SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 17, 1998
TEXOIL, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
88-0177083
NEVADA 0-12633 (IRS EMPLOYER
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) IDENTIFICATION NO.)
110 CYPRESS STATION DRIVE
SUITE NO. 220
HOUSTON, TEXAS 77090-1629
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(281) 537-9920
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(NOT APPLICABLE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Texoil, Inc. ("Texoil") filed a Current Report on Form 8-K, on September
30, 1998, relating to an agreement signed on September 17, 1998, between Texoil
and Sonat Exploration Company ("Sonat"), a subsidiary of Sonat Inc., for Texoil
to purchase certain oil and gas properties (the "Sonat Properties") from Sonat.
The transaction closed on October 30, 1998, for approximately $17.1 million
cash, net of estimated post-closing adjustments. Audited historical statements
of revenues and direct operating expenses attributable to the Sonat Properties
and unaudited pro forma financial information of Texoil adjusted for the Sonat
Properties were not available at the time of filing the initial 8-K and are
filed herewith.
ITEM 7. Financial Statements, Pro Forma Information and Exhibits.
(a) Financial statements of business acquired.
Audited historical statements of revenues and direct operating expenses
pertaining to the Sonat Properties for the years ended December 31, 1997 and
1996.
(b) Pro forma financial information.
Unaudited pro forma consolidated statements of income of Texoil for the
year ended December 31, 1997, and the nine months ended September 30, 1998,
pertaining to the Sonat Properties and borrowings under an increased and amended
credit facility, as if they had been consummated on January 1 of each period,
and a pro forma balance sheet as of September 30, 1998, pertaining to the Sonat
Properties and the borrowings under an increased and amended credit facility, as
if they had been consummated on September 30, 1998.
(c) Exhibits
EXHIBIT NO. EXHIBIT DESCRIPTION
*2 Purchase and Sale Agreement between Texoil, Inc., and Sonat
Exploration Company dated September 17, 1998.
*Previously filed.
2
TEXOIL, INC.
CURRENT REPORT ON FORM 8-K/A - 1
INDEX TO FINANCIAL INFORMATION
PAGE
1. BUSINESS ACQUIRED - SONAT PROPERTIES, AUDITED
FINANCIAL STATEMENTS:
Report of Independent Public Accountants....................... 4
Audited Historical Statements of Revenues and Direct
Operating Expenses pertaining to the Sonat Properties
for the years ended December 31, 1997 and 1996................. 5
Notes to Historical Statements of Revenues and Direct
Operating Expenses............................................. 6
2. UNAUDITED TEXOIL, INC., PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS:
Introduction................................................... 10
Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1998............................................. 11
Unaudited Pro Forma Consolidated Statement of Income for
the nine months ended September 30, 1998....................... 12
Unaudited Pro Forma Consolidated Statement of Income for
the year ended December 31, 1997............................... 13
Notes to Unaudited Pro Forma
Consolidated Financial Statements........................... 14
3
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Texoil, Inc.
We have audited the accompanying Historical Statements of Revenues and
Direct Operating Expenses of certain oil and gas properties of Sonat Exploration
Company (the "Sonat Properties"), acquired by Texoil, Inc. (the "Company"), for
the years ended December 31, 1997 and 1996. These historical statements are the
responsibility of the Company's 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 required 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 amounts of 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 the rules and regulations of the Securities
and Exchange Commission and is not intended to be a complete presentation of the
revenues and direct operating expenses of the Sonat Properties.
In our opinion, the historical statements referred to above present
fairly, in all material respects, the revenues and direct operating expenses of
the Sonat Properties for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
December 2, 1998
4
SONAT PROPERTIES
HISTORICAL STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------
1998 1997 1997 1996
------- ------- ------- -------
(UNAUDITED)
Revenues:
Gas ......................... $ 4,907 $ 7,081 $ 9,969 $17,151
Oil and condensate .......... 3,072 4,538 6,730 5,785
Plant products .............. 257 217 344 254
------- ------- ------- -------
8,236 11,836 17,043 23,190
Direct operating expenses ...... 3,113 3,226 4,610 4,789
------- ------- ------- -------
Revenues in excess of direct
operating expenses .......... $ 5,123 $ 8,610 $12,433 $18,401
======= ======= ======= =======
See accompanying notes.
