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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report : August 13, 1998
Commission File Number 0-26662
PANACO, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction or incorporation)
43 - 1593374
(IRS Employer Identification No.)
1050 West Blue Ridge Boulevard, PANACO Building,
Kansas City, MO 64145-1216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 942 - 6300
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Item 2. Acquisition or Disposition of Assets
On May 14, 1998 PANACO entered into a definitive agreement with BP
Exploration & Oil, Inc. ("BP") to acquire BP's 100% interest in East Breaks
Blocks 165 and 209 and 75% interest in High Island Block 587. The acquisition
closed on May 26, 1998 and was accounted for using the purchase method. PANACO
acquired the properties for $19.5 million in cash. Current production from these
properties is approximately 2,342 barrels of oil per day and 3,266 Mcf of gas
per day. Included with the properties is 3-D seismic data covering twenty
offshore blocks. PANACO became the operator of all three blocks effective June
1, 1998.
Highlights of the Acquisition include:
1. The production platform in Block 165 is named "Snapper". This mammoth
structure, located in 863 feet of water, is among the tallest bottom
supported structures in the Gulf of Mexico. The two wells in High Island
Block 587 are completed subsea and tied back to the East Breaks 165
production platform. The remaining 25% of High Island Block 587 is owned by
Burlington Resources.
2. PANACO acquired 31.72 miles of 12" oil pipeline, with capacity of over
20,000 barrels of oil per day, which ties the production platform back to
the High Island Pipeline System, the major oil transportation system in the
area.
3. PANACO will benefit from oil net back agreements which are in place for up
to 4,000 barrels per day of oil production from other operators in the
area, some of which commenced in June.
4. PANACO also acquired 9.3 miles of 12 3/4" gas pipeline, which ties the
production platform back to the High Island Offshore System, the major gas
transportation system in the area.
5. Additional capacity is present for both processing and transportation,
which PANACO is currently marketing to several operators in the area.
2
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
Audited Statements of Revenues and Direct Operating Expenses for the two
years ended December 31, 1996 and 1997 are included herein beginning on
page F-1.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Financial Information for the two years ended December
31, 1996 and 1997 and the three months ended March 31, 1998 is included
herein beginning on page P-1.
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.
PANACO, Inc.
Date: August 13,1998 /s/ Todd R. Bart
--------------- ----------------------
Todd R. Bart
Chief Financial Officer
3
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
BP Exploration & Oil Inc.
We have audited the accompanying historical statements of revenues and direct
operating expenses of certain properties of BP Exploration & Oil Inc. located on
the Outer Continental Shelf of the Gulf of Mexico known as the Snapper Field
(the "Acquisition Properties") for the years ended December 31, 1997 and 1996.
These historical statements are the responsibility of BP Exploration & Oil Inc.
management. Our responsibility is to express an opinion on these historical
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the historical 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
historical statements. We believe that our audits provide a reasonable basis for
our opinion.
The accompanying historical statements were prepared as described in Note 1 for
the purpose of complying with certain rules and regulations of the Securities
and Exchange Commission (SEC) for inclusion in certain SEC regulatory reports
and filings of PANACO, Inc. and are not intended to be a complete presentation
of the revenues and expenses of the Acquisition Properties.
In our opinion, the historical statements referred to above present fairly, in
all material respects, the revenues and direct operating expenses of the
Acquisition Properties described in Note 1 for the years ended December 31, 1997
and 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
June 30, 1998
F-1
ACQUISITION PROPERTIES
HISTORICAL STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
For The Year Ended December 31 For the three Months Ended March 31
------------------------------ ------------------------------------
(Unaudited)
1997 1996 1998 1997
---- ---- ---- ----
Revenues:
Gas $ 4,249,000 $ 5,493,000 $ 365,000 $1,788,000
Oil & condensate 13,581,000 13,841,000 2,052,000 4,466,000
----------- ------------ --------- ---------
Total revenues $17,830,000 $ 19,334,000 $2,417,000 $6,254,000
=========== ============ ========== ==========
Direct operating expenses $ 3,005,000 $ 5,261,000 $ 736,000 $ 609,000
=========== ============ =========== =========
Revenues in excess of
direct operating expenses $14,825,000 $ 14,073,000 $1,681,000 $5,645,000
=========== ============ ========== ==========
See accompanying notes to these statements.
