UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): NOVEMBER 20,
2001
HOWELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-8704 74-1223027
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1111 Fannin, Suite 1500, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 658-4000
Registrant's telephone number, including area code
This report contains 13 pages.
Item 2. Acquisition or Disposition of Assets.
Pursuant to a purchase and sale agreement between Howell Petroleum Corporation
("HPC"), a wholly-owned subsidiary of Registrant (the "Company"), and Conoco
Inc. ("Seller"), dated October 17, 2001, Registrant has purchased an additional
interest in the Elk Basin Field, a producing oil property located in Wyoming and
Montana. The acquisition was closed on November 20, 2001. The interests acquired
were non-operated interests as HPC was already the operator of the properties.
The Registrant intends to continue conducting production and development
operations on the properties.
The purchase price and sales terms of the transaction were determined through
arms length negotiations. The total consideration paid for the properties was
$26.0 million. The Company used working capital and funds borrowed under its
Credit Agreement to finance the transaction. The effective date was September 1,
2001.
There is no material relationship between the Seller and Registrant or any of
its affiliates, or with any director, officer or associate of any director or
officer of the Registrant.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
An index of historical financial statements of the business acquired
included in this report is presented on page 4.
(b) Pro forma financial information.
An index of pro forma financial information included in this report is
presented on page 4.
(c) Exhibits.
None.
FORWARD-LOOKING STATEMENTS
Statements contained in this Report and other materials filed or to be filed by
the Company with the Securities and Exchange Commission (as well as information
included in oral or other written statements made or to be made by the Company
or its representatives) that are forward-looking in nature are intended to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, relating to matters such as anticipated operating and financial
performance, business prospects, developments and results of the Company. Actual
performance, prospects, developments and results may differ materially from any
or all anticipated results due to economic conditions and other risks,
uncertainties and circumstances partly or totally outside the control of the
Company, including rates of inflation, oil and natural gas prices, uncertainty
of reserve estimates, rates and timing of future production of oil and gas,
exploratory and development activities, acquisition risks, and changes in the
level and timing of future costs and expenses related to drilling and operating
activities.
Words such as "anticipated", "expect", "estimate", "project", and similar
expressions are intended to identify forward-looking statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOWELL CORPORATION
(Registrant)
Date: November 27, 2001 By: /s/ ALLYN R. SKELTON, II
----------------------------
Allyn R. Skelton, II
Vice President & Chief Financial Officer
(Duly Authorized Officer)
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INDEX TO FINANCIAL STATEMENTS
I. FINANCIAL STATEMENTS OF THE ACQUISITION PROPERTIES PAGE
Independent Auditors' Report ....................................... 5
Statements of Revenues and Direct Operating Expenses for the year
ended December 31, 2000 and the nine months ended September
30, 2000 and 2001 (Unaudited) ................................. 6
Notes to Statements of Revenues and Direct Operating Expenses....... 7
II.UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA OF
HOWELL CORPORATION
Introduction ....................................................... 9
Pro Forma Condensed Consolidated Balance Sheet as of September 30,
2001 (unaudited) .............................................. 10
Pro Forma Condensed Consolidated Statement of Income for the nine
months ended September 30, 2001 (unaudited) ................... 11
Pro Forma Condensed Consolidated Statement of Income for the year
ended December 31, 2000 (unaudited) ........................... 12
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited) ................................................... 13
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Howell Corporation:
We have audited the accompanying statement of revenues and direct operating
expenses of the properties (the "Acquisition Properties") acquired by Howell
Corporation (the "Company") from Conoco Inc. for the year ended December 31,
2000. This statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on the statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
on Form 8-K of the Company) as described in Note 2 to the statement and is not
intended to be a complete presentation of the Company's interests in the
properties described above.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and direct operating expenses, described in Note
2, of the Acquisition Properties for year the ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Houston, Texas
November 27, 2001
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ACQUISITION PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED
2001 2000 DECEMBER 31, 2000
--------- --------- -----------------
(Unaudited)
Revenues - oil and natural gas liquids... $13,408 $17,458 $ 23,195
Direct operating expenses ................ 5,945 6,115 8,344
--------- --------- -----------------
Revenues in excess of direct operating
expenses ............................ $ 7,463 $11,343 $ 14,851
========= ========= =================
See accompanying Notes to Statements of Revenues and Direct Operating Expenses.
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ACQUISITION PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
NOTE 1 - OPERATIONS, ORGANIZATION AND BASIS OF PRESENTATION
The accompanying statements represent the interests in the revenues and
direct operating expenses of the oil and natural gas liquids producing
properties acquired by Howell Corporation (the "Company") from Conoco Inc. on
November 20, 2001, for approximately $26.0 million. The properties acquired are
located in Wyoming and Montana. These properties are referred to herein as the
"Acquisition Properties".
Direct operating expenses include payroll, lease and well repairs,
production taxes, maintenance, utilities and other direct operating expenses.
