, N.A. in order to finance the development and acquisition of oil and natural-gas interests both domestically and internationally and for working capital purposes. The facility bears interest at a rate of prime less 0.5% (5.25% at December 31, 2004) and is collateralized by our domestic working interests. The borrowers under this facility are two of our domestic subsidiaries, and Toreador has guaranteed the obligations. At December 31, 2004, we had approximately an additional $3.3 million available for borrowings. The $25.0 million facility requires monthly interest payments until January 1, 2019 at which time all unpaid principal and interest are due. The $25 million facility contains various affirmative and negative covenants. These covenants, among other things, limit additional indebtedness, the sale of assets, change of control and management and require us to meet certain financial requirements. Specifically, we must maintain a current ratio of 1.25 to 1.00 (exclusive of amounts due under revolving credit arrangements) and an interest coverage ratio of not less than 3.00 to 1.00. As of December 31, 2004, we were in compliance with all covenants.
REVOLVING LINE OF CREDIT WITH BANK OF TEXAS, N.A.
On February 16, 2001, we entered into a $75.0 million credit agreement with Bank of Texas, National Association (the “Texas Facility”) that was to mature on February 16, 2006. The majority of our United States oil and natural gas properties were pledged as collateral under the Texas Facility. At the end of 2003, the Texas Facility had borrowings outstanding of approximately $17.0 million. We discharged the Texas Facility in January 2004 with a portion of the proceeds from the Royalty Sale.
F-19
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. | LONG-TERM DEBT, continued |
REVOLVING LINE OF CREDIT WITH BARCLAYS BANK, PLC
As part of our acquisition of Madison Oil Company, we assumed a revolving credit facility with Barclays Bank, Plc (the “Barclays Facility”) that was to mature on December 31, 2005 and was secured by the production from our French properties. We had $11.8 million outstanding at December 31, 2003 under the Barclays Facility. During 2003, we used $2.8 million of our available cash flow to reduce the amounts outstanding under the Barclays Facility. We discharged the Barclays Facility in January 2004 with a portion of the proceeds from the Royalty Sale. Under the terms of the Warrant Buyback Letter dated May 19, 2003, we were required to buy 500,000 outstanding warrants back from Barclays for the sum of $100,000 upon final settlement of the Barclays Facility. Additionally, we were required to make a final settlement payment totaling $925,000 less the amounts of any payments made to Barclays for interim fees due before the final settlement under the terms of the Settlement Fee Letter dated May 19, 2003. The settlement payment amount after deduction of the interim fees paid to Barclays was approximately $806,000.
When we repaid the Barclays Facility in January 2004, we realized a foreign currency translation gain of approximately $5.0 million (3.9 million Eurodollars) which was previously included in accumulated other comprehensive income (loss) in stockholders’ equity at December 31, 2003. The gain is reflected in other income (expense) as foreign currency exchange gain on the statement of operations for the year ended December 31, 2004.
CONVERTIBLE SUBORDINATED NOTES
In July 2004, we sold to certain institutional investors pursuant to a private offering $7.5 million aggregate principal amount of 7.85% convertible subordinated notes due June 30, 2009. We used the net proceeds of the offering to accelerate our oil development program in France's Paris Basin and for general corporate purposes. The 7.85% convertible subordinated notes due June 30, 2009 bore interest at the rate of 7.85% per annum and were convertible into shares of Toreador common stock at a conversion price of $8.20 per share. Toreador had the right to cause the 7.85% convertible subordinated notes due June 30, 2009 to be converted on or after February 22, 2005, if the closing price of Toreador's common stock was greater than $14.35 for the 30 consecutive trading days prior to the date of Toreador's conversion notice. On January 13, 2005, we offered the option to the holders of the 7.85% convertible subordinated notes due June 30, 2009 to exchange their notes for the aggregate number of shares of our common stock issuable upon conversion of each of their notes and that portion of interest payable pursuant to the notes that would otherwise have been payable to the holders through February 22, 2005 absent conversion of the notes prior to such date. On or prior to January 20, 2005, all of our 7.85% convertible subordinated notes due June 30, 2009 were exchanged for an aggregate of 914,634 shares of our common stock and an aggregate cash payment (in lieu of interest) of approximately $85,000.
CONVERTIBLE DEBENTURE
As part of our acquisition of Madison Oil Company, we assumed and amended a convertible debenture (“Debenture”) payable to PHD Partners LP. The general partner of PHD Partners LP is a corporation wholly owned by David M. Brewer, a director and significant stockholder of Toreador. The amended and restated debenture used to bear interest at 10% per annum and was due on March 31, 2006. At the holders’ option, the amended and restated debenture could be converted into common stock at a ratio of $6.75 per share. We originally had 319,962 common shares reserved for issuance related to the conversion of the amended and restated debenture. As of March 31, 2004, the amended and restated debenture was amended and restated to bear interest at 6% per annum, eliminate Madison Oil Company's right under certain circumstances to force a conversion of the principal into shares of Toreador common stock and eliminate Madison Oil Company's ability to repay principal prior to maturity. At the holder's option, the second amended and restated convertible debenture can be converted into Toreador common stock at a conversion price of $6.75 per share. In December 2004, PHD Partners LP converted $675,000 of the second amended and restated debenture into 100,000 shares of our common stock. As a result, at December 31, 2004 the outstanding principal amount of the second amended and restated convertible debenture was approximately $1.5 million. We have 219,962 shares of common stock reserved for issuance related to the conversion of the second amended and restated convertible debenture. Interest payments made to PHD Partners LP were $352,416, $108,437 and $149,992 in 2004, 2003 and 2002, respectively.
F-20
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. CAPITAL
Toreador had 160,000 shares of nonvoting Series A Convertible Preferred Stock outstanding at December 31, 2003 and 2002. In accordance with Section 6 of the terms and conditions of the Preferred Stock, Toreador gave notice that it would redeem all outstanding shares of its Preferred Stock at 2:00 p.m. Central time on December 31, 2004 at the price of $26.81 per share which amount included all accrued and unpaid dividends from the last dividend payment date through the Redemption Date. Dividends on the Preferred Stock ceased to accrue and all rights of holders of the Preferred Stock terminated as of the Redemption Date. All Series A Convertible Preferred Stock was converted into common shares at a price of $4.00 per common share (conversion would amount to 1,000,000 Toreador common shares). The Series A Convertible Preferred Stock accrued dividends at an annual rate of $2.25 per share payable quarterly in cash.
