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): August 7, 1997
MESA INC.
(Exact name of Registrant as specified in its charter)
Texas 1-10874 75-2394500
(State or other jurisdiction of Commission (I.R.S. Employer
incorporation or organization) File Number Identification Number)
1400 Williams Square West, 5205 N. O'Connor Blvd. Irving, Texas 75039
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Page 1 of 26 pages.
Exhibit Index on page 26.
MESA INC.
TABLE OF CONTENTS
Page
----
Item 1. Change in Control of Registrant.................................. 3
Item 2. Acquisition or Disposition of Assets............................. 3
Item 7. Financial Statements and Exhibits:............................... 10
Preliminary Statement.......................................... 10
Unaudited Pro Forma Combined Financial Statements:
Unaudited Pro Forma Combined Balance Sheet for Pioneer
Natural Resources Company as of June 30, 1997............. 11
Unaudited Pro Forma Combined Statement of Operations for
Pioneer Natural Resources Company for the six months
ended June 30, 1997....................................... 12
Unaudited Pro Forma Combined Statement of Operations for
Pioneer Natural Resources Company for the year ended
December 31, 1996......................................... 13
Unaudited Pro Forma Combined Statement of Operations for
Parker & Parsley Petroleum Company for the year ended
December 31, 1996......................................... 14
Unaudited Pro Forma Combined Statement of Operations for
Mesa Inc. for the year ended December 31, 1996............ 15
Notes to Unaudited Pro Forma Combined Financial Statements..... 16
Exhibits....................................................... 24
Signatures..................................................... 25
Exhibit Index.................................................. 26
2
The information in this document includes forward-looking statements that are
based on assumptions that in the future may prove not to have been accurate.
Those statements, and Pioneer Natural Resources Company's business and
prospects, are subject to a number of risks including the volatility of oil and
gas prices, environmental risks, operating hazards and risks, risks associated
with natural gas processing plants, risks related to exploration and development
drilling, uncertainties about estimates of reserves, competition, government
regulation, and the ability of Pioneer Natural Resources Company to implement
its business strategy. These and other risks are described in the 1996 Annual
Reports on Form 10-K for Parker & Parsley Petroleum Company and Mesa Inc. which
are available from the United States Securities and Exchange Commission.
Item 1. Changes in Control of Registrant
Pioneer Natural Resources Company ("Pioneer"), a Delaware corporation,
was formed in order to complete the merger proposed by and between Parker &
Parsley Petroleum Company ("Parker & Parsley") and Mesa Inc. ("Mesa"). Pioneer
was originally created as a wholly-owned subsidiary of Mesa, a Texas
corporation, the purpose of which was to allow Mesa to reincorporate into a
Delaware corporation and to accomplish the merger with Parker & Parsley. Both
Parker & Parsley and Mesa are oil and gas exploration and production concerns
with ownership interests in oil and gas properties located principally in the
MidContinent, Southwestern and onshore and offshore Gulf Coast regions of the
United States, and with limited international interests.
As a result of the Mergers described in "Item 2. Acquisition or
Disposition of Assets", Mesa Inc. ("Mesa") merged into Pioneer Natural Resources
Company ("Pioneer"). Former Parker & Parsley Petroleum Company ("Parker &
Parsley") stockholders received approximately 57% of the common stock of Pioneer
and former Mesa stockholders received approximately 43% of the common stock of
Pioneer. In some circumstances, this transaction could be deemed a "change in
control of a registrant". For a more complete description of these transactions,
see "Item 2. Acquisition or Disposition of Assets" below.
Item 2. Acquisition or Disposition of Assets
As of April 6, 1997, Parker & Parsley and Mesa entered into an Amended
and Restated Agreement and Plan of Merger (the "Merger Agreement") which was
approved by the stockholders of both companies on August 7, 1997 by a majority
vote of 76% by holders of Parker & Parsley common stock and 71%, 58%, and 100%
by holders of Mesa common stock, Mesa Series A 8% Cumulative Convertible
Preferred Stock ("Mesa Series A Preferred Stock") and Mesa Series B 8%
Cumulative Convertible Preferred Stock ("Mesa Series B Preferred Stock"),
respectively. Parker & Parsley was a publicly traded independent oil and gas
company based in Midland, Texas with substantial producing properties and
operations in the Permian Basin of West Texas and the onshore Gulf Coast region
of the United States. The Merger Agreement provided for (i) the merger of Mesa
with and into Pioneer, a wholly-owned subsidiary of Mesa, as a result of which
Mesa, a Texas corporation, reincorporated into Delaware and (ii) the merger of
Parker & Parsley with and into Mesa Operating Co. ("MOC"), a wholly-owned
subsidiary of Mesa (items (i) and (ii) collectively the "Mergers"). In
accordance with the Merger Agreement, (i) holders of Parker & Parsley common
stock received one share of Pioneer common stock for each share held; (ii)
holders of Mesa common stock received one share of Pioneer common stock for
every seven shares held; and (iii) holders of Mesa Series A Preferred Stock and
Mesa Series B Preferred Stock received 1.25 shares of Pioneer common stock for
every seven shares held. No fractional shares were issued and all treasury
shares were canceled.
As a result of the Mergers, former Parker & Parsley stockholders received
approximately 57% of the common stock of Pioneer, and former Mesa stockholders
received approximately 43%. Also, as a result of the Mergers, Mesa merged into
Pioneer and Parker & Parsley merged into a wholly-owned subsidiary of Pioneer
that is now known as Pioneer Natural Resources USA, Inc. For a complete
description of the Mergers and of Pioneer, see Pioneer's Registration Statement
on Form S-4 (File No. 333-26951) which is incorporated herein by reference.
In accordance with the provisions of Accounting Principles Board No. 16,
"Business Combinations", the merger has been accounted for as a purchase of Mesa
by Parker & Parsley. As a result, historical financial statements for Pioneer
will be those of Parker & Parsley, and Pioneer's financial statements will
present the addition of Mesa's assets and liabilities as an acquisition by
3
Parker & Parsley. The aggregate Pioneer purchase consideration related to the
assets and liabilities of Mesa, including estimated nonrecurring merger
transaction costs, is $999.5 million. See "Item 7. Financial Statements and
Exhibits" for the preliminary allocation of the total purchase price of Mesa to
the acquired assets and liabilities based upon the estimated fair values
assigned to each of the significant assets acquired and liabilities assumed. Any
future adjustments to the allocation of the purchase price are not anticipated
to be material to Pioneer's financial statements.
Description of Properties
Approximately 95% of Mesa's estimated proved reserves as of December 31,
1996 were concentrated in the Hugoton field of southwest Kansas and the West
Panhandle field of Texas. These fields, which produce gas from depths of 3,500
feet or less, are characterized by stable, long-lived, low cost production. On
the other hand, Mesa's Gulf of Mexico properties contained less than 3% of the
total estimated proved reserves as of December 31, 1996.
Oil and Gas Properties
Hugoton Field. The Hugoton field in southwest Kansas is one of the
largest producing gas fields in the continental United States. Mesa's Hugoton
properties represent approximately 13% of the proved reserves in the field and
are located on over 237,000 net acres, covering approximately 400 square miles.
Mesa's properties are concentrated in the central fairway of the field and
benefit from better reservoir characteristics, including thicker productive
zones, higher porosity and higher permeability than properties on the edges of
the field. Mesa has working interests in approximately 1,100 wells in the
Hugoton field, 950 of which it operates, and royalty interests in approximately
800 wells. Mesa's Hugoton properties are capable of producing approximately 200
MMcf of gas per day and substantially all of Mesa's Hugoton production is
processed through its Satanta plant. Mesa's gathering and processing facilities
which service its production from the Hugoton field allows Mesa to control the
production, gathering, processing and sale of its gas and associated natural gas
liquids to various major intrastate and interstate pipelines through its direct
interconnects.
Mesa's Hugoton properties accounted for approximately 60% of its proved
reserves and 62% of the SEC 10 value of estimated future net cash flows
determined as of December 31, 1996, in accordance with SEC guidelines. The
Hugoton properties accounted for approximately 49%, 47% and 53% of Mesa's oil
and gas revenues for the years ended December 31, 1996, 1995 and 1994,
respectively. The percentage of revenues from the Hugoton field has been less
than the percentage of proved reserves due primarily to the longer life of the
Hugoton properties compared to Mesa's other properties.