5
SONAT PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On September 17, 1998, Texoil, Inc. (the "Company"), signed an agreement
to acquire from Sonat Exploration Company ("Sonat"), effective April 1, 1998,
certain oil and gas properties (the "Sonat Properties"). The acquisition closed
on October 30, 1998, for approximately $17.1 million net of estimated
post-closing adjustments.
The revenues and direct operating expenses associated with the Sonat
Properties were derived from Sonat's accounting records. Revenues and direct
operating expenses, as set forth in the accompanying historical statements,
include oil, gas, and plant product revenues and associated direct operating
expenses related to the net revenue interest and net working interest,
respectively, in the acquired properties. The historical statements include oil,
gas, and plant product revenues net of royalties. Expenses include labor,
services, repairs and maintenance, and supplies utilized to operate and maintain
the wells and related equipment, as well as severance and ad valorem taxes.
The accompanying historical statements vary from an income statement in
that they do not show certain expenses which were incurred in connection with
ownership of the acquired properties including related general and
administrative expenses and income taxes. These costs were not separately
allocated to the acquired properties in Sonat's accounting records. Any pro
forma allocation would be both time consuming and expensive and would not be a
reliable estimate of what these costs would actually have been had the acquired
properties been operated historically as a stand alone entity. In addition,
these allocations, if made using historical general and administrative structure
and tax burdens, would not produce allocations that would be indicative of the
historical performance of the acquired properties had they been assets of the
Company, due to the greatly varying size, structure, operations and accounting
of the two companies. The accompanying historical statements also do not include
provisions for depreciation, depletion and amortization as such amounts would
not be indicative of those costs which would be incurred by the Company upon
allocation of the purchase price. For the same reason, primarily the lack of
segregated or easily obtainable reliable data on asset values and related
liabilities, a balance sheet is not presented for the Sonat Properties.
At the end of the economic life of these fields, certain restoration and
abandonment costs in excess of salvage value may be incurred by the respective
owners of these fields. No accrual for these costs is included in direct
operating expenses.
6
SONAT PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES - CONTINUED
With respect to gas sales, the entitlement method is used for recording
revenues. Under this approach, revenues are based on the acquired properties'
proportionate share of the related production.
The interim financial data for the nine months ended September 30, 1998 and
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 of the interim periods.
2. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
PROVED RESERVE ESTIMATES
Proved oil and gas reserves cannot be measured exactly. Reserve estimates
are based on many factors related to reservoir performance which require
evaluations by the engineers interpreting the available data, as well as price
and other economic factors. The reliability of these estimates at any point in
time depends on both the quality and quantity of the technical and economic
data, the production performance of the reservoirs, as well as extensive
engineering judgment. Consequently, reserve estimates are subject to revision as
additional data becomes available during the productive life of a reservoir.
When a commercial reservoir is discovered, proved reserves are initially
determined based on limited data from the first well or wells. Subsequent data
may better define the extent of the reservoir and additional production
performance, well tests and engineering studies will likely improve the
reliability of the reserve estimate. The evolution of technology may also result
in the application of improved recovery techniques such as supplemental or
enhanced recovery projects, or both, which have the potential to increase
reserves beyond those envisioned during the early years of a reservoir's
producing life.
Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under current prices and costs as of
the date the estimate is made. Proved reserves are classified as developed or
undeveloped. Proved developed reserves are those reserves which can be expected
to be recovered from existing wells. Proved undeveloped reserves are those
reserves which can be expected to be recovered from new wells on undrilled
acreage or from existing wells where a relatively major expenditure is required.
Proved reserves represent the estimated recoverable volumes after deducting from
gross reserves the portion due landowners or others as royalty or operating
interests.