We issued 37,000 shares of Series A-1 Convertible Preferred Stock in November 2002 and 123,000 shares of Series A-1 Convertible Preferred Stock during 2003. At the option of the holder, the Series A-1 Convertible Preferred Stock may be converted into common shares at a price of $4.00 per common share (conversion would amount to 1,000,000 Toreador common shares). The Series A-1 Convertible Preferred Stock accrues dividends at an annual rate of $2.25 per share payable quarterly in cash. At any time on or after November 1, 2007, we may elect to redeem for cash any or all shares of Series A-1 Convertible Preferred Stock. The optional redemption price per share is the sum of (1) $25.00 per share of the Series A-1 Convertible Preferred Stock plus (2) any accrued unpaid dividends, and such sum is multiplied by a declining multiplier. The multiplier is 105% until October 31, 2008, 104% until October 31, 2009, 103% until October 31, 2010, 102% until October 31, 2011, 101% until October 31, 2012, and 100% thereafter. On December 31, 2004, 6,000 shares of Series A-1 Convertible Preferred Stock were converted into 37,500 shares of our common stock pursuant to the terms of the Series A-1 Convertible Preferred Stock.
As part of our acquisition of Madison Oil Company, we issued warrants for the purchase of 111,509 shares of our common stock. Currently there are 4,130 warrants at $8.05 that expire in July 2010, 11,800 warrants at $5.37 that expire in August 2010 and 7,080 warrants at $4.30 that expire in November 2010. The 88,499 remaining warrants expired in 2002.
On February 16, 2005, we sold 1,437,500 shares of our common stock pursuant to a public offering at a price to the public of $24.25 per share. The sale resulted in net proceeds of approximately $32.6 million.
On February 22, 2005, 82,000 shares of our Series A-1 Convertible Preferred Stock were exchanged for an aggregate of 512,500 shares of Toreador common stock pursuant to the terms thereof and an additional 20,164 shares of our common stock which were issued as an inducement to convert such shares of Series A-1 Convertible Preferred Stock.
9. INCOME TAXES
The Company's provision (benefit) for income taxes consists of the following (see Note 14 for discontinued operations):
| Year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2002 | |||||||||
| (in thousands) | |||||||||||
| Current: | |||||||||||
| U.S. Federal | $ 7,122 | $ �� 95 | $ (425 | ) | |||||||
| U.S. State | 1,010 | 108 | 48 | ||||||||
| Foreign | (611 | ) | 689 | 1,912 | |||||||
| Deferred: | |||||||||||
| U.S. Federal | (243 | ) | (10 | ) | (1,871 | ) | |||||
| U.S. State | — | (1 | ) | (170 | ) | ||||||
| Foreign | — | (689 | ) | (1,729 | ) | ||||||
| $ 7,278 | $ 192 | $ (2,235 | ) | ||||||||
| The tax provision (benefit) has been allocated between continuing | |||||||||||
| operations and discontinued operations as follows: | |||||||||||
| Provision (benefit) allocated to: | |||||||||||
| Continuing operations | $ (3,576 | ) | $ (266 | ) | $ (2,061 | ) | |||||
| Discontinued operations | 10,854 | 458 | (174 | ) | |||||||
| $ 7,278 | $ 192 | $ (2,235 | ) | ||||||||
F-21
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. | INCOME TAXES (continued) |
The primary reasons for the difference between tax expense at the statutory federal income tax rate and our provision for income taxes were:
| Year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2002 | |||||||||
| (in thousands) | |||||||||||
| Statutory tax at 34% | $ | 10,838 | $ | 875 | $ | (2,836 | ) | ||||
| Rate differential on foreign operations | 169 | 50 | 8 | ||||||||
| Use of NOL carryforwards | (4,486 | ) | (523 | ) | — | ||||||
| State income tax, net | 1,010 | 71 | (81 | ) | |||||||
| Release of tax reserve | (554 | ) | — | — | |||||||
| Adjustments to valuation allowance | 503 | 450 | 553 | ||||||||
| Other | (202 | ) | (731 | ) | 121 | ||||||
| $ | 7,278 | $ | 192 | $ | (2,235 | ) | |||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2004 and 2003 were as follows:
| December 31, | |||||
|---|---|---|---|---|---|
| 2004 | 2003 | ||||
| (in thousands) | |||||
| Deferred tax assets: | |||||
| Net operating loss carryforward - United States | $ 1,454 | $ 1,888 | |||
| Net operating loss carryforward - Foreign | 1,511 | 2,954 | |||
| Unrealized loss on derivative financial instruments | — | 429 | |||
| Other | 100 | 88 | |||
| Gross deferred tax assets | 3,065 | 5,359 | |||
| Valuation allowance | (522 | ) | (3,787 | ) | |
| Net deferred tax assets | 2,543 | 1,572 | |||
| Deferred tax liabilities: | |||||
| Leasehold costs - United States | (574 | ) | (541 | ) | |
| Leasehold costs - Foreign | (11,161 | ) | (9,875 | ) | |
| Intangible drilling and development costs | (457 | ) | (396 | ) | |
| Lease and well equipment | (381 | ) | (115 | ) | |
| Investments in foreign subsidiaries | — | 126 | |||
| Unrealized foreign currency translation gains | (518 | ) | (1,941 | ) | |
| Other | (112 | ) | (621 | ) | |
| Gross deferred tax liabilities | (13,203 | ) | (13,363 | ) | |
| Net deferred tax liabilities | $ (10,660 | ) | $ (11,791 | ) | |
F-22
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
Our acquisition of Madison Oil Company resulted in a net deferred tax liability of $10.2 million due to the difference between the book and tax basis of the assets acquired and the benefit of net operating loss carryforwards. At December 31, 2004, Toreador had the following carryforwards available to reduce future taxable income (in thousands):
Jurisdiction |
| Expiry |
| Amount |
|
|
|
|
|
United States |
| 2010 – 2021 |
| $ 3,930 |
France |
| Unlimited |
| 2,683 |
Turkey |
| 2005 – 2008 |
| 1,689 |
The utilization of our United States net operating loss carryforwards is limited to $391,000 per year pursuant to a prior change of control. Accordingly, we established a valuation allowance of $789,000, with a tax effect of $292,000, for our estimate of the net operating loss carryforwards that will expire before we can utilize them. Realization of net operating loss carryforwards depends on our ability to generate taxable income within the carryforward period.
