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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For Fiscal Year Ended December 31, 1995
Commission file number 33-58631
GOODRICH PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0466913
(STATE OF INCORPORATION) (I.R.S. IDENTIFICATION NO.)
5847 SAN FELIPE, SUITE 700
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code is (713) 780-9494
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.20 par value..................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Series A Preferred Stock, $1.00 par value......... NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
At March 15, 1996, there were 41,804,510 shares of Goodrich Petroleum
Corporation common stock outstanding. The aggregate market value of shares of
common stock held by non-affiliates of the registrant as of March 15, 1996 was
approximately $24,490,000 based on a closing price of $.8125 per share on the
New York Stock Exchange on such date.
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1
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART/ITEM OF INCORPORATION
-------- --------------------------
Proxy Statement for the Part III, Item 10, 11, 12, 13
1996 Annual Meeting of Shareholders
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
General
Goodrich Petroleum Corporation and subsidiaries (Goodrich) is an independent
oil and gas company engaged in the exploration, development, production and
acquisition of oil and natural gas in the onshore portions of the United
States, primarily the states of Louisiana and Texas. In addition to its oil
and gas activities, Goodrich owns a 20% non-operated interest in a natural gas
pipeline joint venture and an equity interest in Marcum Natural Gas Services
(Marcum), a publicly held diversified provider of products and services to the
natural gas industry.
Goodrich and its subsidiaries are the result of a business combination on
August 15, 1995 between La/Cal Energy Partners (La/Cal) and Patrick Petroleum
Company and subsidiaries (Patrick). La/Cal was a privately held independent
oil and gas partnership formed in July 1993 and engaged in the development,
production and acquisition of, oil and natural gas primarily in Southern
Louisiana. Patrick was a publicly traded independent oil and gas company
engaged in the acquisition of producing properties and the exploration,
development and production of oil and gas in the continental United States.
Patrick's oil and gas operations and properties were primarily located in West
Texas and Michigan at the time of the combination, with additional operations
and properties in certain western states.
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. Accordingly, the consolidated financial statements and other
operating data presented herein reflect the operations of La/Cal on a stand
alone basis for periods prior to August 15, 1995, whereas such information
reflects the operations of the combined entities for periods subsequent to
August 15, 1995.
The Company's principal executive offices are located at 5847 San Felipe,
Suite 700 Houston, Texas 77057. The Company also has offices in Shreveport,
Louisiana. At March 1, 1996, the Company had 11 employees.
Oil and Gas Operations and Properties
At December 31, 1995, Goodrich had estimated proved reserves of
approximately 940.15 Mbbls of oil and condensate and 18.88 Bcf of natural gas,
or an aggregate of 24.52 Bcfe with a pre-tax present value of future net
revenues, discounted at 10% of $30.4 million, of which approximately 85% are
classified as proved developed.
The Company owns working and overriding royalty interests in 81 oil and gas
wells located in 41 active fields in 9 states.
Louisiana
Substantially all of the Company's proved natural gas reserves are in the
Southern Louisiana producing region. The Southern Louisiana producing region
refers to the geographic area which covers the onshore and in-land waters of
South Louisiana lying in the southern one-half of the state of Louisiana.
The South Louisiana producing region is one of the world's most prolific oil
and natural gas producing sedimentary basins. The region generally contains
sedimentary sandstones which are of high qualities of porosity and
permeabilities. There are a myriad of types of reservoir traps found in the
region. These traps are generally formed by faulting, folding and subsurface
salt movement or a combination of one or more of these. Salt movement has
resulted in a large number of shallow piercement salt domes as well as deeper
movements, which have resulted in both large and small anticlinal structures.
2
The formations found in the South Louisiana producing region range in depth
from 1,000 feet to 20,000 feet below the surface. These formations range from
the Sparta and Frio formations in the Northern part of the region to Miocene
and Pleistocene in the Southern part of the region. The Company's production
comes predominately from Miocene and Frio age formations.