Production in the Hugoton field is subject to allowables set by the
Kansas Corporation Commission (the "KCC"), which is the state regulatory agency
that regulates oil and gas production in Kansas. The KCC is responsible for the
determination of market demand (allowables) for the Hugoton field and the
allocation of allowables among the more than 9,000 wells in the field. Twice
each year, the KCC sets the field wide allowable production at a level estimated
to be necessary to meet the Hugoton market demand for the summer and winter
production periods. The field wide allowable is then allocated among individual
wells determined by a series of calculations that are principally based on each
well's pressure, deliverability and acreage. The allowables assigned to
individual wells are affected by the relative production, testing and drilling
practices of all producers in the field, as well as the relative pressure and
deliverability performance of each well.
Generally, field wide allowables are influenced by overall gas market
supply and demand in the United States as well as specific nominations for gas
from the parties who produce or purchase gas from the field. Since 1987, field
wide allowables have increased in each year except 1991. The total Hugoton field
allowable in 1996 was 600 Bcf of wellhead gas. Mesa's share of the field
allowable averaged 13% in 1996. Mesa estimates that it and other major producers
in the Hugoton field produced at or near full capacity in 1996 and expects such
practice to continue. Mesa's net Hugoton field production decreased to
approximately 67 Bcfe in 1996 compared with 70 Bcfe in 1995 as a result of
equipment maintenance in 1996. Mesa expects its Hugoton field production will
decline slightly from 1996 levels each year through 1998. Beginning in 1999,
Mesa expects annual production declines due to normal depletion.
4
Mesa has invested over $78 million in capital expenditures in its Hugoton
properties since 1992 to construct the Satanta Plant and related facilities, and
to upgrade gathering and compression facilities, production equipment and
pipeline interconnects in order to maintain production capacity and marketing
flexibility. See "Gas Processing Facilities - Satanta Natural Gas Processing
Plant" below.
West Panhandle Field. The West Panhandle properties are located in the
Texas panhandle. Natural gas from these properties is produced from
approximately 600 wells, all of which Mesa operates, on over 185,000 net acres.
All of Mesa's West Panhandle production is processed through Mesa's Fain natural
gas processing plant.
Mesa's West Panhandle reserves are owned and produced pursuant to
contracts with Colorado Interstate Gas Company ("CIG"), the first of which was
executed in 1928 by predecessors of both companies. An amendment to these
contracts, the Production Allocation Agreement ("PAA"), allocates 77% of the
production from the West Panhandle field properties to Mesa and 23% to CIG,
effective as of January 1, 1991. Under the associated agreements, Mesa operates
the wells and production equipment and CIG owns and operates the gathering
system by which Mesa and CIG's production is delivered to the Fain Plant. CIG
also performs certain administrative functions. Each party reimburses the other
for certain costs and expenses incurred for the joint account. In accordance
with the PAA and other contracts with CIG, Mesa was contractually limited to
take wellhead gas production up to a maximum of 32 Bcf in 1996, but actually
took only 27 Bcf primarily due to a weather related decrease in demand in 1996.
Beginning in 1997, Mesa is not subject to annual contractual production
limitations and will have the right to take and market as much gas as it can
produce, subject to specific CIG seasonal and daily entitlements as provided for
under the contracts. Assuming continuation of existing economic and operating
conditions, Mesa expects wellhead production from its West Panhandle properties
to be 37 Bcf in 1997.
As of December 31, 1996, Mesa's West Panhandle properties represented
approximately 35% of Mesa's equivalent proved reserves, and approximately 33% of
the present value of estimated future net cash flows, determined in accordance
with SEC guidelines. Production from the West Panhandle properties accounted for
approximately 31%, 33% and 36% of Mesa's oil and gas revenues for the years
ended December 31, 1996, 1995 and 1994, respectively. Mesa has identified over
100 locations that have additional production potential in new areas or deeper
zones, of which Mesa plans to redrill 58 in 1997 and the balance in 1998.
In December 1996, Mesa entered into a natural gas processing agreement
with CIG and MAPCO, Inc. ("MAPCO"), which has a primary term through December
2009. This agreement provides for Mesa to initially process approximately 8.5
Bcf of natural gas per year of third party gas at the Fain Plant (see "Gas
Processing Facilities - Fain Natural Gas Processing Plant" below). In February
1997, Mesa purchased from MAPCO and its affiliates all of their liquids
attributable to the processing agreement above as well as the rights to
condensate from CIG's gathering system for approximately $66 million. The
reserves associated with this acquisition are estimated to be 11 million BOE's
at December 31, 1996 and 1997 condensate and NGL production is estimated to be
850 MBbls.
Gulf of Mexico. Mesa's Gulf of Mexico properties are located in offshore
Texas and Louisiana and represent approximately 3% of Mesa's equivalent proved
reserves and approximately 4% of the present value of estimated future net cash
flows as determined in accordance with SEC guidelines at December 31, 1996. The
Gulf of Mexico properties accounted for approximately 20%, 13% and 9% of Mesa's
oil and gas revenues for the years ended December 31, 1996, 1995 and 1994,
respectively.
Mesa has owned and operated properties in the Gulf of Mexico since 1970.
Beginning in late 1994, Mesa began to direct a greater portion of its capital
spending towards exploration and development in the Gulf of Mexico. Since that
time, Mesa has successfully completed 21 out of 24 wells adding 63 Bcfe to
proved reserves. As a result, Mesa's offshore production increased by
approximately 50% on a thousand cubic feet of natural gas equivalent ("Mcfe")
basis from 1994 to 1995, and by an additional 58% on an Mcfe basis from 1995 to
1996. Mesa currently plans to drill up to seven exploratory wells on its
existing properties in the remainder of 1997. Because Mesa has existing
production facilities offshore, it has been able to bring new wells on
5
production quickly and at a lower cost than could be achieved otherwise. Mesa
currently owns interests in 56 blocks in the Gulf of Mexico, which cover an
aggregate of approximately 141,000 net acres.
Mesa owns approximately 600 square miles of 3-D seismic data in and
around its existing Gulf of Mexico properties. After the procurement of
additional 3-D seismic data during 1997, Mesa will have 3-D seismic data
covering approximately 90% of its existing Gulf of Mexico properties.
Application of 3-D seismic technology to Mesa's Gulf of Mexico acreage
represents a significant future opportunity to increase reserves and cash flow
through exploratory and development drilling.
In 1996, Mesa purchased 11 blocks covering 57,340 gross (39,685 net)
acres in the Gulf of Mexico. Mesa paid $1.7 million for its share of the 11
blocks, six of which are located in areas where Mesa has producing interests.
Mesa was apparent high bidder on four blocks covering 17,500 acres in the March
1997 federal lease sale in the Gulf of Mexico, but there can be no assurance
that Mesa will be awarded these blocks by the United States Mineral Management
Service ("MMS"). Mesa will spend approximately $.7 million if the MMS awards all
four leases to Mesa.
Greenhill Petroleum. On April 15, 1997, Mesa completed the acquisition of
Greenhill Petroleum ("Greenhill") from Western Mining Corporation (USA) for
approximately $267 million, net of cash acquired. At December 31, 1996, the
Greenhill properties had estimated proved reserves of 30 MMBOE (consisting of
41.9 Bcf of gas and 23.4 MMBbls of oil), which were concentrated in the
following four producing areas: the inland waters of the Louisiana Gulf Coast,
the Texas Gulf Coast, offshore in the Gulf of Mexico and the Permian Basin. The
acquired properties included 522 producing wells, more than 200 development
projects and 246 square miles of 3-D seismic data. During the year ended
December 31, 1996, production from the Greenhill properties totaled 6 Bcf and
2.5 MMBbls.
Gas Processing Facilities
Through its natural gas processing plants, Mesa extracts raw NGLs and
crude helium from the wellhead natural gas stream. The NGLs are then transported
and fractionated into their constituent hydrocarbons such as ethane, propane,
normal butane, isobutane and natural gasolines. The NGLs and helium are then
sold pursuant to contracts providing for market-based prices.