Estimates of proved reserves include and rely upon a production and
development strategy. The Company's estimates are based upon plans developed
using current information and reflect the Company's risk tolerance and
philosophy related to future capital expenditures associated with
7
SONAT PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES - CONTINUED
producing incremental reserves during the remaining life of the acquired
properties, as well as its plans with respect to developing proved undeveloped
reserves. Proved undeveloped reserves typically involve a higher degree of
uncertainty and risk. As a result, the Company's estimates may not be comparable
to other oil and gas producers. In any case, many factors such as changes in
prices or costs or variances from sound technical estimates, made using best
information available, may cause estimates at any point in time to vary
significantly from actual future production.
Estimates of proved reserves for prior periods were prepared by the Company
retrospectively using currently available information. Historical reserve
estimates and development costs were not made available to the Company by Sonat.
Accordingly, the unaudited historical supplementary oil and gas information was
developed by the Company using as a base, the Company's estimates of proved
reserves, using independently prepared reserve reports compiled in connection
with financing the acquisition, and (1) actual historical production data, (2)
historical operating expense rates, (3) estimates of product prices based on
industry indices and existing differentials, and (4) development costs estimated
by the Company. Management of the Company believes the supplemental oil and gas
information presented herein is reasonable, under the circumstances, and
methodologies employed are consistent with reasonable industry practices.
Estimated quantities of proved oil and gas reserves and of changes in
quantities of proved developed and undeveloped reserves for each of the periods
indicated were as follows:
OIL GAS
(MBBLS) (MMCF)
------- ------
Proved reserves at December 31, 1995....... 2,886 31,435
Production.............................. (278) (7,298)
Proved reserves at December 31, 1996....... 2,608 24,137
Production.............................. (367) (3,878)
----- ------
Proved reserves at December 31, 1997....... 2,241 20,259
===== ======
Proved developed reserves at:
December 31, 1996....................... 2,528 20,393
December 31, 1997....................... 2,201 16,623
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following disclosures concerning the standardized measure of
discounted future cash flows from proved oil and gas reserves are presented in
accordance with the Statement of Financial Accounting Standards No. 69 ("SFAS
69"). As prescribed by SFAS 69, the amounts shown are based on prices and costs
at the end of each period and a 10 percent annual discount factor. Since prices
and costs do not remain static, and no price or costs changes have been
considered, the results are not necessarily indicative of the fair market value
of the estimated proved reserves, but they do provide a common benchmark which
may enhance the user's ability to project future cash flows.
8
SONAT PROPERTIES
NOTES TO HISTORICAL STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES - CONTINUED
The standardized measure of discounted future net cash flows (before
income taxes) related to proved oil and gas reserves at December 31, was as
follows (in thousands):
1997 1996
------- --------
Future cash inflows............................. $89,632 $154,944
Future production costs......................... (31,493) (36,103)
Future development costs........................ (5,771) (15,292)
------- --------
Future net cash inflows......................... 52,368 103,549
10% annual discount for estimated timing of
cash flows.................................... (18,108) (38,784)
------- --------
Standardized measure of discounted future
net cash flows (before income taxes).......... $34,260 $ 64,765
======= ========
The standardized measure is based on the following oil and gas prices at
December 31:
1997 1996
------- -------
Oil (per Bbl).................................. $ 17.42 $ 24.19
Gas (per Mcf).................................. $ 2.43 $ 3.72
The principal sources of changes in the standardized measure for the
years ended December 31, were as follows (in thousands):
1997 1996
------- -------
Balance at beginning of the year............... $64,765 $51,814
Sales and transfers of oil and gas
produced, net of production costs............ (12,433) (18,401)
Net change in prices and costs................. (21,761) 29,374
Development costs incurred during the year..... 9,520 2,614
Accretion of discount.......................... 6,477 5,181
Changes in production rates (timing) and other (12,308) (5,817)
------- -------
Balance at the end of the year................. $34,260 $64,765
======= =======
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INTRODUCTION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Statements of Income for
the nine months ended September 30, 1998 and for the year ended December 31,
1997, and the Unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1998 (collectively, the "Pro Forma Consolidated Financial Statements") are based
on the historical consolidated financial statements of Texoil, Inc. (the
"Company") and the Historical Statements of Revenues and Direct Operating
Expenses of the oil and gas properties acquired from Sonat Exploration Company
(the "Sonat Properties") adjusted to give effect for the Sonat Properties and
borrowings under an increased and amended credit facility (the "Amended Credit
Facility"). The Pro Forma Consolidated Financial Statements account for the
acquisition of the Sonat Properties as a purchase.