The utilization of our Turkish net operating loss carryforwards depends on our ability to generate taxable income during the carryforward period. We have recorded a valuation allowance of approximately $689,000, with a tax effect of $230,000, for our estimates of the net operating loss carryforwards that will expire before we can utilize them.
10. | BENEFIT PLANS |
We have a 401(k) retirement savings plan. Employees are eligible to defer portions of their salaries, limited by Internal Revenue Service regulations. Employer matches are discretionary, and are determined annually by the board of directors. Such discretionary matches amounted to $75,000 in 2004, zero in 2003, and $34,000 in 2002.
F-23
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. | STOCK COMPENSATION PLANS |
We have granted stock options to key employees and directors of Toreador as described below.
In May 1990, we adopted the 1990 Stock Option Plan (“1990 Plan”). The 1990 Plan, as amended and restated, provides for grants of up to 1,000,000 stock options to employees and directors at exercise prices greater than or equal to market on the date of the grant.
In December 2001, we adopted the 2002 Stock Option Plan (“2002 Plan”). The 2002 Plan provides for grants of up to 500,000 stock options to employees and directors at exercise prices greater than or equal to market on the date of the grant.
In September 1994, we adopted the 1994 Non-employee Director Stock Option Plan (“1994 Plan”). The 1994 Plan, as amended and restated, provides for grants of up to 500,000 stock options to non-employee directors of Toreador at exercise prices greater than or equal to market on the date of the grant.
The Board of Directors grants options under our plans periodically. Generally, option grants are exercisable in equal increments over a three-year period, and have a maximum term of 10 years. However, the 2004 stock grants were immediately vested.
A summary of stock option transactions is as follows:
| 2004 |
| 2003 |
| 2002 | ||||||
| SHARES |
| WEIGHTED AVERAGE EXERCISE PRICE |
| SHARES |
| WEIGHTED AVERAGE EXERCISE PRICE |
| SHARES |
| WEIGHTED AVERAGE EXERCISE PRICE |
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
January 1 | 1,515,940 |
| $4.43 |
| 1,434,106 |
| $4.57 |
| 1,143,440 |
| $4.56 |
Granted | 442,700 |
| 5.78 |
| 120,000 |
| 3.10 |
| 361,000 |
| 4.63 |
Exercised | (528,102) |
| 4.34 |
| — |
| — |
| — |
| — |
Forfeited | (83,848) |
| 4.78 |
| (38,166) |
| 5.54 |
| (70,334) |
| 5.13 |
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
December 31 | 1,346,690 |
| $4.91 |
| 1,515,940 |
| $4.43 |
| 1,434,106 |
| $4.57 |
Exercisable at |
|
|
|
|
|
|
|
|
|
|
|
December 31 | 1,186,646 |
| $5.06 |
| 1,102,172 |
| $4.48 |
| 936,410 |
| $4.42 |
|
|
|
|
|
|
|
|
|
|
|
|
For stock options granted the following table represents the weighted-average exercise prices and the weighted-average fair value based upon whether or not the exercise price of the option was greater than, less than or equal to the market price of the stock on the grant date:
|
|
|
|
| WEIGHTED-AVERAGE |
| WEIGHTED-AVERAGE |
YEAR |
| OPTION TYPE |
| SHARES | EXERCISE PRICE |
| FAIR VALUE |
2004 |
| Exercise price greater than market price |
| 352,700 | $ 5.50 |
| $ 1.60 |
|
| Exercise price equal to market price |
| 90,000 | 6.89 |
| 2.50 |
|
|
|
|
|
|
|
|
2003 |
| Exercise price equal to market price |
| 120,000 | 3.10 |
| 1.12 |
|
|
|
|
|
|
|
|
2002 |
| Exercise price greater than market price |
| 206,000 | 4.96 |
| 1.51 |
|
| Exercise price equal to market price |
| 145,000 | 4.08 |
| 1.93 |
|
|
|
|
|
|
|
|
F-24
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. | STOCK COMPENSATION PLANS (continued) |
The following table summarizes information about the fixed price stock options outstanding at December 31, 2004:
Exercise Price |
| Number Outstanding |
| Number Exercisable |
| Weighted Average Remaining Contractual Life in Years |
$ 2.270 |
| 14,750 |
| 14,750 |
| 0.07 |
2.500 |
| 10,000 |
| 10,000 |
| 0.03 |
2.750 |
| 45,000 |
| 45,000 |
| 0.12 |
3.000 |
| 15,000 |
| 15,000 |
| 0.06 |
3.100 |
| 120,000 |
| 40,000 |
| 0.72 |
3.120 |
| 10,940 |
| 10,940 |
| 0.05 |
3.875 |
| 15,000 |
| 15,000 |
| 0.06 |
4.120 |
| 120,000 |
| 80,000 |
| 0.64 |
4.510 |
| 20,000 |
| 13,334 |
| 0.10 |
4.960 |
| 70,000 |
| 70,000 |
| 0.49 |
5.000 |
| 404,933 |
| 373,222 |
| 1.38 |
5.500 |
| 365,067 |
| 365,067 |
| 2.16 |
5.750 |
| 31,000 |
| 31,000 |
| 0.13 |
5.950 |
| 85,000 |
| 83,333 |
| 0.40 |
13.660 |
| 20,000 |
| 20,000 |
| 0.14 |
$ 4.911 |
| 1,346,690 |
| 1,186,646 |
| 6.55 |
At December 31, 2004, there were 125,208 remaining shares available for grant under the plans collectively.
12. COMMITMENTS AND CONTINGENCIES
We lease our office space under non-cancelable operating leases, expiring during 2006 and 2007. We also sublease portions of the leased space to one related party and two unrelated parties under non-cancelable sub-leases that expire on June 30, 2006. The following is a schedule of minimum future rentals under our non-cancelable operating leases, giving effect to the non-cancelable sub-leases, as of December 31, 2004 (in thousands):
| 2005 | $ 399 | ||
| 2006 | 404 | ||
| 2007 | 229 | ||
| 2008 | — | ||
| 1,032 | |||
| Less: minimum rents from subleases | 158 | ||
| $ 874 | |||
Net rent expense totaled $324,000 in 2004, $356,000 in 2003, and $362,000 in 2002.