Mesa processes its natural gas production for the extraction of NGLs and
helium to enhance the market value of the gas stream. In recent years Mesa has
made substantial capital investments to enhance its natural gas processing and
helium extraction capabilities in the Hugoton and West Panhandle fields. Mesa
owns and operates its processing facilities, which allows Mesa to (i) capture
the processing margin, as third-party processing agreements generally available
in the industry result in retention of a significant portion of the processing
margin by the contract processor, (ii) control the quality of the residue gas
stream, permitting it to deliver gas directly to pipelines for sales to local
distribution companies, marketing companies and end users, and (iii) realize
value from premium products such as crude helium. Mesa believes that the ability
to control its production stream from the wellhead through its processing
facilities to disposition at central delivery points enhances its marketing
opportunities and competitive position in the industry.
Satanta Natural Gas Processing Plant. The Satanta Plant was built in 1993
and has the capacity to process 250 MMcf of natural gas per day, enabling Mesa
to extract NGLs from substantially all of the gas produced from its Hugoton
field properties as well as third party producers' gas. The Satanta Plant also
has the ability to extract helium from the gas stream. In 1996, the Satanta
Plant averaged 193 MMcf per day of inlet gas and produced a daily average of
10.6 MBbls of NGLs, 1,027 Mcf of crude helium and 144 MMcf of residue natural
gas.
In November 1996, Mesa commenced a natural gas processing alliance with
Anadarko Petroleum Corporation ("Anadarko") and Western Resources Mid-Continent
Market Center which provides for Mesa to process up to 55 MMcf per day of
Anadarko's gas at Mesa's Satanta Plant. Such agreement filled excess capacity at
the Satanta Plant. Mesa is also focusing its efforts on obtaining additional
dedications of third-party natural gas to the Satanta Plant, and if successful,
plans to expand the plant's processing capacity.
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Fain Natural Gas Processing Plant. The Fain Plant, which was built in the
1960's and had its most recent substantial upgrade in 1993, currently has inlet
capacity of 140 MMcf per day. In 1996, the Fain Plant averaged 77 MMcf per day
of inlet gas and produced a daily average of 8.2 MMbls of NGLs and condensate,
20 Mcf of crude helium and 59 MMcf of residue natural gas. Mesa's natural gas
processing agreement with CIG and MAPCO (as described in "Oil and Gas Properties
- - West Panhandle Field" above) has filled excess capacity at the Fain Plant.
Mesa plans to install a nitrogen rejection unit at the Fain Plant in 1998 to
improve the quality of the residue natural gas stream and increase NGL and
helium recoveries.
Oil and Gas Information
Proved Reserves. The following table sets forth information about Mesa's
proved oil and gas reserves as of December 31, 1996.
PROVED RESERVES
As of December 31, 1996
Natural Gas Oil & Natural Gas
Natural Gas Liquids Condensate Equivalents
(MMcf) (MBbls) (MBbls) (MMcfe)
----------- ----------- ---------- -----------
Hugoton 691,412 45,418 - 963,920
West Panhandle 288,444 42,498 3,971 567,258
Gulf of Mexico 27,332 120 2,188 41,180
Other 30,534 15 704 34,848
----------- ------------ ----------- ------------
Total 1,037,722 88,051 6,863 1,607,206
=========== ============ =========== ============
Production. The following table sets forth information about the
production attributable to Mesa's properties for the year ended December 31,
1996.
OIL AND GAS PRODUCTION
Year ended December 31, 1996
Natural Gas Oil &
Natural Gas Liquids Condensate
(MMcf) (MBbls) (MBbls)
----------- ----------- ----------
Hugoton 46,821 3,315 -
West Panhandle 19,268 2,978 211
Gulf of Mexico 17,909 163 665
Other 3 4 63
----------- ------------ ----------
Total 84,001 6,460 939
=========== ============ ==========
Productive Wells. The following table sets forth information about Mesa's
gross and net interests in productive oil and gas wells, excluding royalty
wells, as of December 31, 1996.
PRODUCTIVE OIL AND GAS WELLS
As of December 31, 1996
Gross Net
--------- ---------
Onshore U.S.:
Kansas 1,432 990.0
Texas 616 463.9
Wyoming 2 -
North Dakota 20 3.8
Other 13 1.3
--------- ---------
Total Onshore 2,083 1,459.0
--------- ---------
Offshore U.S.:
Louisiana 192 43.4
Texas 68 12.4
--------- ---------
Total Offshore 260 55.8
--------- ---------
Grand Total 2,343 1,514.8
========= =========
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Acreage. The following table sets forth information about Mesa's
developed and undeveloped leasehold acreage as of December 31, 1996.
LEASEHOLD ACREAGE
As of December 31, 1996
Producing Undeveloped
Acreage Acreage
------------------------ -----------------------
Gross Net Gross Net
---------- ----------- ---------- ----------
Onshore U.S.:
Kansas 258,801 231,312 5,880 5,880
Texas 241,218 185,550 480 156
Wyoming 11,477 4,365 14,570 9,035
North Dakota 4,661 3,532 3,771 2,488
Other 2,564 2,142 16,123 6,518
---------- ---------- ---------- ----------
Total Onshore 518,721 426,901 40,824 24,077
---------- ---------- ---------- ----------
Offshore U.S.:
Louisiana 82,024 45,180 48,750 30,783
Texas 73,808 18,848 46,080 46,080
---------- ---------- ---------- ----------
Total Offshore 155,832 64,028 94,830 76,863
---------- ---------- ---------- ----------
Grand Total 674,553 490,929 135,654 100,940
========== ========== ========== ===========
Credit Facility Agreements
On August 7, 1997, Parker & Parsley's successor, Pioneer Natural
Resources USA, Inc. (the "Borrower"), entered into two Credit Facility
Agreements ("Credit Facility Agreements") with a syndicate of banks (the
"Banks") that refinanced the credit facilities of Parker & Parsley and Mesa as
of the date of merger of the two companies. One Credit Facility Agreement (the
"Primary Facility") provides for a $1.1 billion credit facility. The maturity
date for the Primary Facility is August 7, 2002. The second Credit Facility
Agreement (the "364-day Facility") provides for a $300 million credit facility
with a maturity date of August 5, 1998. The Borrower has the option to renew the
364-day Facility for another period of 364 days by notifying the Banks in
writing of such election not more than 60 days and not less than 45 days prior
to the maturity date. The prior credit agreements of Parker & Parsley and Mesa
were paid in full following the Mergers utilizing proceeds from initial
borrowings against the new Primary Facility of $675 million.
Advances on both Credit Facility Agreements bear interest, at the
Borrower's option, based on (a) the prime rate of NationsBank of Texas, N.A.,
(b) a Eurodollar rate (substantially equal to the London Interbank Offered Rate
("LIBOR")), adjusted for the reserve requirement as determined by the Board of
Governors of the Federal Reserve System with respect to transactions in
Eurocurrency liabilities ("LIBOR Rate"), or (c) a competitive bid rate as quoted
by the Banks electing to participate pursuant to a request by the Borrower.
Advances that are LIBOR Rate have periodic maturities, at the Borrower's option,
of one, two, three, six, nine or twelve months. Maturities of greater than six
months are subject to availability of such deposits in the relevant markets.
Advances that are competitive bid rate have periodic maturities, at the
Borrower's option, of not less than 15 days nor more than 360 days. The interest
rates on LIBOR Rate advances vary with interest rate margins ranging from 18
basis points to 45 basis points. The interest rate margin is determined by a
grid based upon Pioneer's senior unsecured long-term public debt rating.
The obligations of the Borrower under the Credit Facility Agreements are
guaranteed by Pioneer and certain of its subsidiaries unless and to the extent
any such subsidiary has been designated as an "Unrestricted Subsidiary" by the
Borrower pursuant to the Credit Facility Agreements. Certain subsidiaries of the
Borrower which have not been designated as Unrestricted Subsidiaries have not
provided guaranties because either (a) such guaranty would result in adverse tax
consequences pursuant to Section 956 of the Internal Revenue Code of 1986, as
amended, or (b) such subsidiary is prohibited from executing a guaranty pursuant
to contractual restrictions. In these cases, the Borrower and certain of its
subsidiaries have pledged a portion of the issued and outstanding capital stock
of such subsidiaries as security for the obligations of the Borrower under the
Credit Facility Agreements.