F-2
ACQUISITION PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sale
====
On May 26, 1998, BP Exploration & Oil Inc. (the Company or BPX&O), a subsidiary
of The British Petroleum Company p.l.c., sold its interest in East Breaks Blocks
165 and 209 and High Island Block 587 (collectively, the Acquisition Properties)
to PANACO Inc. (PANACO) for $19.5 million in cash. Included in the sale of East
Breaks Block 165 is a production platform in 863 feet of water. Also included in
the sale are 31.72 miles of 12 inch oil pipeline and 9.3 miles of 12 inch gas
pipeline. All of the Acquisition Properties are located in the Outer Continental
Shelf of the Gulf of Mexico.
Basis of Presentation
=====================
The preparation of the historical statements of revenues and direct operating
expenses in conformity with generally accepted accounting principles require
management to make estimates and assumptions that affect the amounts reported in
the historical statements and accompanying notes. Actual results could differ
from those estimates.
The revenues and direct operating expenses associated with the Acquisition
Properties were derived from the Company's accounting records. Revenues and
direct operating expenses, as set forth in this historical statement, include
oil and gas revenues and associated direct operating expenses related to the net
revenue interest and net working interest, respectively, in the Acquisition
Properties. Revenues are accrued based on volumes of production taken and sold
by the Company and are not materially different from revenues that would have
been recognized under the entitlement method for the years ended December 31,
1996 and 1997. Each owner recognizes revenues and expenses based on its
proportionate share of the related production and costs. The historical
statements includes oil and gas revenues, net of royalties and transportation.
Expenses include labor, repairs and maintenance and supplies utilized to operate
and maintain the wells and related equipment and facilities. No severance tax
expense is included for the Acquisition Properties because production from
federal offshore waters is not subject to state severance taxes.
The historical statements vary from an income statement in that they do not show
certain expenses which are incurred in connection with ownership of the
Acquisition Properties including general and administrative expenses and income
taxes. These costs were not separately allocated to the Acquisition Properties
in the Company's accounting records and any pro forma allocation would not be a
reliable estimate of what these costs would actually have been had the
Acquisition Properties been operated historically as a stand alone entity. In
addition, these allocations, if made using historical BPX&O general and
administrative structures and tax burdens, would not produce allocations that
would be indicative of the historical performance of the Acquisition Properties
had they been assets of PANACO, due to the greatly varying size, structure and
operations of the two companies. This historical statement also does not include
provisions for depreciation, depletion and amortization as such amounts would
not be indicative of those costs that would be incurred by PANACO upon
allocation of the purchase price.
For the same reason, primarily the lack of segregated or obtainable reliable
data on asset values and related liabilities, a balance sheet is not presented
for the Acquisition Properties.
F-3
At the end of the economic life of these fields, certain restoration and
abandonment costs will be incurred by the respective owners of these fields. No
accrual for these costs is included in the direct operating expenses.
The interim financial data for the three months ended March 31, 1998 and March
31, 1997 is unaudited; however, in the opinion of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods.
Note 2 - RELATED PARTY TRANSACTIONS
Affiliates of the Company acquired all of the crude oil from the Acquisition
Properties for the two years ended December 31, 1996 and 1997.
Note 3 - SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
Proved Reserve Estimates
========================
The estimates of proved developed and proved undeveloped reserve quantities at
December 31, 1997 and 1996 are based upon a June 30, 1998 report from
independent petroleum engineers on behalf of PANACO and do not purport to
reflect realizable values or fair market values of the acquisition. It should be
emphasized that reserve estimates are inherently imprecise and accordingly,
these estimates are expected to change as future information becomes available.