Pecan Lake Field. The Pecan Lake field was discovered in 1944 by the
Superior Oil Company. Geologically, the field is comprised of a relatively low
relief four-way closure and multiple stacked pay sands. The Pecan Lake field
comprises approximately 870 gross leased acres in Cameron Parish, Louisiana,
approximately 42 miles southeast of Lake Charles, Louisiana. The field has
produced from over 15 Miocene sands ranging in depths from 7,500 to 11,800
feet, which have been predominately gas and gas condensate reservoirs. These
sand reservoirs are characterized by generally widespread development and
strong waterdrive production mechanisms. The field has produced in excess of
343 Bcf of gas and 590,000 barrels of condensate. All the field production to
date has come from reservoirs which are of normal pressure.
In May 1992, La/Cal entered the Pecan Lake field under a farmout arrangement
with Mobil, whereby Mobil retained a one-eighth overriding interest in the
prospectively developed wells subject to the farmout. In April 1993, La/Cal
leased an additional 133.24 gross acres in the Pecan Lake field from Miami
Corp. for approximately $62,000. In March 1994, La/Cal acquired (i) all of
Mobil's interest in La/Cal's actual and prospectively drilled wells, (ii) a
43.10% working interest in Mobil's Miami Corp. S13, B15 and B16 wells, and
(iii) a 2.26% overriding royalty interest in Mobil's Cutler #1 wells for
approximately $2.11 million. Pecan Lake consists of seven well completions
through six well bores. The Company's working interests range from
approximately 43.11% to 47.38%. The Company's average daily production at
Pecan Lake was 37.02 Bbls of oil and and/or condensate and 3.14 Mmcf of
natural gas during 1995. As of January 1, 1996, the Company's interests in the
Pecan Lake field had proved reserves of 104.66 Mbbls of oil and condensate and
9.97 Bcf of natural gas.
Lake Charles Field. The Lake Charles field was discovered by the California
Company (Chevron) in 1959. Geologically, the field consists of an upthrown
structural closure that is bounded to the South by an East-West trending down
to the South fault. The Lake Charles field currently consists of three
producing wells located on approximately 443 gross leased acres in Calcasieu
Parish, Louisiana, and adjacent to the City of Lake Charles, Louisiana. The
field has produced from five different formations which are all Frio age
sandstones. These formations range in depth from 7,500 feet to 9,100 feet. The
field has produced from reservoirs which have had both waterdrive and pressure
depletion mechanisms. The Lake Charles field has produced, in excess of 17.3
Bcf of gas and 366,000 barrels of condensate from seven different wells. All
of the production to date has come from normally pressured reservoirs.
La/Cal acquired a working interest in the Glasscock-Chapman #1 well and
leased additional acreage outside the Glasscock-Chapman #1 unit from Chevron
and two smaller working interest owners for $105,483 in February 1992. Since
then, La/Cal has leased an additional 206 gross acres from several smaller
landowners for approximately $155,000. On December 1, 1993, La/Cal acquired a
50% working interest from Foster-Brown Company in the Nickerson Fee well and
an additional 2.73% working interest in the City of Lake Charles #1 well for
$1,250,000. Currently, the Company owns working interests that range from
29.24% to 50.00% in the five producing wells in the Lake Charles field. The
Company's average total daily production at the Lake Charles field was 36.06
Bbls of oil and condensate and 2.11 Mmcf of natural gas during 1995. As of
January 1, 1996, the Company's interest in the Lake Charles field had proved
developed reserves of 149.96 Mbbls of oil and 2.08 Bcf of natural gas.
Other. The Company maintains ownership interests in acreage and wells in
several additional fields, including the (i) Opelousas field, located in St.
Landry Parish, Louisiana (ii) Ada field, located in Bienville Parish,
Louisiana, and (iii) Calhoun field, located in Ouachita Parish, Louisiana.
Texas
Goodrich has oil and gas properties in West Texas as a result of former
Patrick holdings and operations.
3
Patrick's primary exploration focus in this area was toward the development
of economic drilling targets using three dimensional ("3-D") seismic
technology. Recent industry advances in high-resolution 3-D seismic technology
have facilitated an improvement in the success rate for exploration of smaller
but prolific reefs. This has been accomplished by 3-D imaging the optimum
drilling locations on these prospects, therefore minimizing edge and marginal
well completions and improving the overall recoveries per well. Patrick
participated in over 375 squares miles of 3-D seismic acquisition in West
Texas, and drilled Pennsylvanian ("Penn") Reef and Fusselman prospects
generated by this technology. The Company owns two Geoquest work stations,
which are being utilized to interpret and map its 3-D data.