During the periods presented, the Acquisition Properties were not accounted for
as a separate entity. Certain costs such as depreciation, depletion and
amortization, general and administrative expenses, interest expense and
corporate taxes were not allocated to the Acquisition Properties.
The revenue from oil and natural gas liquids has been based on historical
product prices at the point of sale using and the revenue and working interests
purchased by the Company. The effect on revenues of production imbalances is not
material.
USE OF ESTIMATES. The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
NOTE 2 - OMITTED HISTORICAL FINANCIAL INFORMATION
Historical financial statements reflecting financial position, results of
operations and cash flows required by accounting principles generally accepted
in the United States of America are not presented as such information is not
readily available on an individual property basis and not meaningful to the
Acquisition Properties. Historically, no allocation of general and
administrative, litigation, interest, federal income tax expense, depreciation,
depletion and amortization was made to the Acquisition Properties. Accordingly,
the statements are presented in lieu of the financial statements required under
Rule 3-05 of Securities and Exchange Commission Regulation S-X.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company is unaware of any legal, environmental or other contingencies
that would have a material adverse effect in relation to the statements.
NOTE 4 - SUPPLEMENTAL DISCLOSURES ON OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
RESERVES. The following table summarizes the net ownership interests in
estimated quantities of the proved oil and gas reserves of the Acquisition
Properties at November 20, 2001 (the closing date), estimated by the Company's
petroleum engineers.
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Crude Oil and
Natural Gas
Liquids (BBLS)
--------------
Proved developed reserves ............... 9,044,110
Proved undeveloped reserves ............. 266,890
--------------
Total proved reserves ................... 9,311,000
==============
Production volumes for prior periods were added back to the above referenced
reserve amounts to arrive at reserve totals at December 31, 2000, and 1999,
respectively.
Crude Oil and
Natural Gas
Liquids (BBLS)
--------------
Proved Reserves as of November 20, 2001 ...... 9,311,000
2001 Production (through November 19th)... 716,190
--------------
Proved Reserves as of December 31, 2000 ...... 10,027,190
2000 Production .......................... 845,594
--------------
Proved Reserves as of December 31, 1999 ...... 10,872,784
==============
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES. The following table presents the Standardized
Measure of Discounted Future Net Cash Flows before future income taxes from
proved oil and gas reserves of the Acquisition Properties. As prescribed by the
Financial Accounting Standards Board, the amounts shown are based on prices and
costs at September 30, 2001, and assume continuation of existing economic
conditions. A discount factor of 10% was used to reflect the timing of future
net cash flow. Extensive judgments are involved in estimating the timing of
production and the costs that will be incurred throughout the remaining lives of
the fields. Accordingly, the estimates of future net cash flows from proved
reserves and the present value thereof may not be materially correct when judged
against actual subsequent results. Further, since prices and costs do not remain
static, and no price or cost changes have been considered, and future production
and development costs are estimates to be incurred in developing and producing
the estimated proved oil and gas reserves, the results are not necessarily
indicative of the fair market value of estimated proved reserves, and the
results may not be comparable to estimates disclosed by other oil and gas
producers.
As of September 30,
2001
(in thousands)
--------------
Future cash inflows .......................... $142,055
Future production costs ...................... 97,535
Future development costs ..................... 705
--------------
Future net cash flows ........................ 43,815
10% annual discount for estimating timing
of cash flows ............................. 16,552
--------------
Standardized measure (before income taxes) of
discontinued future net cash flows relating
to proved oil and gas reserves ............ $ 27,263
==============
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HOWELL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 2001, gives effect to the acquisition of the Acquisition
Properties as if it occurred on that date. The unaudited pro forma condensed
consolidated statements of income for the nine months ended September 30, 2001,
and for the year ended December 31, 2000, gives effect to the acquisition of the
Acquisition Properties as if it occurred on January 1, 2000.
The unaudited pro forma financial data presented are based upon the
historical consolidated financial statements of Howell Corporation (the
"Company") and the historical statements of revenues and direct operating
expenses of the Acquisition Properties and should be read in conjunction with
such financial statements and related notes thereto which are contained in the
Company's 2000 Annual Report on Form 10-K, the Company's Quarterly Report on
Form 10-Q for the nine months ended September 30, 2001, and this Current Report
on Form 8-K.
The pro forma financial data are based upon assumptions and include
adjustments as explained in the notes to the unaudited pro forma condensed
consolidated financial statements, and the actual recording of the transactions
could differ. The unaudited pro forma financial data are not necessarily
indicative of financial results that would have occurred had the acquisition of
the Acquisition Properties been effective on September 30, 2001, or January 1,
2000, and should not be viewed as indicative of operations in future periods.