Turkish Registered Capital. Under the existing Petroleum Law of Turkey, capital that is invested by foreign companies in projects such as oil and natural-gas exploration can be registered with the General Directorate of Petroleum Affairs, thereby qualifying for protection against adverse changes in the exchange rate between the time of the initial investment and the time such capital is repatriated out of Turkey. Since 1997 the Turkish government has suspended such protection for repatriated capital. As the holder of more than $50 million of registered capital, we have filed suit in Turkey to attempt to restore the exchange rate protections afforded under the law. No amounts are accrued related to this contingency. In March 2002, a lower level court ruled in favor of Madison Oil Company. The ruling was subject to automatic appeal that was heard in December 2002. The appellate court reversed the lower court’s ruling. We have appealed the ruling of the appellate court and are still waiting on a final determination. We have also appealed the case to the European Court. We cannot predict the outcome of this matter.
From time to time, we are named as a defendant in other legal proceedings arising in the normal course of business. In our opinion, the final judgment or settlement, if any, which may be awarded with any suit or claim would not have a material adverse effect on our financial position.
F-25
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS
On June 14, 2004, we issued stock options for 29,500 shares of our common stock to David M. Brewer. Mr. Brewer currently serves as a director for Toreador. The options were in payment to Mr. Brewer for consulting services related to our international activities. The options were granted pursuant to the Toreador Resources Corporation 2002 Stock Option Plan. The exercise price is $5.50 per share. The options expire no later than 10 years from the date of issuance. We recorded a charge to general and administrative costs of $58,000 in 2004.
William I. Lee, a director of the Company, is also Chairman of the Board and majority owner of Wilco Properties, Inc (“Wilco”). We entered into a technical services agreement with Wilco effective February 1, 1999 whereby we provided accounting and geological management services for a monthly fee of $7,250. On June 1, 2002, we terminated the agreement, but continued to provide limited services to Wilco during the transition and charged Wilco a reduced monthly fee through the end of 2002. We recorded reductions to general and administrative expense of $47,250 in 2002 related to this agreement. We had receivables from Wilco related to this arrangement amounting to $11,000 at December 31, 2002. The Company also subleases office space to Wilco pursuant to a sub-lease agreement. We recorded reductions to rent expense totaling $45,000 in 2004, $47,000 in 2003, and $40,000 in 2002 related to the sublease with Wilco. We have an informal agreement with Wilco under which one of the two companies incurs, on behalf of the other, certain miscellaneous expenses that are subsequently reimbursed by the other company. We had amounts receivable related to this arrangement of $2,000, $1,500 and $5,000 at December 31, 2004, 2003 and 2002, respectively.
On November 1, 2002, pursuant to a private placement we issued $925,000 of Series A-1 Convertible Preferred Stock to certain of our directors or entities controlled by certain of our directors. In connection with the securities purchase agreements, Toreador entered into a registration rights agreement effective November 1, 2002, among Toreador and the purchasers which provides for the registration of the common stock issuable upon conversion of the Series A-1 Convertible Preferred Stock. During 2003, pursuant to private placements we issued 41,000 shares of our Series A-1 Convertible Preferred Stock for the total amount of $1,025,000 to William I. Lee and Wilco as follows: (i) in October 2003, 34,000 shares were issued to William I. Lee and Wilco, an entity controlled by Mr. Lee; and (ii) in December 2003, 7,000 shares were issued to Wilco. The Series A-1 Convertible Preferred Stock is governed by a certificate of designation. The Series A-1 Convertible Preferred Stock was sold for a face value of $25.00 per share, and pays an annual cash dividend of $2.25 per share that results in an annual yield of 9.0%. At the option of the holder, the Series A-1 Convertible Preferred Stock may be converted into common shares at a price of $4.00 per common share. The $4.00 conversion price was higher than the market price of our common stock at the time of issuances. The Series A-1 Convertible Preferred Stock is redeemable at our option, in whole or in part, at any time on or after November 1, 2007. The optional redemption price per share is the sum of (1) $25.00 per share of the Series A-1 Convertible Preferred Stock plus (2) any accrued unpaid dividends, and such sum is multiplied by a declining multiplier. The multiplier is 105% until October 31, 2008, 104% until October 31, 2009, 103% until October 31, 2010, 102% until October 31, 2011, 101% until October 31, 2012, and 100% thereafter. In connection with the securities purchase agreements entered into with William I. Lee and Wilco, Toreador granted certain “piggy-back” registration rights relating to the common stock issuable upon conversion of the Series A-1 Convertible Preferred Stock. The sale of the
Series A-1 Convertible Preferred Stock was effected in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, and Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
In 2002, we acquired Wilco Turkey Ltd (“WTL”) from Wilco. WTL’s primary asset is an interest (ranging from 52.5% to 87.5%) in exploration licenses covering 2.2 million acres in the Thrace Basin and in the central and southeast areas of Turkey. We also acquired from F-Co Holdings Kandamis (“F-Co”) additional interests (ranging from 7.5% to 12.5%) in the same exploration licenses. The purpose of the acquisition was to obtain, explore and possibly develop the acreage covered by the licenses. The acreage in the Thrace Basin is adjacent to or near the acreage we held prior to the acquisition of WTL. In exchange for all of the outstanding common stock of WTL, we have agreed to
give Wilco an overriding royalty interest in any successful wells we drill on the acreage covered by the exploration licenses we acquired. We have also agreed to give F-Co, in exchange for its interest in the acreage, an overriding royalty interest in any successful wells we drill on the acreage. As of the acquisition date, there were no outstanding liabilities associated with WTL. We did not convey value to Wilco or F-Co on the acquisition date, or assume any liabilities; therefore, the fair value of the transaction was zero. We have allocated no value to the assets acquired from WTL and F-Co. Wilco is controlled by William I. Lee, a director and stockholder, and F-Co are partially owned by Peter L. Falb, a director and stockholder.