The reserve data is estimates only, and are subject to many uncertainties, and
should not be construed as exact amounts. All reserves are located in the Outer
Continental Shelf of the Gulf of Mexico. Reserve quantities at December 31,
1995, 1996 and 1997 for the Acquisition Properties were not readily available to
PANACO. Therefore, the reserve balances at those dates were derived from the
June 30, 1998 report using actual production activity in 1996, 1997, and 1998.
Proved reserves of natural gas and crude oil are those quantities which, upon
analysis of geological and engineering data, appear with reasonable certainty to
be recoverable in the future from known reservoirs under existing economic and
operating conditions as of the date the estimate is made. Proved developed
reserves are those expected to be recovered through existing wells, equipment,
and operating methods. Proved undeveloped reserves are those expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required.
F-4
Oil Gas
(BBLS) (MCF)
Proved developed and undeveloped
reserves as of December 31, 1995
5,254,000 25,619,000
Production (698,000) (2,347,000)
--------- -----------
Proved developed and undeveloped
reserves as of December 31, 1996 4,556,000 23,272,000
Production (689,000) (1,732,000)
--------- -----------
Proved developed and undeveloped
reserves as of December 31, 1997 3,867,000 21,540,000
========= ==========
Oil Gas
Proved developed reserves: (BBLS) (MCF)
December 31, 1996 3,300,000 11,525,000
========= ==========
December 31, 1997 2,611,000 9,793,000
========= ==========
F-5
Standardized Measure of Discounted Future Net Cash Flows
========================================================
Future cash inflows are computed by applying December 31 prices of oil and gas
to the estimated future production of proved oil and gas reserves and should not
be construed as the current market value. Estimates of future development and
production costs are based on prices and costs at the end of each period. The
estimated future net cash flows are then discounted using a rate of 10 percent
per year to reflect the estimated timing of the future cash flows. The
standardized measure of discounted future net cash flows is the future net cash
flows less the discount at December 31 of each period presented.
The Standardized measure of discounted future net cash flows is based on the
following oil and gas prices at December 31:
1997 1996
====== ======
Oil (per Bbl) $19.94 $24.06
Natural Gas (per Mcf) $ 2.69 $ 4.56
The accompanying table reflects the standardized measure of discounted future
net cash flows relating to the proved oil and gas reserves of the Acquisition
Properties for each of the two years ended December 31:
1997 1996
---- ----
Future cash inflows $135,042,000 $215,736,000
Future production costs (30,287,000) (33,291,000)
Future development costs (26,737,000) (26,738,000)
----------- -----------
Future net cash flows 78,018,000 155,707,000
10% annual discount for estimated
timing of cash flows (27,329,000) (59,726,000)
----------- -----------
Standardized measure (before
income taxes) of discounted future
net cash flows $50,689,000 $95,981,000
=========== ===========
Changes in the Standardized Measure of Discounted Future Net Cash Flows
=======================================================================
The accompanying table reflects the changes in the standardized measure of
discounted future net cash flows from the sales of oil and gas, net of
production costs attributable to proved oil and gas reserves of the Acquisition
Properties for each of two years ended December 31:
1997 1996
---- ----
Beginning balance $95,981,000 $52,648,000
Sales of oil and gas, net of
production costs (14,825,000) (14,073,000)
Net change in prices (38,015,000) 52,949,000
Accretion of discount 7,548,000 4,457,000
Ending balance $50,689,000 $95,981,000
=========== ===========
F-6
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma combined balance sheet selected items
at March 31, 1998 gives effect to the acquisition of properties acquired from BP
Exploration & Oil, Inc. on May 26, 1998 ("Acquisition Properties") as if the
transaction had occurred on March 31, 1998. The following pro forma statement of
income (operations) selected items gives effect to the acquisition of the
Acquisition Properties as if the transaction has occurred on January 1, 1996.
The amounts shown are only these items that would have changed had the
acquisition occurred on the dates shown. It is not a complete balance sheet or
statement of income (operations). The allocation of the purchase price is
preliminary, however, management does not expect the final allocation of the
purchase price and the resulting effect on depreciation, depletion and
amortization to be material.