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HOWELL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(In thousands)
(UNAUDITED)
HOWELL PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AMOUNTS
----------- ----------- -----------
ASSETS:
Cash and cash equivalents .................... $ 10,980 $(5,000) (a) $ 5,980
Accounts receivable .......................... 9,326 -- 9,326
Prepaid expenses and other current assets .... 3,624 -- 3,624
----------- ----------- -----------
Total current assets ....................... 23,930 (5,000) 18,930
Property and equipment, net .................. 120,320 26,000 (b) 146,320
Other non-current assets, net ................ 829 -- 829
----------- ----------- -----------
Total assets ............................... $145,079 $21,000 $166,079
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities .......................... $ 18,022 $ -- $ 18,022
Deferred income taxes ........................ 4,319 -- 4,319
Other liabilities ............................ 3,968 -- 3,968
Long term debt ............................... 66,000 21,000 (a) 87,000
Shareholders' equity ......................... 52,770 -- 52,770
----------- ----------- -----------
Total liabilities and shareholders' equity.. $145,079 $21,000 $166,079
=========== =========== ===========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
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HOWELL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(In thousands, except per share data)
(UNAUDITED)
ACQUISITION
HOWELL PROPERTIES PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS AMOUNTS
----------- ----------- ----------- -----------
REVENUES:
Oil and natural gas liquids revenues ........... $67,357 $13,408 $ -- $80,765
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Lease operating expenses ....................... 27,269 5,945 (781) (c) 32,433
Depreciation, depletion and amortization ....... 6,651 -- 1,583 (d) 8,234
General and administrative expenses ............ 4,354 -- 781 (c) 5,135
Interest and other, net ........................ 3,082 -- 1,254 (e) 4,336
----------- ----------- ----------- -----------
Total expenses ............................... 41,356 5,945 2,837 50,138
----------- ----------- ----------- -----------
Earnings before income taxes ..................... 26,001 7,463 (2,837) 30,627
Income tax expense ............................. 8,960 -- 1,619 (f) 10,579
----------- ----------- ----------- -----------
Net earnings ..................................... 17,041 7,463 (4,456) 20,048
Less: Preferred stock dividends ............... (1,811) -- -- (1,811)
----------- ----------- ----------- -----------
Net earnings applicable to common shares ......... $15,230 $ 7,463 $(4,456) $18,237
=========== =========== =========== ===========
Net earnings per common share - basic ............ $ 2.54 $ 3.05
=========== ===========
Weighted average shares outstanding - basic ...... 5,987 5,987
=========== ===========
Net earnings per common share - diluted .......... $ 1.98 $ 2.32
=========== ===========
Weighted average shares outstanding - diluted .... 8,625 8,625
=========== ===========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
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HOWELL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(In thousands, except per share data)
(UNAUDITED)
ACQUISITION
HOWELL PROPERTIES PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS AMOUNTS
----------- ----------- ----------- -----------
REVENUES:
Oil and natural gas liquids revenues ........... $81,065 $23,195 $ -- $104,260
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Lease operating expenses ....................... 30,436 8,344 (970) (c) 37,810
Depreciation, depletion and amortization ....... 7,353 -- 2,023 (d) 9,376
General and administrative expenses ............ 3,629 -- 970 (c) 4,599
Interest and other, net ........................ 6,143 -- 2,168 (e) 8,311
----------- ----------- ----------- -----------
Total expenses ............................... 47,561 8,344 4,191 60,096
----------- ----------- ----------- -----------
Earnings before income taxes ..................... 33,504 14,851 (4,191) 44,164
Income tax expense ............................. 12,061 -- 3,731 (f) 15,792
----------- ----------- ----------- -----------
Net earnings ..................................... 21,443 14,851 (7,922) 28,372
Less: Preferred stock dividends ............... (2,415) -- -- (2,415)
----------- ----------- ----------- -----------
Net earnings applicable to common shares ......... $19,028 $14,851 $(7,922) $25,957
=========== =========== =========== ===========
Net earnings per common share - basic ............ $ 3.16 $ 4.31
=========== ===========
Weighted average shares outstanding - basic ...... 6,021 6,021
=========== ===========
Net earnings per common share - diluted .......... $ 2.50 $ 3.31
=========== ===========
Weighted average shares outstanding - diluted .... 8,565 8,565
=========== ===========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
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HOWELL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) To record the utilization of cash and the incurrence of debt to fund the
amount paid for the Acquisition Properties.
(b) To record the estimated purchase price of the Acquisition Properties
acquired from Conoco Inc.
(c) To reverse general and administrative charges paid by Conoco Inc. and
received by Howell that will no longer be received after the acquisition.
(d) To adjust depreciation, depletion and amortization expense as a result of
acquiring the Acquisition Properties.
(e) To record additional interest expense on the net increase in borrowings
under the Credit Facility. Interest rates used were 8.34% and 6.45% for the
year ended December 31, 2000, and the nine months ended September 30, 2001,
respectively.
(f) To record income tax expense on the pro forma increase in taxable income at
the statutory rate of 35%.
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