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The Credit Facility Agreements contain various restrictive covenants and
compliance requirements, which include (a) minimum financial requirements; (b)
limits on the incurrence of additional indebtedness; and (c) limitations on
mergers.
Pioneer's Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997
includes $2.5 million of unamortized capitalized issuance fees associated with
Parker & Parsley's existing bank credit facility. As a result of the new $1.4
billion dollar bank credit facility for Pioneer, such unamortized fees will be
recognized as noncash charges during the third quarter of 1997.
After the consummation of the Mergers, Pioneer will have four outstanding
debt issuances in addition to the new credit facilities described above. Such
debt issuances consist of (i) $150 million aggregate principal amount of 8 7/8%
senior notes issued by Parker & Parsley in 1995 and due in 2005, (ii) $150
million aggregate principal amount of 8 1/4% senior notes issued by Parker &
Parsley in 1995 and due in 2007, (iii) $325 million aggregate principal amount
of 10 5/8% Senior Subordinated Notes issued by Mesa in 1996 and due 2006 and
(iv) $264 million aggregate principal amount of 11 5/8% Senior Subordinated
Discount Notes issued by Mesa in 1996 and due 2006. These four issuances are or
will be guaranteed by Pioneer (the parent of Pioneer Natural Resources USA,
Inc.) subsequent to the Mergers.
Vote of Security Holders
On August 7, 1997, Parker & Parsley and Mesa each held a Special Meeting
for their respective stockholders in Dallas, Texas. At both meetings, the
following three proposals were submitted for vote to the stockholders: (i) to
approve and adopt the Merger Agreement dated as of April 6, 1997 among Parker &
Parsley, Mesa and its subsidiaries Pioneer and MOC, which provides for the
business combination of Parker & Parsley and Mesa (as a result of the business
combination, Mesa, which is a Texas corporation, will reincorporate to Delaware
by merging into Pioneer and Parker & Parsley will merge into MOC), (ii) to
approve the adoption of the Pioneer Long-Term Incentive Plan and (iii) to
approve the adoption of the Pioneer Employee Stock Purchase Plan. Additionally,
stockholders of Mesa were asked to consider and vote upon a separate proposal to
approve the adoption of the Mesa 1996 Incentive Plan. Each of the proposals was
approved by Parker & Parsley's and Mesa's stockholders as follows:
Parker & Parsley
Broker
Proposal For Against Abstain Non-Votes
-------- ---------- ---------- --------- ---------
Merger Agreement 26,837,927 116,119 162,228 -
Long-Term Incentive Plan 17,625,487 9,206,701 284,086 -
Employee Stock Purchase Plan 26,254,862 582,103 279,309 -
Mesa
Broker
Proposal For Against Abstain Non-Votes
-------- ---------- --------- --------- ---------
Merger Agreement
Common stockholders of Mesa 45,946,840 1,068,821 2,259,454 -
Preferred Series A stockholders of Mesa 36,054,385 8,953,770 4,125,626 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
Pioneer Long-Term Incentive Plan
Common stockholders of Mesa 39,505,930 6,668,536 3,100,649 -
Preferred Series A stockholders of Mesa 34,019,452 7,940,429 7,173,900 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
Employee Stock Purchase Plan
Common stockholders of Mesa 43,605,373 2,614,233 3,055,509 -
Preferred Series A stockholders of Mesa 38,146,770 3,797,918 7,189,093 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
Mesa Incentive Plan
Common stockholders of Mesa 35,657,052 10,554,566 3,063,497 -
Preferred Series A stockholders of Mesa 33,186,078 8,762,547 7,185,156 -
Preferred Series B stockholders of Mesa 62,424,436 - - -
9
Unaudited Pro Forma Combined Financial Statements of
Pioneer Natural Resources Company
Item 7. Financial Statements and Exhibits:
Financial Statements of Acquired Entity and Pro Forma Financial Information
The unaudited pro forma combined balance sheet and statements of
operations have been prepared to give effect to certain transactions as
described below.
The unaudited pro forma combined balance sheet of Pioneer as of June 30,
1997 has been prepared to give effect to (i) the Mergers as if such
transactions had occurred on June 30, 1997 (in accordance with the
provisions of APB No. 16, "Business Combinations", the Mergers have been
accounted for as a purchase of Mesa by Parker & Parsley) and (ii) the
conversion of Parker & Parsley's 6 1/4% Cumulative Monthly Income
Convertible Preferred Shares ("Preferred Shares") to Pioneer common
stock.
The unaudited pro forma combined statements of operations of Pioneer for
the six months ended June 30, 1997 and for the year ended December 31,
1996 have been prepared to give effect to the Mergers and certain events
described below for Parker & Parsley and Mesa as if the Mergers and such
events had occurred on January 1, 1996.
Pro Forma Parker & Parsley has been prepared to give effect to (i) the
sale of certain wholly-owned Australian subsidiaries in March 1996 and
the sale of Bridge Oil Timor Sea, Inc. in June 1996 (collectively, the
"Australasian Assets Sold"), (ii) the aggregate effect of the sale of
certain nonstrategic domestic oil and gas properties, gas plants,
contract rights and related assets sold during the period from January 2,
1996 to December 31, 1996 (collectively, the "1996 Assets Sold") and
(iii) the exchange of Parker & Parsley's 6 1/4% Cumulative Monthly Income
Convertible Preferred Shares ("Preferred Shares") to Pioneer common stock
in August 1997.
Pro Forma Mesa has been prepared to give effect to the Recapitalization,
which entailed issuing $265 million in new preferred equity and repaying
and refinancing substantially all of Mesa's $1.2 billion of then existing
long-term debt, and the acquisition of Greenhill, including additional
borrowings to finance such acquisition.
The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transactions taken place at the beginning of the period specified and are not
intended to be a projection of future results. In addition, future results may
vary significantly from the results reflected in the accompanying unaudited pro
forma combined financial statements because of normal production declines,
changes in product prices, future acquisitions and divestitures, future
development and exploration activities, and other factors.
The following unaudited pro forma combined financial statements should be
read in conjunction with (i) the Consolidated Financial Statements (and the
related notes) of both Parker & Parsley and Mesa included in their respective
Annual Reports on Form 10-K and Form 10-K/A for the year ended December 31, 1996
and their respective Quarterly Reports on Form 10-Q for the three months ended
March 31, 1997 and for the six months ended June 30, 1997 and (ii) the
Historical Financial Statements of Greenhill for the fiscal year ended June 30,
1996 and for the six months ended December 31, 1996 (unaudited) and the related
notes thereto which are included in Mesa's Current Report on Form 8-K/A dated
February 7, 1997.
10
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
as of June 30, 1997
(in thousands)
ASSETS
Pro Forma
Parker & Combined Pro Forma
Parsley Mesa Adjustments Combined
---------- ---------- ----------- ----------
Current assets:
Cash and cash equivalents $ 9,843 $ 20,751 (20,000) (a) $ 10,594
Restricted cash 1,723 - 1,723
Accounts receivable 71,010 45,077 116,087
Inventories 5,581 3,130 8,711
Deferred income taxes 9,300 - 9,300
Other current assets 1,955 1,874 3,829
--------- --------- ---------
Total current assets 99,412 70,832 150,244
--------- --------- ---------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of
accounting:
Proved properties 1,536,665 2,293,133 (2,560) (a) 3,827,238
Unproved properties 41,071 44,000 85,071
Natural gas processing facilities 50,770 - 50,770
Accumulated depletion, depreciation
and amortization (489,143) (996,687) 996,687 (a) (489,143)
--------- --------- ---------
1,139,363 1,340,446 3,473,936
--------- --------- ---------
Other property and equipment, net 28,552 11,286 39,838
Other assets, net 16,175 82,894 (35,516) (a) 57,691
(5,862) (b)
--------- --------- ---------
$1,283,502 $1,505,458 $3,721,709
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 6,064 $ 5,305 $ 11,369
Undistributed unit purchases 1,723 - 1,723
Accounts payable 64,616 30,209 94,825
Domestic and foreign income taxes 2,038 - 2,038
Other current liabilities 14,737 23,436 38,173
--------- --------- ---------
Total current liabilities 89,178 58,950 148,128
--------- --------- ---------
Long-term debt, less current maturities 349,457 1,102,999 83,539 (a) 1,535,995
Other noncurrent liabilities 27,336 80,032 107,368
Deferred income taxes 73,800 - 139,020 (a) 212,820
Preferred stock of subsidiary 188,820 - (188,820) (b) -
Stockholders' equity:
Preferred stock - 1,266 (1,266) (a) -
Common stock 370 643 (345) (a) 736
68 (b)
Additional paid-in capital 465,234 667,860 276,911 (a) 1,592,895
182,890 (b)
Treasury stock, at cost (34,460) - 34,460 (a) -
Unearned compensation (712) - (712)
Retained earnings (deficit) 124,479 (406,292) 406,292 (a) 124,479
--------- --------- ---------
Total stockholders' equity 554,911 263,477 1,717,398
--------- --------- ---------
Commitments and contingencies
--------- --------- ---------
$1,283,502 $1,505,458 $3,721,709
========= ========= =========
See accompanying notes to unaudited pro forma combined financial statements.