We own a 35% interest in EnergyNet.com, Inc., an Internet based oil and natural gas property auction company. We paid commissions on property sales to EnergyNet totaling zero during 2004 and 2003 and approximately $369,000 during 2002.
F-26
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. DISCONTINUED OPERATIONS
On January 14, 2004, pursuant to the terms of an Agreement for Purchase and Sale dated December 17, 2003, Toreador and Tormin, Inc., a wholly owned subsidiary of Toreador, sold their United States mineral and royalty assets to Black Stone Acquisitions Partners I, L.P. The gross consideration was approximately $45.0 million cash. The effective date of the sale was January 1, 2004. The net book value of these assets at December 31, 2003 has been reclassified from oil and natural gas properties to assets held available-for-sale on the balance sheet. Assets held available-for-sale consist of the following:
December 31, |
| ||
|
| 2003 | |
(in thousands) |
| ||
Undeveloped mineral and royalty interests |
| $ 7,269 | |
Producing royalty interests |
| 12,332 | |
Royalty properties held available for sale |
| 19,601 | |
Less accumulated depreciation, depletion, and amortization |
| (6,444) | |
Royalty properties held available-for-sale, net |
| $ 13,157 | |
The results of operations of assets in the United States to be sold as of December 31, 2003 have been presented as discontinued operations in the accompanying consolidated statements of operations. Prior year results have also been reclassified to report the results of operations of the assets to be sold as discontinued operations. Results for these assets reported as discontinued operations were as follows:
| Year ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2002 | |||||
| (in thousands) | |||||||
| Revenues: | |||||||
| Oil and natural gas sales | $ 139 | $ 7,261 | $ 5,613 | ||||
| Lease bonuses and rentals | — | 341 | 743 | ||||
| Loss on commodity derivatives | — | (1,304 | ) | (1,894 | ) | ||
| Total revenues | 139 | 6,298 | 4,462 | ||||
| Costs and expenses: | |||||||
| Lease operating | (9 | ) | 1,046 | 609 | |||
| Depreciation, depletion and amortization | — | 679 | 1,237 | ||||
| Impairment of oil and gas properties | — | — | 4 | ||||
| Allocated general and administrative | 161 | 2,222 | 2,452 | ||||
| Interest expense | 305 | 711 | 775 | ||||
| Total costs and expenses | 457 | 4,658 | 5,077 | ||||
| Gain on sale of properties | 28,711 | — | — | ||||
| Income (loss) before taxes | 28,393 | 1,640 | (615 | ) | |||
| Income tax provision (benefit) | 10,854 | 458 | (174 | ) | |||
| Income (loss) from discontinued operations (U.S.) | $ 17,539 | $ 1,182 | $ (441 | ) | |||
F-27
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INFORMATION ABOUT OIL AND NATURAL GAS PRODUCING ACTIVITIES AND OPERATING SEGMENTS
We have operations in only one industry segment, the oil and natural gas exploration and production industry. We are structured along geographic operating segments or regions. As a result, we have reportable operations in the United States, France and Turkey. Geographic operating segment income tax expenses have been determined based on statutory rates existing in the various tax jurisdictions where we have oil and natural gas producing activities.
The following tables provide the geographic operating segment data required by Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information. The United States segment data for the years ended December 31, 2004, 2003, and 2002 includes discontinued operations sold in January 2004 through the Royalty Sale (see Note 14).
F-28
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INFORMATION ABOUT OIL AND NATURAL GAS PRODUCING ACTIVITIES AND OPERATING SEGMENTS (continued)
| United States(1) | France | Turkey | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||||
| As of and for the year ended December 31, 2004 | |||||||||
| Revenues: | |||||||||
| Oil and natural gas sales | $ 6,024 | $ 14,042 | $ 2,270 | $ 22,336 | |||||
| Loss on commodity derivatives | (1,322 | ) | – | – | (1,322 | ) | |||
| Lease bonuses and rentals | 14 | – | – | 14 | |||||
| Total revenues | 4,716 | 14,042 | 2,270 | 21,028 | |||||
| Costs and expenses: | |||||||||
| Lease operating | 1,751 | 4,359 | 763 | 6,873 | |||||
| Exploration and acquisition | 1,367 | 141 | 1,894 | 3,402 | |||||
| Depreciation, depletion and amortization | 1,295 | 1,577 | 666 | 3,538 | |||||
| Reduction in force | 172 | – | – | 172 | |||||
| General and administrative | 3,436 | 1,178 | 860 | 5,474 | |||||
| Total costs and expenses | 8,021 | 7,255 | 4,183 | 19,459 | |||||
| Operating income (loss) | (3,305 | ) | 6,787 | (1,913 | ) | 1,569 | |||
| Other income (expense) | |||||||||
| Equity in earnings of unconsolidated investments | (18 | ) | – | – | (18 | ) | |||
| Gain (loss) on sale of properties and other assets | (336 | ) | – | – | (336 | ) | |||
| Foreign currency exchange gain | – | 5,044 | – | 5,044 | |||||
| Other income (expense) | 52 | 343 | (1,139 | ) | (744 | ) | |||
| Interest expense | (569 | ) | (945 | ) | (97 | ) | (1,611 | ) | |
| Total other income (expense) | (871 | ) | 4,442 | (1,236 | ) | 2,335 | |||
| Income (loss) before income taxes | (4,176 | ) | 11,229 | (3,149 | ) | 3,904 | |||
| Benefit for income taxes | 2,965 | 611 | – | 3,576 | |||||
| Income (loss) from continuing operations, net of tax | $ (1,211 | ) | $ 11,840 | $ (3,149 | ) | $ 7,480 | |||
| Selected assets: | |||||||||
| Oil and natural gas properties | $ 19,480 | $ 53,630 | $ 20,173 | $ 93,283 | |||||
| Accumulated depreciation, depletion, and amortization | (7,082 | ) | (4,632 | ) | (1,902 | ) | (13,616 | ) | |
| Oil and natural gas properties, net | $ 12,398 | $ 48,998 | $ 18,271 | $ 79,667 | |||||
| Investments in unconsolidated entities | $ 1,467 | $ – | $ – | $ 1,467 | |||||
| Goodwill | $ – | $ 1,575 | $ 912 | $ 2,487 | |||||
| Total assets | $ 97,008 | $ 43,384 | $ 8,194 | $ 148,586 | |||||
| Expenditures for additions to long-lived assets: | |||||||||
| Property acquisition costs | $ – | $ – | $ – | $ – | |||||
| Development costs | 345 | 4,403 | 446 | 5,194 | |||||
| Exploration costs | 488 | 2,089 | 8,678 | 11,255 | |||||
| Other | 121 | – | 173 | 294 | |||||
| Total expenditures for long lived assets | $ 954 | $ 6,492 | $ 9,297 | $ 16,743 | |||||
__________
(1) Amounts reflect reclassifications to discontinued operations.