The Company's most significant West Texas producing properties are located
in Sean Andrew Field, Dawson County, Texas. The Company's average net daily
production at Sean Andrew Field was 419.10 Bbls of oil and .18 Mmcf of natural
gas from August 15, 1995 through December 31, 1995. The Sean Andrew Field has
produced in excess of 325,000 Bbls of oil and .12 Bcf of gas gross to the
working interest owners.
In addition to the West Texas interests, the Company maintains ownership
interests in acreage and wells in several additional fields including the (i)
North Rich Ranch field, located in Liberty County, Texas, (ii) North Bammel
field, located in Harris County, Texas, (iii) Carthage (Bethany) field,
located in Panola County, Texas and (iv) Oakhurst field, located in San
Jacinto County, Texas.
Oil and Natural Gas Reserves
The following table sets forth summary information with respect to the
Company's proved reserves as of January 1, 1996, as estimated by the Company
by compiling the reserve information prepared by several engineering firms and
the Company internally.
NET RESERVES
----------------------
PRESENT
VALUE OF
FUTURE
NET
OIL GAS REVENUES
CATEGORY (MBBLS) (BCF) BCFE (1) (IN MILLIONS)
-------- ------- ----- -------- -------------
Proved Developed Producing (Pre-tax)...... 725.06 10.27 14.62 $ 21.67
Proved Developed Non-Producing (Pre-tax).. 195.50 3.54 4.71 4.03
Proved Undeveloped (Pre-tax).............. 19.59 5.07 5.19 4.66
------ ----- ----- -------
Total Proved (Pre-tax)................ 940.15 18.88 24.52 $ 30.36
====== ===== ===== =======
Standardized Measure of Discounted Future
Net Cash Flows............................ $ 26.88
=======
- --------
(1)Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of crude oil, condensate and natural gas that cannot be measured
in an exact manner, and the accuracy of any reserve estimate is a function of
the quality of available data and of engineering and geological interpretation
and judgment. The quantities of oil and natural gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and natural gas sales prices may all
differ from those assumed in these estimates. Therefore, the Present Value of
Future Net Revenues amounts shown above should not be construed as the current
market value of the estimated oil and natural gas reserves attributable to the
Company's properties.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the Present Value of
Future Net Revenues thereof are made using oil and natural gas sales prices in
effect as of the dates of such estimates and are held constant throughout the
life of the properties
4
except where such guidelines permit alternate treatment, including the use of
fixed and determinable contractual price escalations. The weighted average
prices as of December 31, 1995 used in such estimates were $2.01 per Mcf of
natural gas and 17.90 per Bbl of crude oil/condensate.
Productive Wells
The following table sets forth the number of active well bores in which the
Company maintains ownership interests as of December 31, 1995:
GROSS (1) NET (2)
--------- ------
Louisiana--Pecan Lake................................... 7.00 3.15
Louisiana--Lake Charles................................. 3.00 1.06
Texas--Sean Andrew...................................... 6.00 2.24
Other................................................... 60.00 9.70
----- -----
Total Productive Wells.............................. 76.00 16.15
===== =====
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(1)Does not include royalty or overriding royalty interests.
(2)Net working interest.
Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections. A gross well is a well in
which the Company maintains an ownership interest, while a net well is deemed
to exist when the sum of the fractional working interests owned by the Company
equals one.
Acreage
The following table summarizes the Company's gross and net developed and
undeveloped natural gas and oil acreage under lease as of December 31, 1995.
Acreage in which the Company's interest is limited to royalty or overriding
royalty interest is excluded from the table.