11
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Six months ended June 30, 1997
(in thousands, except per share data)
Pro Forma
Parker & Combined Pro Forma
Parsley Mesa Greenhill Adjustments Combined
--------- --------- --------- ----------- ---------
Revenues:
Oil and gas $ 198,626 $ 165,336 $ 17,369 $ 381,331
Natural gas processing 11,819 - - 11,819
Interest and other 2,833 4,693 147 7,673
Gain (loss) on disposition of
assets, net 2,637 (23) 41 2,655
-------- -------- -------- --------
215,915 170,006 17,557 403,478
-------- -------- -------- --------
Cost and expenses:
Oil and gas production 55,392 44,457 6,641 106,490
Natural gas processing 6,098 - - 6,098
Depletion, depreciation and
amortization:
Oil and gas properties 54,860 52,503 7,725 37,880(c) 152,968
Other 4,649 4,007 - 8,656
Impairment of long-lived assets - 2,907 - 2,907
Exploration and abandonments 18,415 8,067 4,059 (407)(d) 30,134
General and administrative 14,990 9,277 13,318 407(d) 37,992
Interest 20,154 48,335 - (6,010)(b) 65,346
(2,562)(e)
5,429(f)
Other 831 2,470 - 3,301
-------- -------- -------- --------
175,389 172,023 31,743 413,892
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 40,526 (2,017) (14,186) (10,414)
Income tax benefit (provision) (14,500) - - 18,400(g) 3,900
-------- -------- -------- --------
Income (loss) from continuing
operations 26,026 (2,017) (14,186) (6,514)
Dividends on preferred stock - (11,105) - 11,105(h) -
-------- -------- -------- --------
Income (loss) from continuing
operations attributable to
common stock $ 26,026 $ (13,122) $ (14,186) $ (6,514)
======== ======== ======== ========
Income (loss) per common share $ .74 $ (.20) $ (.09)
======== ======== ========
Weighted average shares
outstanding 35,364 65,499 (33,632)(i) 73,945
6,714(b) ========
======== ========
See accompanying notes to unaudited pro forma combined financial statements.
12
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1996
(in thousands, except per share data)
Pro Forma Pro Forma
Parker & Pro Forma Combined Pro Forma
Parsley Mesa Adjustments Combined
--------- --------- ----------- ---------
Revenues:
Oil and gas $ 374,560 $ 371,280 $ 745,840
Natural gas processing 23,184 - 23,184
Interest and other 17,328 33,824 51,152
Gain on disposition of assets, net - 11,966 11,966
-------- -------- --------
415,072 417,070 832,142
-------- -------- --------
Cost and expenses:
Oil and gas production 101,545 97,617 199,162
Natural gas processing 11,949 - 11,949
Depletion, depreciation and
amortization:
Oil and gas properties 95,628 130,370 76,933 (c) 302,931
Other 9,001 4,919 13,920
Exploration and abandonments 20,187 12,772 (831) (d) 32,128
General and administrative 26,631 41,016 831 (d) 68,478
Interest 28,700 105,266 (4,923) (e) 129,043
Other 2,451 2,340 4,791
-------- -------- --------
296,092 394,300 762,402
-------- -------- --------
Income from continuing operations
before income taxes 118,980 22,770 69,740
Income tax provision (41,600) - 15,800 (g) (25,800)
-------- -------- --------
Income from continuing operations 77,380 22,770 43,940
Dividends on preferred stock - (21,880) 21,880 (h) -
-------- -------- --------
Income from continuing operations
attributable to common stock $ 77,380 $ 890 $ 43,940
======== ======== ========
Income per common share $ 1.82 $ .01 $ .59
======== ======== ========
Weighted average shares
outstanding 42,448 64,164 (32,366) (i) 74,246
========= ========= =========
See accompanying notes to unaudited pro forma combined financial statements.
13
PARKER & PARSLEY PETROLEUM COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1996
(in thousands, except per share data)
Australasian 1996 Pro Forma
Parker & Assets Assets Pro Forma Parker &
Parsley Sold Sold Adjustments Parsley
--------- ----------- --------- ----------- ---------
Revenues:
Oil and gas $ 396,931 $ (10,591) $ (11,780) $ 374,560
Natural gas processing 23,814 - (630) 23,184
Interest and other 17,458 (130) - 17,328
Gain on disposition of assets,
net 97,140 (83,260) (13,880) -
-------- ----------- -------- --------
535,343 (93,981) (26,290) 415,072
-------- ----------- -------- --------
Cost and expenses:
Oil and gas production 110,334 (3,300) (5,489) 101,545
Natural gas processing 12,528 - (579) 11,949
Depletion, depreciation and
amortization:
Oil and gas properties 102,803 (3,917) (3,258) 95,628
Other 9,331 (300) (30) 9,001
Exploration and abandonments 23,030 (1,435) (1,408) 20,187
General and administrative 28,363 (1,732) - 26,631
Interest 46,155 (1,100) - (12,020) (b) 28,700
(4,335) (j)
Other 2,451 - - 2,451
-------- --------- -------- --------
334,995 (11,784) (10,764) 296,092
-------- ------------ -------- --------
Income (loss) from continuing
operations before
income taxes 200,348 (82,197) (15,526) 118,980
Income tax benefit (provision) (60,100) 16,000 5,400 (2,900) (g) (41,600)
-------- --------- -------- --------
Income (loss) from continuing
operations $ 140,248 $ (66,197) $ (10,126) $ 77,380
======== ========== ======== ========
Income per share $ 3.92 $ 1.82
======== ========
Weighted average shares
outstanding 35,734 6,714 (b) 42,448
========= ========
See accompanying notes to unaudited pro forma combined financial statements.
14
MESA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1996
(in thousands, except per share data)
Pro Forma Pro Forma
Mesa Recapitalization Greenhill Adjustments Mesa
--------- ---------------- --------- ----------- ----------
Revenues:
Oil and gas $ 300,336 $ - $ 70,944 $ 371,280
Natural gas processing - - - -
Interest and other 33,824 - - 33,824
Gain on disposition of assets,
net 11,966 - - 11,966
-------- -------- -------- ---------
346,126 - 70,944 417,070
-------- -------- -------- ---------
Cost and expenses:
Oil and gas production 74,518 - 23,099 97,617
Natural gas processing - - - -
Depletion, depreciation and
amortization:
Oil and gas properties 98,382 - 29,355 2,633 (c) 130,370
Other 4,919 - - 4,919
Exploration and abandonments 5,431 - 7,341 12,772
General and administrative 31,473 - 9,543 41,016
Interest 121,135 (34,530)(k) (729) 19,390 (f) 105,266
Other 1,929 - 411 2,340
-------- -------- -------- ---------
337,787 (34,530) 69,020 394,300
-------- -------- -------- ---------
Income from continuing operations
before income taxes 8,339 34,530 1,924 22,770
Income tax provision - - - -
-------- -------- -------- ---------
Income from continuing operations 8,339 34,530 1,924 22,770
Dividends on preferred stock (9,522) (12,358)(l) - (21,880)
-------- -------- -------- ---------
Income (loss) from continuing
operations attributable to
common stock $ (1,183) $ 22,172 $ 1,924 $ 890
======== ======== ======== =========
Income (loss) per common share $ (.02) $ .01
======== =========
Weighted average shares
outstanding 64,164 64,164
========= ==========
The accompanying notes to unaudited pro forma combined financial statements.