F-29
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INFORMATION ABOUT OIL AND NATURAL GAS PRODUCING ACTIVITIES AND OPERATING SEGMENTS (continued)
| United States(1) | France | Turkey | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||||
| As of and for the year ended December 31, 2003 Revenues: | |||||||||
| Oil and natural gas sales | $ 5,953 | $ 9,633 | $ 2,259 | $ 17,845 | |||||
| Loss on commodity derivatives | (302 | ) | (715 | ) | – | (1,017 | ) | ||
| Lease bonuses and rentals | 18 | – | – | 18 | |||||
| Total revenues | 5,669 | 8,918 | 2,259 | 16,846 | |||||
| Costs and expenses: | |||||||||
| Lease operating | 1,532 | 4,290 | 829 | 6,651 | |||||
| Exploration and acquisition | 1,140 | – | 1,271 | 2,411 | |||||
| Depreciation, depletion and amortization | 1,341 | 1,358 | 547 | 3,246 | |||||
| Impairment of oil and natural gas properties | 171 | – | – | 171 | |||||
| Reduction in force | 511 | – | – | 511 | |||||
| General and administrative | 1,334 | 810 | 839 | 2,983 | |||||
| Total costs and expenses | 6,029 | 6,458 | 3,486 | 15,973 | |||||
| Operating income (loss) | (360 | ) | 2,460 | (1,227 | ) | 873 | |||
| Other income (expense) | |||||||||
| Equity in earnings of unconsolidated investments | 22 | – | – | 22 | |||||
| Gain on sale of properties and other assets | 80 | – | – | 80 | |||||
| Foreign currency exchange gain | 979 | – | – | 979 | |||||
| Other income (expense) | (795 | ) | 1,090 | (122 | ) | 173 | |||
| Interest expense | (703 | ) | (490 | ) | – | (1,193 | ) | ||
| Total other income (expense) | (417 | ) | 600 | (122 | ) | 61 | |||
| Income (loss) before income taxes | (777 | ) | 3,060 | (1,349 | ) | 934 | |||
| Benefit for income taxes | 266 | – | – | 266 | |||||
| Income (loss) from continuing operations, net of tax | $ (511 | ) | $ 3,060 | $ (1,349 | ) | $ 1,200 | |||
| Selected assets: | |||||||||
| Oil and natural gas properties | $ 19,704 | $ 42,917 | $ 11,978 | $ 74,599 | |||||
| Accumulated depreciation, depletion, and amortization | (6,284 | ) | (2,678 | ) | (1,178 | ) | (10,140 | ) | |
| Oil and natural gas properties, net | $ 13,420 | $ 40,239 | $ 10,800 | $ 64,459 | |||||
| Investments in unconsolidated entities | $ 529 | $ – | $ – | $ 529 | |||||
| Goodwill | $ 929 | $ 1,452 | $ 912 | $ 3,293 | |||||
| Total assets | $ 69,085 | $ 46,918 | $ 13,132 | $129,135 | |||||
| Expenditures for additions to long-lived assets: | |||||||||
| Property acquisition costs | $ – | $ – | $ – | $ – | |||||
| Development costs | 615 | 2,127 | – | 2,742 | |||||
| Exploration costs | – | – | 971 | 971 | |||||
| Other | – | – | – | – | |||||
| Total expenditures for long lived assets | $ 615 | $ 2,127 | $ 971 | $ 3,713 | |||||
__________
(1) Amounts reflect reclassifications to discontinued operations.
F-30
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INFORMATION ABOUT OIL AND NATURAL GAS PRODUCING ACTIVITIES AND OPERATING SEGMENTS (continued)
| United States(1) | France | Turkey | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||||
| As of and for the year ended December 31, 2002 | |||||||||
| Revenues: | |||||||||
| Oil and natural gas sales | $ 5,893 | $ 9,190 | $ 2,373 | $ 17,456 | |||||
| Loss on commodity derivatives | (332 | ) | (1,818 | ) | – | (2,150 | ) | ||
| Lease bonuses and rentals | 69 | – | – | 69 | |||||
| Total revenues | 5,630 | 7,372 | 2,373 | 15,375 | |||||
| Costs and expenses: | |||||||||
| Lease operating | 1,977 | 3,237 | 857 | 6,071 | |||||
| Exploration and acquisition | 2,234 | – | – | 2,234 | |||||
| Depreciation, depletion and amortization | 1,942 | 1,302 | 553 | 3,797 | |||||
| Impairment of oil and natural gas properties | 525 | – | – | 525 | |||||
| General and administrative | 2,951 | 1,147 | 1,172 | 5,270 | |||||
| Total costs and expenses | 9,629 | 5,686 | 2,582 | 17,897 | |||||
| Operating income (loss) | (3,999 | ) | 1,686 | (209 | ) | (2,522 | ) | ||
| Other income (expense) | |||||||||
| Equity in loss of unconsolidated investments | (1,186 | ) | – | – | (1,186 | ) | |||
| Loss on sale of properties and other assets | (2,143 | ) | – | – | (2,143 | ) | |||
| Foreign currency exchange gain | 437 | – | – | 437 | |||||
| Other expense | (374 | ) | (247 | ) | – | (621 | ) | ||
| Interest expense | (612 | ) | (1,005 | ) | (75 | ) | (1,692 | ) | |
| Total other expense | (3,878 | ) | (1,252 | ) | (75 | ) | (5,205 | ) | |
| Income (loss) before income taxes | (7,877 | ) | 434 | (284 | ) | (7,727 | ) | ||
| Benefit (provision) for income taxes | 2,244 | (183 | ) | – | 2,061 | ||||
| Income (loss) from continuing operations, net of tax | $ (5,633 | ) | $ 251 | $ (284 | ) | $ (5,666 | ) | ||
| Selected assets: | |||||||||
| Oil and natural gas properties | $ 17,419 | $ 36,568 | $ 10,791 | $ 64,778 | |||||
| Accumulated depreciation, depletion, and amortization | (5,135 | ) | (1,302 | ) | (553 | ) | (6,990 | ) | |
| Oil and natural gas properties, net | $ 12,284 | $ 35,266 | $ 10,238 | $ 57,788 | |||||
| Investments in unconsolidated entities | $ 2,239 | $ – | $ – | $ 2,239 | |||||
| Goodwill | $ 3,342 | $ 1,213 | $ 912 | $ 5,467 | |||||
| Total assets | $ 69,967 | $ 39,702 | $ 11,724 | $ 121,393 | |||||
| Expenditures for additions to long-lived assets: | |||||||||
| Property acquisition costs | $ – | $ – | $ – | $ – | |||||
| Development costs | 291 | 1,882 | – | 2,173 | |||||
| Exploration costs | 583 | – | 3,102 | 3,685 | |||||
| Other | 320 | – | – | 320 | |||||
| Total expenditures for long lived assets | $ 1,194 | $ 1,882 | $ 3,102 | $ 6,178 | |||||
__________ |
(1) Amounts reflect reclassifications to discontinued operations.