GROSS NET
----- ---
Developed acreage
Louisiana--Pecan Lake Field.......................... 870.63 400.10
Louisiana--Lake Charles Field........................ 443.00 182.70
Texas--Sean Andrew Field............................. 240.00 89.77
Other................................................ 3,557.02 969.31
Undeveloped acreage.................................... 12,153.37 3,159.78
--------- --------
Total.............................................. 17,264.02 4,801.66
========= ========
Undeveloped acreage is considered to be those lease acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of natural gas and oil, regardless of whether or not
such acreage contains proved reserves. As is customary in the oil and gas
industry, the Company can retain its interest in undeveloped acreage by
drilling activity that establishes commercial production sufficient to
maintain the leases, or by payment of delay rentals during the remaining
primary term of such a lease. The natural gas and oil leases in which the
Company has an interest are for varying primary terms; however, most of the
Company's lease acreage is beyond the primary term and is held by producing
natural gas and/or oil wells.
The Company participated in several farmout agreements with other owners of
natural gas and oil leases and is actively leasing acreage in Louisiana and
Texas.
Operator Activities
Goodrich Petroleum is the operator of record of every producing well in the
Pecan Lake field except the Cutler #1 well. Goodrich Petroleum is the operator
of the J.C. Nickerson #1 and Ursla Bracey #1 wells, while Samson Resources
Company operates the remainder of the wells in the Lake Charles field.
5
Goodrich Petroleum operates a majority in value of the Company's producing
properties, and will seek to become the operator of record concerning
properties it drills or acquires in the future.
Drilling Activities
The following table sets forth the drilling activity of the Company since
1992. This information reflects La/Cal's operations on a stand alone basis
prior to August 15, 1995. (As denoted in the following table, "Gross" wells
refers to wells in which a working interest is owned, while a "net" well is
deemed to exist when the sum of fractional ownership working interests in
gross wells equals one.)
YEAR ENDED DECEMBER 31
----------------------------------------
1992 1993 1994 1995
--------- --------- --------- ----------
GROSS NET GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- --- ----- ----
Development Wells:
Productive........................... 8.0 2.6 2.0 .87 1.0 .43 1.0 .38
Non-Productive....................... 0.0 0.0 1.0 .08 1.0 .43 0.0 .00
--- --- --- --- --- --- --- ----
Total.............................. 8.0 2.6 3.0 .95 2.0 .86 1.0 .38
=== === === === === === === ====
Exploratory Wells:
Productive........................... 0.0 0.0 0.0 0.0 0.0 0.0 1.0 .25
Non-Productive....................... 0.0 0.0 0.0 0.0 0.0 0.0 2.0 .68
--- --- --- --- --- --- --- ----
Total.............................. 0.0 0.0 0.0 0.0 0.0 0.0 3.0 .93
=== === === === === === === ====
Total Wells:
Productive........................... 8.0 2.6 2.0 .87 1.0 .43 2.0 .63
Non-Productive....................... 0.0 0.0 1.0 0.8 1.0 .43 2.0 .68
--- --- --- --- --- --- --- ----
Total.............................. 8.0 2.6 3.0 .95 2.0 .86 4.0 1.31
=== === === === === === === ====
Information prior to July 15, 1993 reflects pre-La/Cal formation drilling
activity.
During the periods 1993, 1994 and up to the business combination August 15,
1995. La/Cal was engaged in limited developmental drilling in the Pecan Lake
and Lake Charles Fields. La/Cal did not drill any exploratory wells during the
periods set forth above. The Company intends to maintain a more active
exploratory and developmental drilling
Net Production, Unit Prices and Costs
The following table presents certain information with respect to oil, gas
and condensate production attributable to the Company's interests in all of
its fields, the revenue derived from the sale of such production, average
sales prices received and average production costs during each of the years
ended December 31, 1995, 1994, 1993 and 1992.
1995 1994 1993(1) 1992(1)
--------- --------- ------- -------
Net Production:
Natural Gas (Mcf)...................... 2,213,923 2,386,130 933,435 417,482
Oil.................................... 102,731 36,487 7,319 4,347
Natural gas equivalents (Mcfe)......... 2,830,309 2,605,050 977,348 443,564
Average Net Daily Production:
Natural gas (Mcf)...................... 6,065 6,537 2,557 1,144
Oil (Bbls)............................. 281 100 20 12
Natural gas equivalents (Mcfe)......... 7,754 7,137 2,678 1,215
Average Sales Price Per Unit:
Natural Gas (per Mcf).................. 1.72 1.85 2.02 1.94
Oil (per Bbl).......................... 16.27 15.99 16.65 19.80
Other Data:
Lease operating expense (per Mcfe)..... .22 .15 .23 .25
Depreciation, depletion and
amortization (per Mcfe)............... .48 .40 .33 .65
- --------
(1) La/Cal ownership interest applied to pre La/Cal formation production.