15
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
Note 1. Basis of Presentation
In accordance with the Merger Agreement, (i) holders of Parker & Parsley
common stock received one share of Pioneer common stock for each share held;
(ii) holders of Mesa common stock received one share of Pioneer common stock
for every seven shares held; and (iii) holders of Mesa Series A Preferred
Stock and Mesa Series B Preferred Stock received 1.25 shares of Pioneer common
stock for every seven shares held. No fractional shares were issued and all
treasury shares were canceled.
The unaudited pro forma combined balance sheet of Pioneer as of June 30,
1997 has been prepared to give effect to the Mergers and the exchange of
Parker & Parsley's Preferred Shares to Pioneer common stock as if such
transactions had occurred on June 30, 1997. In accordance with the provisions
of APB No. 16, "Business Combinations", the Mergers have been accounted for as
a purchase of Mesa by Parker & Parsley.
The unaudited pro forma combined statements of operations of Pioneer for
the six months ended June 30, 1997 and for the year ended December 31, 1996
have been prepared to give effect to the Mergers and certain events described
below for Parker & Parsley and Mesa as if the Mergers and such events had
occurred on January 1, 1996.
Pro Forma Parker & Parsley has been prepared to give effect to the sale of
the Australasian Assets Sold, the 1996 Assets Sold and the exchange of Parker
& Parsley's Preferred Shares to Pioneer common stock.
Pro Forma Mesa has been prepared to give effect to the Recapitalization
and the acquisition of Greenhill, including additional borrowings to finance
such acquisition.
The following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
Parker & Parsley - Represents the consolidated balance sheet of Parker
& Parsley as of June 30, 1997 and the consolidated statements of
operations of Parker & Parsley for the six months ended June 30, 1997
and for the year ended December 31, 1996.
Australasian Assets Sold - Reflects the results of operations for the
year ended December 31, 1996 from certain wholly-owned subsidiaries
prior to their sale in 1996. On March 28, 1996, Parker & Parsley
completed the sale of certain wholly-owned subsidiaries to Santos
Ltd., and on June 20, 1996, Parker & Parsley completed the sale of
another wholly-owned subsidiary, Bridge Oil Timor Sea, Inc., to
Phillips Petroleum International Investment Company. During the year
ended December 31, 1996, Parker & Parsley received aggregate
consideration of $237.5 million for these combined sales. The assets
sold to Santos Ltd. consisted primarily of properties located in the
Cooper Basin in Central Australia, the Surat Basin in Northeast
Australia, the Carnarvon Basin on the Northwest Shelf off the coast of
Western Australia, the Otway Basin off the coast of Southeast
Australia and the Central Sumatra Basin in Indonesia. At December 31,
1995, Parker & Parsley's interests in these properties contained 32.1
million BOE of proved reserves (consisting of 12.4 million Bbls of oil
and 118.3 Bcf of gas), representing $133.8 million of SEC 10 value.
Prior to their sale in 1996, these properties produced 249,500 Bbls of
oil and 1,927,000 Mcf of gas. Parker & Parsley received an average
price of $19.55 per Bbl of oil and $1.95 per Mcf of gas from such
production and incurred production costs per BOE of $4.92 and
depletion expense per BOE of $5.84 related to these properties. The
wholly-owned subsidiary sold to Phillips Petroleum International
Investment Company, Bridge Oil Timor Sea, Inc., has a wholly owned
subsidiary, Bridge Oil Timor Sea Pty Ltd., which owns a 22.5% interest
in the ZOCA 91-13 permit in the offshore Bonapart Basin in the Zone of
Cooperation between Australia and Indonesia.
16
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
1996 Assets Sold - Reflects the results of operations for the year
ended December 31, 1996 from certain oil and gas properties, gas
plants, contract rights and related assets prior to their sale in
1996. During the year ended December 31, 1996, Parker & Parsley sold
certain domestic nonstrategic oil and gas properties, gas plants and
other related assets for aggregate proceeds of approximately $58.4
million. Prior to their sale in 1996, these oil and gas properties
produced 274,314 Bbls of oil and 3,196,093 Mcf of gas. Parker &
Parsley received an average price of $19.30 per Bbl of oil and $2.03
per Mcf of gas from such production and incurred production costs per
BOE of $6.80 and depletion expense per BOE of $4.04 related to these
properties.
Mesa - Represents the consolidated balance sheet of Mesa as of June
30, 1997 and the consolidated statements of operations of Mesa for the
six months ended June 30, 1997 and for the year ended December 31,
1996.
Recapitalization - Represents the effects on Mesa's unaudited pro
forma combined statement of operations from the Recapitalization as if
it had occurred on January 1, 1996. In August 1996, Mesa completed a
recapitalization of its balance sheet by issuing new equity and
repaying and refinancing substantially all of its then existing
long-term debt. The Recapitalization was undertaken by Mesa in an
effort to deleverage and recapitalize Mesa through the issuance of
additional equity and through the refinancing of substantially all of
Mesa's $1.2 billion debt existing prior to the Recapitalization. The
Recapitalization provided Mesa with an improved financial condition
due to (i) a significant reduction in total debt outstanding, (ii) a
reduction in annual cash interest expense of approximately $75
million, (iii) cost savings programs which reduced general and
administrative and other overhead expenses by approximately $10
million annually, and (iv) the extension of maturities on Mesa's
long-term debt, which eliminated Mesa's then existing liquidity
concerns. The Recapitalization included (i) the private placement of
shares of a new class of Mesa Series B Preferred Stock for $133
million to DNR - Mesa Holdings, Inc. ("DNR"), whose sole general
partner is Rainwater Inc., a Texas corporation owned by Richard E.
Rainwater, (ii) the sale of $132 million of a new class of Mesa Series
A Preferred Stock to Mesa's then existing stockholders through a
rights offering, (ii) the establishment of a new bank credit facility
and (iv) the issuance of two new series of senior subordinated notes.
Greenhill - Represents the unaudited statements of operations of
Greenhill prior to its acquisition by Mesa on April 15, 1997 and for
the year ended December 31, 1996.
The unaudited pro forma combined statement of operations for the year
ended December 31, 1996 presented herein does not reflect the results of
operations from Mesa's acquisition from MAPCO Inc. of approximately 11 MMBOE
in February 1997 for approximately $66 million. The acquisition is not
presented since it is not considered significant under Rule 3-05 of Regulation
S-X. The purchase was funded by additional borrowings under Mesa's credit
facility.
17
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
Note 2. Acquisition of Mesa
The aggregate Pioneer common stock purchase consideration, including
non-recurring merger transaction costs, is computed in accordance with the
exchange ratios agreed to in the Merger Agreement as follows:
Mesa Mesa Series Mesa Series
Common A Preferred B Preferred
Stock Stock Stock Total
------------ ------------ ------------ ------------
Shares outstanding 64,279,568 62,884,094 63,672,925
Exchange ratio for Mesa shares 1.00 1.25 1.25
----------- ----------- -----------
64,279,568 78,605,118 79,591,156 222,475,842
Exchange ratio to Pioneer common stock 7.00 7.00 7.00 7.00
----------- ----------- ----------- -----------
Pioneer Shares 9,182,795 11,229,303 11,370,165 31,782,263
Value of Pioneer common stock (a) $ 30.82 $ 30.82 $ 30.82 $ 30.82
----------- ----------- ----------- -----------
Pioneer common stock consideration $283,013,742 $346,087,118 $350,428,485 979,529,345
=========== =========== ===========
Cash consideration for nonrecurring
merger transaction costs 20,000,000
-----------
Aggregate purchase consideration $999,529,345
===========
------------------
(a) Pioneer Common Stock is valued at $30.82 per share which represents
Parker & Parsley's seven-day average trading price surrounding the
announcement of the Mergers on April 7, 1997.