F-31
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INFORMATION ABOUT OIL AND NATURAL GAS PRODUCING ACTIVITIES AND OPERATING SEGMENTS (continued)
The following table reconciles the total assets for reportable segments to consolidated assets.
| December 31, | |||||
|---|---|---|---|---|---|
| 2004 | 2003 | ||||
| (in thousands) | |||||
| Total assets for reportable segments | $ 148,586 | $ 129,135 | |||
| Elimination of intersegment receivables and investments | (53,912 | ) | (37,593 | ) | |
| Total consolidated assets | $ 94,674 | $ 91,542 | |||
F-32
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SUPPLEMENTAL OIL AND NATURAL GAS RESERVES AND STANDARDIZED MEASURE INFORMATION (UNAUDITED)
We retain an independent engineering firm to provide annual year-end estimates of our future net recoverable oil and natural gas reserves. Estimated proved net recoverable reserves we have shown below include only those quantities that we can expect to be commercially recoverable at prices and costs in effect at the balance sheet dates under existing regulatory practices and with conventional equipment and operating methods. Proved developed reserves represent only those reserves that we may recover through existing wells. Proved undeveloped reserves include those reserves that we may recover from new wells on undrilled acreage or from existing wells on which we must make a relatively major expenditure for recompletion or secondary recovery operations.
Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and natural gas properties. Estimates of fair value should also consider probable reserves, anticipated future oil and natural gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
| United States | France | Turkey | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Oil (MBbl) | Gas (MMcf) | Oil (MBbl) | Gas (MMcf) | Oil (MBbl) | Gas (MMcf) | Oil (MBbl) | Gas (MMcf) | ||||||||||
| PROVED RESERVES | |||||||||||||||||
| December 31, 2001 | 2,006 | 12,923 | 8,272 | — | 936 | — | 11,214 | 12,923 | |||||||||
| Revisions of previous estimates | 450 | 1,531 | 3,136 | — | 149 | — | 3,735 | 1,531 | |||||||||
| Extensions, discoveries, and other additions | 84 | 1,300 | 250 | — | 1 | — | 335 | 1,300 | |||||||||
| Sale of reserves | (415 | ) | (1,811 | ) | — | — | — | — | (415 | ) | (1,811 | ) | |||||
| Production | (238 | ) | (1,822 | ) | (415 | ) | — | (114 | ) | — | (767 | ) | (1,822 | ) | |||
| December 31, 2002 | 1,887 | 12,121 | 11,243 | — | 972 | — | 14,102 | 12,121 | |||||||||
| Revisions of previous estimates | 133 | 758 | 106 | — | 12 | — | 251 | 758 | |||||||||
| Extensions, discoveries, and other additions | 11 | 365 | — | — | — | — | 11 | 365 | |||||||||
| Sale of reserves | (3 | ) | (401 | ) | — | — | — | — | (3 | ) | (401 | ) | |||||
| Production | (190 | ) | (1,561 | ) | (374 | ) | — | (92 | ) | — | (656 | ) | (1,561 | ) | |||
| December 31, 2003 | 1,838 | 11,282 | 10,975 | — | 892 | — | 13,705 | 11,282 | |||||||||
| Revisions of previous estimates | 114 | (574 | ) | 956 | — | (190 | ) | — | 880 | (574 | ) | ||||||
| Extensions, discoveries, and other additions | — | 143 | — | — | — | — | — | 143 | |||||||||
| Sale of reserves | (1,103 | ) | (5,400 | ) | — | — | — | — | (1,103 | ) | (5,400 | ) | |||||
| Production | (69 | ) | (581 | ) | (395 | ) | — | (75 | ) | — | (539 | ) | (518 | ) | |||
| December 31, 2004 | 780 | 4,933 | 11,536 | — | 627 | — | 12,943 | 4,933 | |||||||||
| PROVED DEVELOPED RESERVES | |||||||||||||||||
| December 31, 2002 | 1,749 | 11,987 | 7,388 | — | 766 | — | 9,903 | 11,987 | |||||||||
| December 31, 2003 | 1,709 | 11,158 | 6,571 | — | 583 | — | 8,863 | 11,158 | |||||||||
| December 31, 2004 | 775 | 4,875 | 7,309 | — | 360 | — | 8,444 | 4,875 | |||||||||
F-33
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. | SUPPLEMENTAL OIL AND NATURAL GAS RESERVES AND STANDARDIZED MEASURE INFORMATION (UNAUDITED) |
(continued)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND NATURAL GAS RESERVES
We have summarized the standardized measure of discounted future net cash flows related to our proved oil and natural gas reserves. We have based the following summary on a valuation of proved reserves using discounted cash flows based on year-end prices, costs and economic conditions and a 10% discount rate. The additions to proved reserves from purchase of reserves in place and new discoveries and extensions could vary significantly from year to year; additionally, the impact of changes to reflect current prices and costs of proved reserves in prior years could also be significant. Accordingly, you should not view the information presented below as an estimate of the fair value of our oil and natural gas properties, nor should you consider the information indicative of any trends.