6
Marketing
Pecan Lake Field. Goodrich Petroleum's natural gas production is transported
through various field gathering lines to a central facility in the field. The
gathering lines, and the central facility, are owned proportionately by the
working interest owners in the Pecan Lake field wells, which include Goodrich.
From the central facility, Goodrich's gas production is delivered into a gas
transmission line owned by Superior Offshore Pipeline Company ("SOPCO"). The
gas production is then transported under a transportation agreement, between
the operator and SOPCO, to the Trident N.G.L. Inc. plant ("Trident"). The gas
production is then either processed by Trident, or bypassed to the Trident
distribution point. This activity is covered by a processing agreement between
the plant and the operator. This agreement provides in-part, that the plant
can elect to process the operator's gas, but is required to deliver a volume
of gas to the plant's distribution point, which is equal to the volume
delivered by SOPCO at the plant inlet. This is referred to as a "keep-whole"
agreement. At the plant tailgate, Goodrich's gas is delivered to one of the
several pipeline interconnects available at the plant distribution point.
These spot sales, or market-sensitive sales, are arranged by Seaber
Corporation of Louisiana ("Seaber").
In addition to the transmission lines available at the plant tailgate, there
is also a line owned by SOPCO that provides access to Columbia Gulf Pipeline
Company ("Columbia Gulf") and Texas Gas Transmission Company ("Texas Gas"). If
the operator elects to access these pipelines, the transportation is covered
under agreements between the operator and SOPCO for transportation to either
Columbia Gulf or Texas Gas.
From the central facility in Pecan Lake, Goodrich's gas condensate is
delivered into a low pressure pipeline which is owned by Grand Lake Liquids
Company ("Grand Lake"). The gas condensate is transported to the Grand Lake
tank farm under an agreement between Goodrich and Grand Lake Liquids.
Goodrich's gas condensate is sold to Mobil Oil Trading & Transportation
Company at the Grand Lake tank farm. Pricing for the condensate is based on
current market prices referred to as posted prices. Goodrich's contract with
Mobil is a 30-day rollover agreement.
Lake Charles Field. Goodrich's natural gas production is transported through
a gathering line of approximately 2 miles in length to an interconnect with
Koch Gateway Pipeline ("Koch"). This gathering line is owned proportionately
by the working interest owners in the Lake Charles Field, which includes
Goodrich. The gas is sold at the Koch pipeline interconnect, to various
markets arranged by Seaber. Transportation on the Koch pipeline is arranged by
the individual markets. Pricing for the condensate is based on current market
prices referred to as posted price. The operators' contract with Seaber is
based on a 30-day, rollover agreement.
Sean Andrew Field Goodrich's oil production is gathered by pipeline and
purchased by Mobil at a premium over the posted price. The gas is purchased by
Pride Petroleum on a thirty day spot basis.
Remaining Fields. Goodrich's natural gas production in its remaining fields
is sold under spot or market-sensitive contracts and to various gas purchasers
on short-term contracts. Goodrich's natural gas condensate in its remaining
fields is sold under short-term rollover agreements based on current market
prices.
Customers. From July 15, 1993 through December 31, 1993 and during the year
ended December 31, 1994, Tenneco Gas purchased 70% and 41%, respectively of
La/Cal's oil and gas sales. During 1994, Seaber purchased 48% of La/Cal's oil
and gas sales. During 1995, Seaber purchased 90% of the Company's gas sales
and Mobil purchased 59% of the Company's oil sales.
The Company has entered into an agreement with Natural Gas Ventures, L.L.C.