The following table represents the preliminary allocation of the total
purchase price of Mesa to the acquired assets and liabilities of Mesa. The
allocation represents the fair values assigned to each of the significant
assets acquired and liabilities assumed. Any future adjustments to the
allocation of the purchase price are not anticipated to be material to the
unaudited pro forma combined financial statements.
Allocation of
Aggregate
Purchase
Consideration
-------------
(in thousands)
Net working capital $ 11,882
Property, plant and equipment 2,334,573
Other assets 58,664
Long-term debt (1,186,538)
Other noncurrent liabilities, including deferred taxes (219,052)
------------
$ 999,529
============
Pioneer Common Stock consideration $ 979,529
Cash paid for nonrecurring merger transaction costs 20,000
------------
Aggregate purchase consideration $ 999,529
============
18
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
The following table illustrates the number of Pioneer shares that were
issued in accordance with the exchange ratios agreed to in the Merger
Agreement.
Shares New
Outstanding at Pioneer
Existing Security Type August 7, 1997 Security Pioneer Shares
- ----------------------------- -------------- ------------ --------------
Parker & Parsley Common Stock 41,773,238 Common Stock 41,773,238
Mesa Common Stock 64,279,568 Common Stock 9,182,795
Mesa Series A Preferred Stock 62,884,094 Common Stock 11,229,303
Mesa Series B Preferred Stock 63,672,925 Common Stock 11,370,165
-----------
73,555,501
===========
Note 3. Pro Forma Entries
(a) To record the acquisition of Mesa using the purchase method of accounting.
The allocation of the purchase price to the acquired assets and
liabilities is preliminary and, therefore, subject to change. Any future
adjustments to the allocation of the purchase price are not anticipated to
be material to Pioneer's financial statements. (See Note 2 above).
(b) To (i) reclassify the Preferred Shares and related capitalized issuance
fees to common stock and additional paid-in capital as a result of Parker
& Parsley's mandatory exchange of such Preferred Shares for shares of
Parker & Parsley common stock on July 28, 1997 and (ii) eliminate the
interest expense associated with such Preferred Shares and amortization of
capitalized issuance fees. On July 28, 1997, Parker & Parsley exercised
its right to require each holder of the 3,776,400 Preferred Shares to
mandatorily exchange all Preferred Shares for shares of common stock of
Parker & Parsley at a rate of 1.7778 shares of Parker & Parsley common
stock for each Preferred Share. As a result of the exchange, Pioneer will
no longer incur interest expense of approximately $12 million per year
associated with the Preferred Shares.
(c) To adjust depreciation, depletion and amortization expense for the
additional basis allocated to the oil and gas properties acquired and
accounted for using the successful efforts method of accounting.
(d) To reclassify certain amounts to conform with the financial statement
presentation of Pioneer.
(e) To reduce interest expense for (i) the amortization of the premiums
(utilizing the effective interest rate method) recorded as part of
purchase accounting for Mesa's 10-5/8% Senior Subordinated Notes and
11-5/8% Senior Subordinated Discount Notes and (ii) the application of
Parker & Parsley's excess cash in 1996 to the reduction of Mesa's
outstanding bank indebtedness at Mesa's 1996 pro forma incremental
borrowing interest rate of 7% (see pro forma entry (j) below).
(f) To adjust interest expense resulting from the borrowing of the funds
necessary for Mesa's acquisition of Greenhill. Mesa's 1997 and 1996 pro
forma incremental borrowing interest rate of 7% was utilized to determine
the additional pro forma interest expense.
(g) To adjust income tax expense for each tax jurisdiction.
(h) To eliminate the preferred stock dividends associated with Mesa's Series A
and Series B Preferred Stock.
19
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
(i) To adjust the weighted average shares outstanding for the acquisition of
Mesa. This adjustment also assumes the conversion of Mesa's outstanding
employee stock options into Pioneer employee stock options for purposes of
computing weighted average shares outstanding.
(j) To adjust interest expense resulting from the application of that portion
of the sales proceeds from the Australasian Assets Sold and the 1996
Assets Sold necessary to retire Parker & Parsley's outstanding bank
indebtedness. The proceeds applied to retire Parker & Parsley's
outstanding bank indebtedness of $225 million resulted in a reduction in
interest expense of $4.3 million. The reduction in interest expense was
calculated utilizing Parker & Parsley's weighted average rate on its bank
indebtedness of 6.22% for the period during 1996 in which Parker & Parsley
had outstanding bank indebtedness.
(k) To reduce interest expense as a result of the Recapitalization. Interest
expense adjustments include the following for the year ended December 31,
1996:
Pro Forma
Historical Pro Forma Adjustment
---------- --------- ----------
Interest expense on former debt repaid
in the Recapitalization:
Secured Notes $ 26,231 - $ (26,231)
Former Credit Agreement 2,472 - (2,472)
12-3/4% secured discount notes 43,979 - (43,979)
13-1/2% subordinated notes 654 - (654)
Interest expense on former debt repaid
prior to the Recapitalization:
12-3/4% unsecured discount notes 2,595 $ 2,595 -
Interest expense on new debt issued in
the Recapitalization:
10-5/8% Senior Subordinated Notes 17,613 35,418 17,805
11-5/8% Senior Discount Notes 8,893 18,661 9,768
New Credit Facility 15,094 26,327 11,233
Other interest expense 3,604 3,604 -
--------- -------- --------
$ 121,135 $ 86,605 $ (34,530)
========= ======== ========
Other interest expense is primarily the interest portion of the
administrative fee charged by Colorado Interstate Gas Company in
connection with Mesa's West Panhandle field operations. The interest rate
on the New Credit Facility is approximately 7.73% on the first $250
million due to an interest rate swap with the balance at a floating rate
that during the period outstanding was approximately 7%.
(l) To record the pro forma adjustment for an 8% annual dividend on the Mesa
Series A and Series B Preferred Stock payable quarterly in additional
shares of Mesa Series A and Series B Preferred Stock for at least the
first four years after issuance as if the Mesa Series A and Series B
Preferred Stock had been issued January 1, 1996.
Note 4. Income Taxes
Pioneer will account for income taxes in accordance with the provisions of
SFAS 109. In accordance with SFAS 109, Pioneer will prepare separate tax
calculations for each tax jurisdiction in which Pioneer will be subject to
income taxes.
20
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
Note 5. Income from Continuing Operations per Share
Income from continuing operations per share is computed based on the
weighted average number of shares of common stock and common stock
equivalents, if more than 3% dilutive, outstanding during the period. Fully
diluted income from continuing operations per share is not presented since
dilution is less than 3% on a pro forma combined basis. Income from continuing
operations per share reflects the exchange of Parker & Parsley's Preferred
Shares and the conversion of Mesa's Series A Preferred Stock and Mesa's Series
B Preferred Stock to Pioneer common stock which increased the weighted average
number of shares of Pioneer common stock outstanding to 73.6 million at August
7, 1997.
Note 6. Parker & Parsley Stock Options
Upon the consummation of the Mergers on August 7, 1997, which constituted
a "Change of Control" as defined in the Parker & Parsley Long-term Incentive
Plan, each holder of Parker & Parsley options was granted corresponding stock
appreciation rights unless such holder had waived such right prior to the
Mergers, and all outstanding stock appreciation rights and options immediately
became fully vested and exercisable in full. Consequently, during the third
quarter of 1997, Pioneer will record compensation expense in accordance with
APB No. 25, "Accounting for Stock Issued to Employees" equal to the value of
the stock appreciation rights granted of approximately $2.5 million dollars,
before income tax effects, based on a common stock price of $37.69. This
expense is associated with the stock appreciation rights granted to certain
individuals who are no longer with Pioneer and who elected to not waive their
right and receive stock appreciation rights. In accordance with SEC guidelines
concerning the preparation of pro forma financial statements, this adjustment
is not reflected in the accompanying Pro Forma Combined Financial Statements.
Note 7. General and Administrative Expense Reductions
Mesa's general and administrative expenses for the year ended December 31,
1996 includes $9.4 million associated with the elimination of 86 positions
from the total of 385 at December 31, 1995, and a significant downsizing of
Mesa's natural gas vehicle equipment business in conjunction with the
Recapitalization. Given the first quarter 1997 general and administrative
expenses of $3.8 million, Mesa's continuing costs are estimated at
approximately $15 million per year ($3.8 million multiplied by four quarters).