The 1997 pro forma statement of income (operations) data is based on
the historical financial information of PANACO, Inc., the Acquisition Properties
and of the Goldking Companies, Inc., acquired by PANACO, Inc. on July 31, 1997.
The 1996 pro forma statement of income (operations) data is based on the
historical financial information of PANACO, Inc., the Acquisition Properties,
the Amoco properties, acquired by PANACO, Inc. on October 8, 1996, the Goldking
Companies, Inc. acquired by PANACO, Inc. on July 31, 1997 and the elimination of
the results of operations for the Bayou Sorrel Field, sold by PANACO, Inc. on
September 1, 1996. This pro forma data may not be indicative of the results that
actually would have occurred if these transactions had occurred on the dates
indicated or which will be obtained in the future. The pro forma financial
information should be read in conjunction with the historical financial
statements of PANACO, Inc. and the historical statements of revenues and direct
operating expenses of the Acquisition Properties.
P-1
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA
(UNAUDITED)
As of March 31, 1998
PANACO, Inc. Pro Forma
As Reported Combined
-------------------- ----------------
Cash $ 27,906,000 $ 8,306,000
Oil and gas properties, proved 218,786,000 227,175,000
Oil and gas properties, unproved 10,736,000 10,736,000
Accumulated D, D & A (105,281,000) (105,281,000)
------------- -------------
Net oil and gas properties 124,241,000 132,630,000
Property, plant and equipment 13,246,000 24,457,000
Total Assets $183,387,000 $183,387,000
============ ============
P-2
PRO FORMA COMBINED STATEMENT OF INCOME (OPERATIONS) DATA
(UNAUDITED)
YEAR-ENDED DECEMBER 31, 1997
--------------------------------------------
PANACO,Inc. Pro Forma
As Reported Combined
------------------- ------------------
Oil and natural gas sales $ 37,841,000 $ 59,768,000
Lease operating expense 11,305,000 15,647,000
Depreciation, depletion and amortization 18,866,000 26,550,000
Operating income 4,832,000 13,154,000
Interest income 745,000 496,000
Interest expense (4,675,000) (7,306,000)
Income before extraordinary item 977,000 6,419,000
Net income $ 43,000 $ 5,485,000
============== ===========
Net income per share:
Before extraordinary item $ 0.05 $ 0.28
Net income $ 0.00 $ 0.24
============== ============
P-3
PRO FORMA COMBINED STATEMENT OF INCOME (OPERATIONS) DATA
(UNAUDITED)
YEAR-ENDED DECEMBER 31, 1996
-----------------------------------------
PANACO,Inc. Pro Forma
As Reported Combined
----------------- ---------------
Oil and natural gas sales $ 20,063,000 $ 56,498,000
Lease operating expense 8,477,000 16,985,000
Depreciation, depletion and amortization 9,022,000 24,898,000
Operating income 733,000 11,382,000
Interest expense (2,543,000) (6,357,000)
Income (loss) before extraordinary item (2,039,000) 4,796,000
Net income (loss) $ (2,039,000) $ 4,796,000
============== =============
Net income (loss) per share:
Net income (loss) $ (0.16) $ 0.30
============== ============
P-4
PRO FORMA COMBINED STATEMENT OF INCOME (OPERATIONS) DATA
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------
PANACO,Inc. Pro Forma
As Reported Combined
--------------- ---------------
Oil and natural gas sales $ 11,195,000 $ 13,612,000
Lease operating expense 3,836,000 4,585,000
Depreciation, depletion and amortization 6,974,000 7,953,000
Operating income (loss) (1,596,000) (907,000)
Interest income 424,000 154,000
Income (loss) before income taxes (3,686,000) (3,267,000)
Income taxes (benefit) (1,273,000) (598,000)
Net income (loss) $ (2,413,000) $ (2,669,000)
============== ===============
Net income (loss) per share $ (0.10) $ (0.11)
============== ===============
P-5