("NGV"), a Louisiana limited liability company, that affiliates of Goodrich
Oil Company formed in August 1994, to operate as an agent for the purpose of
marketing Goodrich Oil Company's and its contracting parties' natural gas. The
Company and other contracting parties contribute natural gas to NGV, which NGV
then markets to gas purchasers, pursuant to the Joint Venture Agreement
between NGV and Seaber (described below). The Company can terminate this
agreement on 60-days advance notice. The Company and the other contracting
parties are entitled to participate, on a pro rata basis, in any net profits
or equity benefits received by NGV under its Joint Venture
7
Agreement with Seaber, provided the Company and the other contracting parties
have not terminated the agreement and are delivering gas under the agreement
at the time the net profits and equity interest are earned. The Company
believes its contract with NGV allows it to realize higher prices for its
contributed gas because of the greater market power associated with larger
volumes of gas than the Company would have for sale on a stand-alone basis.
NGV has entered into a natural gas marketing joint venture agreement (the
"Joint Venture Agreement") with Seaber whereby Seaber acts as agent for NGV in
its gas marketing efforts. Pursuant to the Joint Venture Agreement, Seaber
arranges short-term gas sales contracts on behalf of NGV with gas purchasers,
and NGV delivers to Seaber sufficient gas quantities to fulfill NGV's
contractual obligations. NGV can terminate the Joint Venture Agreement on a
60-days advance notice. During the term of the Joint Venture Agreement, on a
calendar year basis, NGV has the option to share in 50 percent of all
Seaber's' net profits provided that NGV meets certain scheduled delivery
requirements. Each year, twenty-five percent of NGV's share of Seaber net
profits is retained by Seaber as an account payable, which Seaber uses as
additional working capital. At the end of the term of the Joint Venture
Agreement, and subject to delivering scheduled volumes of gas, NGV can elect
to convert its cumulative accounts payable into fifty percent of the
outstanding Seaber common stock or can choose to receive the payable in cash.
As set forth above, provided certain conditions are met, NGV will distribute
the Seaber net profits and equity interests if any, to its contracting parties
on a pro rata basis.
Natural Gas Pipeline Joint Venture
Pecos Pipeline & Producing Company ("Pecos"), one of the Company's
subsidiaries, has a 20% interest in a joint venture with Ferguson Crossing
Pipeline Company, now Southwestern Gas Gathering, Inc. ("Southwestern") a
subsidiary of Mitchell Energy and Development Company, relating to an
intrastate pipeline. Pecos and its related facilities are located in Leon and
Madison Counties, Texas. The pipeline and related facilities are referred to
as the "Pecos Pipeline Systems". Southwestern acts as the manager of the joint
venture and the net proceeds are distributed to the venturers on a monthly
basis, subject to the retention of one month of working capital.
In September, 1993, the same parties created another joint venture for the
purpose of separating the gas contract from the physical pipeline. The joint
venture participants are National Marketing Company, which is a subsidiary of
the Company, and Mitchell Marketing Company. This joint venture is known as
"Madison Gas Marketing Services" ("Madison Gas").
The joint ventures were established for the purposes of buying and/or
transporting gas from producers and other pipelines under various contracts at
various receipt points and delivering or reselling the gas to Lone Star Gas
Company ("Lone Star") under the terms and conditions of a premium priced/fixed
volume 20-year contract dated October 1, 1981. On August 31, 1994, effective
November 1, 1994, Madison Gas entered into a settlement agreement for the
remaining term of the contract providing for (i) a total fixed contract
quantity of 23,826,560 Mmbtu, (ii) a monthly average daily contract quantity
not to exceed 18,000 Mmbtu during the months of November through March, (iii)
a monthly average daily contact quantity not to exceed 7,000 Mmbtu during the
months of April through October, (iv) an average annual gross profit margin of
$1.74 per Mmbtu less operating expenses and (v) six additional delivery
points. The Lone Star contract terminates at some time between May and
October, 2001 depending upon the monthly average daily contract quantities
taken under the settlement agreement.
Investment in Marcum Natural Gas Services
The Company presently owns 675,200 shares of the common stock of Marcum, or
approximately 5.8% of the Marcum common stock outstanding. The Company also
owned 1,260,000 Marcum common stock purchase warrants exercisable at a price
of $4.00 per share. The warrants expired on February 13, 1996.