In addition, Greenhill's general and administrative expenses prior to its sale
to Mesa on April 15, 1997 of $13.3 million included severance costs paid to
Greenhill employees of approximately $11 million as few of Greenhill's
administrative personnel were retained. As a result, Mesa considers a
continuing annual expense associated with Greenhill properties of
approximately $5 million to be reasonable. Given the above, Mesa expects total
general and administrative expenses to approximate $20 million per year. The
accompanying Pro Forma Combined Statements of Operations for Pioneer do not
include any adjustments related to the expected level of ongoing general and
administrative expense.
Note 8. Parker & Parsley Third Quarter of 1997 Charges
Pioneer's Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997
includes certain unamortized amounts which will be recognized as noncash
charges during the third quarter of 1997 as a result of the Mergers. These
amounts include $2.5 million (pre-tax) of capitalized issuance fees associated
with Parker & Parsley's existing bank credit facility which was replaced by a
new $1.4 billion bank credit facility for Pioneer and $544 thousand (pre-tax)
of unearned compensation resulting from certain change of control provisions
included in Parker & Parsley's existing Long-term Incentive Plan whereby the
vesting requirements of outstanding restricted stock awards were accelerated.
21
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
Note 9. Oil and Gas Reserve Data
The following unaudited pro forma supplemental information regarding the
oil and gas activities of Pioneer is presented pursuant to the disclosure
requirements promulgated by the SEC and Statement of Financial Accounting
Standards No. 69, "Disclosures About Oil and Gas Producing Activities". The
pro forma combined reserve information is presented as if the sale of the
Australasian Assets and 1996 Assets Sold and the acquisition of Mesa and
Greenhill had occurred on January 1, 1996.
Management emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.
Quantities of oil and gas reserves
Set forth below is a pro forma summary of the changes in the net
quantities of oil and natural gas reserves for the year ended December 31,
1996.
Oil, NGL's and
Condensate Gas
(Bbls) (Mcf)
-------------- ----------
(in thousands)
Balance, January 1, 1996 267,108 1,984,726
Revisions of previous estimates 31,475 42,246
Purchase of minerals-in-place 300 11,494
New discoveries and extensions 3,952 31,259
Production (20,550) (160,729)
--------- ----------
Balance, December 31, 1996 282,285 1,908,996
========= ==========
Standardized measure of discounted future net cash flows
The pro forma combined standardized measure of discounted future net cash
flow is computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by contractual
arrangements) to the estimated future production of oil and gas reserves less
estimated future expenditures (based on year-end costs) to be incurred in
developing and producing the proved reserves, discounted using a rate of 10%
per year to reflect the estimated timing of the future cash flows. Future
income taxes are calculated by comparing discounted future cash flows to the
tax basis of oil and gas properties, plus available carryforwards and credits,
and applying the current tax rate to the difference.
December 31, 1996
-----------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 14,015,758
Future production costs (3,978,622)
Future development costs (394,157)
Future income tax expense (2,679,935)
------------
6,963,044
10% annual discount factor (3,247,780)
------------
Standardized measure of discounted
future net cash flows $ 3,715,264
============
22
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
Changes relating to the standardized measure of discounted future net cash flows
The principal sources of the change in the pro forma combined standardized
measure of discounted future net cash flows for the year ended December 31,
1996 are as follows (in thousands):
Oil and gas sales, net of production costs $ (546,678)
Net changes in prices and production costs 1,979,347
Extensions and discoveries 94,936
Purchases of minerals-in-place 20,606
Revisions of estimated future development costs (83,116)
Revisions of previous quantity estimates 364,334
Accretion of discount 253,122
Changes in production rates, timing and other (132,538)
-----------
Change in present value of future net revenues 1,950,013
Net change in present value of future income taxes (566,915)
-----------
1,383,098
Balance, beginning of year 2,332,166
-----------
Balance, end of year $ 3,715,264
===========
23
MESA INC.
Exhibits
2.1 Amended and Restated Agreement and Plan of Merger dated as of April 6,
1997, by and between among Mesa Inc., Mesa Operating Co., MXP
Reincorporation Corp. and Parker & Parsley Petroleum Company (incorporated
by reference to Exhibit 2.1 to Pioneer's Form S-4 dated June 27, 1997,
Registration No. 333-26951).
10.1 Credit Facility Agreement (Primary Facility) dated as of August 7, 1997
between Pioneer Natural Resources USA, Inc. as Borrower and NationsBank of
Texas, N.A., as Administrative Agent, CIBC Inc., as Documentation Agent,
Morgan Guaranty Trust Company of New York, as Documentation Agent and The
Chase Manhattan Bank, as Syndication Agent; Bank of America Natural Trust
and Savings Association, The Bank of New York, The Bank of Nova Scotia,
Royal Bank of Canada, Union Bank of California, N.A., The Fuji Bank,
Limited -Houston Agency and Wells Fargo Bank, N.A., as Co-Agents; and
certain other lenders (incorporated by reference to Exhibit 10.1 to
Pioneer's Form 8-K dated August 21, 1997, Registration No. 333-26951).
10.2 Credit Facility Agreement (364 Day Facility) dated as of August 7, 1997
between Pioneer Natural Resources USA, Inc. as Borrower and NationsBank of
Texas, N.A., as Administrative Agent, CIBC Inc., as Documentation Agent,
Morgan Guaranty Trust Company of New York, as Documentation Agent and The
Chase Manhattan Bank, as Syndication Agent; Bank of America Natural Trust
and Savings Association, The Bank of New York, The Bank of Nova Scotia,
Royal Bank of Canada, Union Bank of California, N.A., The Fuji Bank,
Limited -Houston Agency and Wells Fargo Bank, N.A., as Co-Agents; and
certain other lenders (incorporated by reference to Exhibit 10.2 to
Pioneer's Form 8-K dated August 21, 1997, Registration No. 333-26951).
24
MESA INC.
S I G N A T U R E S
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.
MESA INC.
By: Pioneer Natural Resources Company,
its successor by merger
Date: August 21, 1997 By: /s/ Garrett Smith
------------------------------------
M. Garrett Smith
Senior Vice President, Finance
25
Exhibit Index Page
------------- ----
2.1 Amended and Restated Agreement and Plan of Merger dated as of
April 6, 1997, by and between among Mesa Inc., Mesa Operating
Co., MXP Reincorporation Corp. and Parker & Parsley Petroleum
Company (incorporated by reference to Exhibit 2.1 to Pioneer's
Form S-4 dated June 27, 1997, Registration No. 333-26951).
10.1 Credit Facility Agreement (Primary Facility) dated as of August
7, 1997 between Pioneer Natural Resources USA, Inc. as Borrower
and NationsBank of Texas, N.A., as Administrative Agent, CIBC
Inc., as Documentation Agent, Morgan Guaranty Trust Company of
New York, as Documentation Agent and The Chase Manhattan Bank,
as Syndication Agent; Bank of America Natural Trust and Savings
Association, The Bank of New York, The Bank of Nova Scotia,
Royal Bank of Canada, Union Bank of California, N.A., The Fuji
Bank, Limited - Houston Agency and Wells Fargo Bank, N.A., as
Co-Agents; and certain other lenders (incorporated by reference
to Exhibit 10.1 to Pioneer's Form 8-K dated August 21, 1997,
Registration No. 333-26951).
10.2 Credit Facility Agreement (364 Day Facility) dated as of August
7, 1997 between Pioneer Natural Resources USA, Inc. as Borrower
and NationsBank of Texas, N.A., as Administrative Agent, CIBC
Inc., as Documentation Agent, Morgan Guaranty Trust Company of
New York, as Documentation Agent and The Chase Manhattan Bank,
as Syndication Agent; Bank of America Natural Trust and Savings
Association, The Bank of New York, The Bank of Nova Scotia,
Royal Bank of Canada, Union Bank of California, N.A., The Fuji
Bank, Limited - Houston Agency and Wells Fargo Bank, N.A., as
Co-Agents; and certain other lenders (incorporated by reference
to Exhibit 10.2 to Pioneer's Form 8-K dated August 21, 1997,
Registration No. 333-26951).
26