The Unaudited Pro Forma Consolidated Statements of Income for the nine
months ended September 30, 1998 and for the year ended December 31, 1997, give
effect to the acquisition of the Sonat Properties and the borrowings under the
Amended Credit Facility as if the acquisition and borrowings had been
consummated on January 1 of each period. The Unaudited Pro Forma Consolidated
Balance Sheet gives effect to the acquisition of the Sonat Properties and the
borrowings under the Amended Credit Facility as if the acquisition and
borrowings had been consummated on September 30, 1998.
The pro forma adjustments described in the accompanying Notes to Unaudited
Pro Forma Consolidated Financial Statements are based upon available information
and certain assumptions that management believes are reasonable.
The Pro Forma Consolidated Financial Statements are presented for
illustrative purposes only and do not purport to represent what the Company's
results of operations or financial condition would actually have been had the
acquisition of the Sonat Properties occurred on such dates or to project the
Company's results of operations or financial condition for any future date or
period.
10
TEXOIL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
SONAT
PROPERTIES
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- ---------
Assets:
Current Assets:
Cash and cash equivalents .............. $ 482 -- $ 482
Accounts receivable and other .......... 1,706 -- 1,706
Other current assets ................... 1,363 -- 1,363
-------- -------- --------
Total current assets ................ 3,551 -- 3,551
-------- -------- --------
Property, plant and equipment, at cost:
Oil and natural gas properties
(full-cost method):
Evaluated properties ................... $ 25,629 15,120(a) 40,749
Unevaluated properties ................. 4,278 2,000(a) 6,278
Office and other equipment ................... 587 -- 587
-------- -------- --------
30,494 17,120 47,614
Accumulated depletion, depreciation
and amortization ........................... (4,007) -- (4,007)
-------- -------- --------
Net property, plant and equipment ............ 26,487 17,120 43,607
-------- -------- --------
Other assets ................................. 590 -- 590
-------- -------- --------
Total assets ........................... $ 30,628 $ 17,120 $ 47,748
======== ======== ========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and accrued liabilities $ 1,573 -- $ 1,573
Accounts payable-related party ......... 1,002 (1,002)(a) --
Revenue and royalties payable .......... 803 -- 803
-------- -------- --------
Total current liabilities ........... 3,378 (1,002) 2,376
-------- -------- --------
Long-term debt ............................... 16,050 18,122 34,172
Stockholders' equity:
Series A preferred stock ............... -- -- --
Common stock ........................... 393 -- 393
Additional paid-in capital ............. 10,782 -- 10,782
Retained earnings ...................... 25 -- 25
-------- -------- --------
Total stockholders' equity ........ 11,200 -- $ 11,200
-------- -------- --------
Total liabilities and stockholders' .... $ 30,628 $ 17,120 $ 47,748
======== ======== ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
11
TEXOIL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SONAT
COMPANY PROPERTIES PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
Revenues:
Oil and gas sales ...................... $ 6,164 $ 8,236 $ -- $ 14,400
Operator and management fees ........... 724 -- 328(b) 1,052
Interest and other ..................... 86 -- -- 86
------------ ------------ ------------ ------------
Total revenues .................... 6,974 8,236 328 $ 15,538
------------ ------------ ------------ ------------
Costs and Expenses:
Lease operating ........................ 3,839 3,113 (328)(b) 6,624
General and administrative ............. 1,113 -- -- 1,113
Depletion, depreciation and amortization 1,489 -- 1,736 (c) 3,225
Write-down of oil and gas properties ... 1,208 -- -- 1,208
Interest ............................... 521 -- 963 (d) 1,484
------------ ------------ ------------ ------------
Total expenses .................... 8,170 3,113 2,371 13,654
------------ ------------ ------------ ------------
Income (loss) before income taxes .......... (1,196) 5,123 (2,043) 1,884
Provision for deferred income taxes ........ 215 -- (855)(e) (640)
------------ ------------ ------------ ------------
Net income (loss) .......................... $ (981) $ 5,123 $ (2,898) $ 1,244
============ ============ ============ ============
Basic Net income (loss) per share .......... $ (.03)