8
Competition
The oil and gas industry is highly competitive. Major and independent oil
and gas companies, drilling and production acquisition programs and individual
producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater
than those the Company has, and staffs and facilities substantially larger
than those of the Company. The availability of a ready market for the oil and
gas production of the Company will depend in part on the cost and availability
of alternative fuels, the level of consumer demand, the extent of other
domestic production of oil and gas, the extent of importation of foreign oil
and gas, the cost of and proximity to pipelines and other transportation
facilities, regulations by state and federal authorities and the cost of
complying with applicable environmental regulations.
Regulations
The availability of a ready market for any natural gas and oil production
depends upon numerous factors beyond the Company's control. These factors
include regulation of natural gas and oil production, federal and state
regulations governing environmental quality and pollution control, state
limits on allowable rates of production by a well or proration unit, the
amount of natural gas and oil available for sale, the availability of adequate
pipeline and other transportation and processing facilities and the marketing
of competitive fuels. For example, a productive natural gas well may be "shut-
in" because of an oversupply of natural gas or the lack of an available
natural gas pipeline in the areas in which the Company may conduct operations.
State and federal regulations generally are intended to prevent waste of
natural gas and oil, protect rights to produce natural gas and oil between
owners in a common reservoir, control the amount of natural gas and oil
produced by assigning allowable rates of production and control contamination
of the environment. Pipelines are subject to the jurisdiction of various
federal, state and local agencies as well.
Federal Regulation of Natural Gas
The Federal Energy Regulatory Commission ("FERC") regulates the
transportation and resale of natural gas in interstate commerce pursuant to
the Natural Gas Act of 1938 (the "NGA"). Since 1978, the Natural Gas Policy
Act of 1978 (the "NGPA") has regulated maximum selling prices of certain
categories of gas in either interstate or intrastate commerce. FERC also
administers the NGPA. Under the Natural Gas Wellhead Decontrol Act of 1989,
however, most regulation and control of natural gas have been eliminated. None
of the remaining areas of regulation under the NGA and NGPA have a direct
effect on the Company's operations. There can be no assurance, however, that
the Company's production of natural gas will not be subject to federal
regulation in the future.
In April 1992, subsequently as amended, FERC issued Order 636, a rule which
restructures the interstate natural gas transportation and marketing system to
ensure that direct sales of gas by producers or marketers receive pipeline
service comparable to pipeline gas sales. FERC Order 636 is intended to
provide "open access" to producers for transportation of gas on ten interstate
pipeline systems.
Environmental Regulation
Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the Company's operations and costs as a result of
their effect on oil and gas development, exploration and production
operations. It is not anticipated that the Company will be required in the
near future to expend amounts that are material in relation to its total
capital expenditures program by reason of environmental laws and regulations
but, inasmuch as such laws and regulations are frequently changed by both
federal and state agencies, the Company is unable to predict the ultimate cost
of continued compliance. Additionally, see existing EPA matters discussed in
Item 3--Legal Proceedings.
9
State Regulation of Oil and Gas Production
State statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. In addition, there are state
statutes, rules and regulations governing conservation matters, including the
unitization or pooling of oil and gas properties, establishment of maximum
rates of production from oil and gas wells and the spacing, plugging and
abandonment of such wells. Such statutes and regulations may limit the rate at
which oil and gas could otherwise be produced from the Company's properties
and may restrict the number of wells that may be drilled on a particular lease
or in a particular field. (There are currently discussions in several states
relating to the imposition of limitations on annual natural gas productions
rates.)
ITEM 3. LEGAL PROCEEDINGS.
The U. S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion
Parish, Louisiana. The EPA has estimated that the total cost of long-term
clean-up of the site will be approximately $15.4 million, with the Company's
percentage of responsibility to be approximately 3.09%. As of December 31,
1995, the Company has accrued approximately $400,000 for this liability. The
EPA and the PRPs will continue to evaluate the site and revise estimates for
the long-term clean-up of the site. There can be no assurance that the cost of
clean-up and the Company's percentage responsibility will not be higher than
currently estimated by the EPA. In addition, under the federal environmental
laws, the liability costs for the clean-up of the site is joint and several
among all PRPs. Therefore, the ultimate cost of the cleanup to the Company
could be significantly higher than the amount presently accrued for this
liability.