| United States | France | Turkey | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||||
| As of December 31, 2002 | |||||||||
| Future cash inflows | $ 109,720 | $ 331,739 | $ 28,143 | $ 469,602 | |||||
| Future production costs | 25,933 | 135,706 | 10,132 | 171,771 | |||||
| Future development costs | 353 | 14,595 | 1,470 | 16,418 | |||||
| Future income tax expense | 25,194 | 58,717 | 5,417 | 89,328 | |||||
| Future net cash flows | 58,240 | 122,721 | 11,124 | 192,085 | |||||
| 10% annual discount for estimated | |||||||||
| timing of cash flows | 23,622 | 69,878 | 3,541 | 97,041 | |||||
| Standardized measure of discounted future | |||||||||
| net cash flows related to proved reserves | $ 34,618 | $ 52,843 | $ 7,583 | $ 95,044 | |||||
| As of December 31, 2003 | |||||||||
| Future cash inflows | $ 121,802 | $ 303,691 | $ 23,412 | $ 448,905 | |||||
| Future production costs | 28,173 | 141,351 | 8,735 | 178,259 | |||||
| Future development costs | 352 | 17,443 | 1,960 | 19,755 | |||||
| Future income tax expense | 29,610 | 45,819 | 4,143 | 79,572 | |||||
| Future net cash flows | 63,667 | 99,078 | 8,574 | 171,319 | |||||
| 10% annual discount for estimated | |||||||||
| timing of cash flows | 27,087 | 56,447 | 3,056 | 86,590 | |||||
| Standardized measure of discounted future | |||||||||
| net cash flows related to proved reserves | $ 36,580 | $ 42,631 | $ 5,518 | $ 84,729 | |||||
| As of December 31, 2004 | |||||||||
| Future cash inflows | $ 62,256 | $ 432,828 | $ 20,919 | $ 516,003 | |||||
| Future production costs | 25,432 | 182,574 | 7,861 | 215,867 | |||||
| Future development costs | 164 | 25,902 | 1,470 | 27,536 | |||||
| Future income tax expense | 10,385 | 72,183 | 1,691 | 84,259 | |||||
| Future net cash flows | 26,275 | 152,169 | 9,897 | 188,341 | |||||
| 10% annual discount for estimated | |||||||||
| timing of cash flows | 12,134 | 97,838 | 3,257 | 113,229 | |||||
| Standardized measure of discounted future | |||||||||
| net cash flows related to proved reserves | $ 14,141 | $ 54,331 | $ 6,640 | $ 75,112 | |||||
The prices of oil and natural gas at December 31, 2004, 2003, and 2002 used in the above table, were $37.55, $27.87 and $29.30 per Bbl of oil, respectively, and $5.99, $5.90 and $4.62 per Mcf of natural gas, respectively.
F-34
TOREADOR RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. | SUPPLEMENTAL OIL AND NATURAL GAS RESERVES AND STANDARDIZED MEASURE INFORMATION (UNAUDITED) |
(continued)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH RELATING TO PROVED OIL AND NATURAL GAS RESERVES
The following are the principal sources of change in the standardized measure:
| United States | France | Turkey | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | |||||||||
| Balance at December 31, 2001 | $ 25,759 | $ 20,887 | $ 2,928 | $ 49,574 | |||||
| Sales of oil and natural gas, net | (8,920 | ) | (5,953 | ) | (1,516 | ) | (16,389 | ) | |
| Net changes in prices and production costs | 22,575 | 33,426 | 6,733 | 62,734 | |||||
| Extensions and discoveries | 3,770 | 1,479 | 26 | 5,275 | |||||
| Revisions of previous quantity estimates | 8,174 | 20,698 | 1,746 | 30,618 | |||||
| Net change in income taxes | (8,422 | ) | (17,752 | ) | (2,327 | ) | (28,501 | ) | |
| Accretion of discount | 2,576 | 2,089 | 293 | 4,958 | |||||
| Sale of reserves | (6,441 | ) | — | — | (6,441 | ) | |||
| Other | (4,453 | ) | (2,030 | ) | (300 | ) | (6,783 | ) | |
| Balance at December 31, 2002 | 34,618 | 52,844 | 7,583 | 95,045 | |||||
| Sales of oil and natural gas, net | (10,636 | ) | (5,343 | ) | (1,430 | ) | (17,409 | ) | |
| Net changes in prices and production costs | 7,978 | (13,108 | ) | (1,718 | ) | (6,848 | ) | ||
| Extensions and discoveries | 981 | — | — | 981 | |||||
| Revisions of previous quantity estimates | 3,209 | 839 | 212 | 4,260 | |||||
| Net change in income taxes | (2,381 | ) | 5,571 | 1,032 | 4,222 | ||||
| Accretion of discount | 3,462 | 5,284 | 758 | 9,504 | |||||
| Sales of reserves | (61 | ) | — | — | (61 | ) | |||
| Other | (590 | ) | (3,456 | ) | (919 | ) | (4,965 | ) | |
| Balance at December 31, 2003 | 36,580 | 42,631 | 5,518 | 84,729 | |||||
| Sales of oil and natural gas, net | (4,273 | ) | (9,514 | ) | (1,520 | ) | (15,307 | ) | |
| Net changes in prices and production costs | (4,264 | ) | 28,408 | 2,450 | 26,594 | ||||
| Net change on future development costs | 77 | (4,962 | ) | 119 | (4,766 | ) | |||
| Extensions and discoveries | 309 | — | — | 309 | |||||
| Revisions of previous quantity estimates | 229 | 8,065 | (2,712 | ) | 5,582 | ||||
| Previously estimated development costs incurred | 45 | 4,296 | 316 | 4,657 | |||||
| Net change in income taxes | 7,922 | (17,922 | ) | 1,310 | (8,690 | ) | |||
| Accretion of discount | 4,321 | 6,019 | 761 | 11,101 | |||||
| Sales of reserves | (25,020 | ) | — | — | (25,020 | ) | |||
| Other | (1,785 | ) | (2,690 | ) | 398 | (4,077 | ) | ||
| Balance at December 31, 2004 | $ 14,141 | $ 54,331 | $ 6,640 | $ 75,112 | |||||
F-35