============
Basic weighted average shares .............. 38,018,921 38,108,921
============ ============
Diluted net income (loss) per share ........ $ (.02) $ .03
============ ============
Diluted weighted average shares ............ 41,583,045 41,583,045
============ ============
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
12
TEXOIL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SONAT
COMPANY PROPERTIES PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------- ------------
Revenues:
Oil and gas sales ...................... 6,367 $ 17,043 $ -- $ 23,410
Operator and management fees ........... 683 -- 438 (b) 1,121
Interest and other ..................... 73 -- -- 73
------------ ------------ ------------ ------------
Total revenues .................... 7,123 17,043 438 24,604
------------ ------------ ------------ ------------
Costs and Expenses:
Lease operating ........................ 3,424 4,610 (438)(b) 7,596
General and administrative ............. 1,056 -- -- 1,056
Depletion, depreciation and amortization 1,249 -- 3,781 (c) 5,030
Interest ............................... 368 -- 1,284 (d) 1,652
------------ ------------ ------------ ------------
Total expenses ......................... 6,097 4,610 4,627 15,334
------------ ------------ ------------ ------------
Income before income taxes ............. 1,026 12,433 (4,189) 9,270
Provision for income taxes ............. (388) -- (2,764)(e) (3,152)
------------ ------------ ------------ ------------
Net income ................................ $ 638 $ 12,433 $ (6,953) $ 6,118
============ ============ ============ ============
Basic net income per share ................ $ .04 $ .34
============ ============
Basic weighted average shares ............. 17,975,930 17,975,930
============ ============
Diluted net income per share .............. $ .03 $ .32
============ ============
Diluted weighted average shares ........... 19,392,259 19,392,259
============ ============
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
13
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Adjustments
(a) Represents the recording of the estimated purchase price to oil and gas
property costs and borrowings under the Amended Credit Facility as follows
(in thousands):
Estimated net purchase price $16,920
Estimated acquisition costs 200
-------
Estimated purchase price $17,120
=======
The $21.0 million purchase price, effective April 1, 1998, per the
Purchase and Sale Agreement dated September 17, 1998, as adjusted for the
exclusion of certain properties has been further adjusted to reflect
activity from such date to closing and arrive at the above estimated net
purchase price. Such adjustments primarily include revenues less direct
operating expenses, capital expenditures, production imbalances, pro-rated
ad valorem taxes, title defects, material changes in wells and other
adjustments for the period April 1, 1998 through October 30, 1998, the
closing date, as set forth in the purchase agreement. Certain adjustments
have been made at closing and further adjustments will be made
post-closing. Final settlement has not yet occurred and accordingly, the
final net purchase price may vary from amounts estimated herein. Earnest
money in the amount of $1,000,000 paid by a related party was repaid at
closing, with interest.
The above estimated purchase price is allocated based on the fair value of
the assets acquired as follows (in thousands):
Proved oil and gas property costs $15,120
Unproved oil and gas property costs 2,000
-------
Estimated purchase price $17,120
=======
Management is currently evaluating the unproved component of the estimated
net purchase price and such allocation is subject to change.
(b) Represents estimated operator fees pursuant to operating agreements,
associated with acquired properties reflected as a reclassification to
revenue rather than recording such fees as a reduction of operating
expenses.
(c) Represents adjustment to depreciation, depletion and amortization based
upon combined historical production, reserves and cost basis.
14
(d) Represents adjustment to interest expense to reflect borrowings under the
increased and Amended Credit Facility at an assumed annual interest rate
of 7.5%
(e) Represents adjustment to income tax expense as a result of the acquisition
of the Sonat Properties assuming an effective tax rate of 34%.
15
SIGNATURE
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, thereunto duly authorized.
Date: January 8, 1999 TEXOIL, INC.
By: /s/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
16