The Company is party to additional lawsuits arising out of the normal course
of business. However, the Company has defended and intends to continue to
defend these actions vigorously and believes, based on currently available
information, that adverse results or judgments if any, in excess of insurance
coverage or amounts already provided, will not be material to the financial
position or results of operations of the Company and its consolidated
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange.
At March 22, 1996, the number of holders of record of the Company's common
stock without determination of the number of individual participants in
security position was 3,837 with 41,804,510 shares outstanding. High and low
sales prices for the Company's common stock for each quarter during the
calendar years 1995 and 1994 are as follows:
1995 1994
------------- --------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- ----- ---- ---
March 31............................................ N/A N/A N/A N/A
June 30............................................. N/A N/A N/A N/A
September 30........................................ 1 3/8 15/16 N/A N/A
December 31......................................... 1 1/4 3/4 N/A N/A
Prices from periods prior to the business combination (August 15, 1995) are
not applicable due to La/Cal being a privately held partnership.
The Company has not paid a cash dividend on its Common Stock and does not
intend to pay such a dividend in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Statement of Operations Data:
PERIOD FROM PERIOD FROM
YEAR ENDED JULY 15, 1993 JANUARY 1, 1993 YEAR ENDED
DECEMBER 31, THROUGH THROUGH DECEMBER 31,
---------------------- DECEMBER 31, JULY 14, ---------------
1995 1994 1993 1993(A) 1992(A) 1991(A)
----------- ---------- ------------- --------------- ------- -------
Revenues........................ $ 6,174,412 5,013,446 1,068,404 947,000 896,000 244,000
Costs and Expenses.............. 5,037,101 2,998,628 574,220 137,000 173,000 55,000
Income Before Extraordinary
Item........................... 1,137,311 2,014,818 494,184
Extraordinary Item--
Early Extinguishment of Debt.. 482,906 -- --
Net Income...................... $ 654,405 2,014,818 494,184
Selected Balance Sheet Data:
DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ---------- -------------
Total Assets.................... $22,382,716 8,230,496 5,371,000
Long-Term Debt.................. 9,750,000 8,250,000 4,700,000
Stockholders' Equity (Deficit).. $ 9,662,812 (2,081,217) (989,000)
- --------
(a) La/Cal Energy Partners was organized on July 15, 1993. Statement of
operations data, other than revenues and costs and expenses for the years
ended December 31, 1992 and 1991 and for the period from January 1, 1993
through July 14, 1993, is not presented as the properties for which such
revenues and expenses relate were not maintained as a separate business
unit and assets, liabilities or indirect operating costs applicable to the
properties were not segregated by the owners prior to the formation of
La/Cal. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Background of Business Combination and Basis of Presentation
On August 15, 1995, the transactions contemplated by the Agreement and Plan
of Merger among Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners
("La/Cal"), Goodrich Petroleum Corporation (the "Company"), and Goodrich
Acquisition, Inc. were completed. The Agreement provided for a combination of
Patrick and La/Cal, as a result of which the businesses previously conducted
by Patrick and La/Cal are now conducted by the Company, which is a Delaware
corporation formed for the purpose of consummating such transactions, and its
subsidiaries. The combination of Patrick and La/Cal was effected primarily by
two concurrent transactions: (a) the contribution by La/Cal of all of its
assets and liabilities (excluding cash and accounts receivable accrued prior
to March 1, 1995, and interest thereon) to the Company in exchange for
19,765,226 shares of the Company's common stock (the "Common Stock") and (b)
the merger of Goodrich Acquisition with and into Patrick (the "Merger")
whereby (i) each outstanding share of Patrick common stock ("Patrick Common
Stock") was converted into one share of Common Stock; (ii) each outstanding
share of Patrick Series B Convertible Preferred Stock was converted into one
share of the Company's Series A Convertible Preferred Stock (except for 76,290
shares for which appraisal rights were preserved) and (iii) Patrick, the
surviving corporation in the Merger, became a wholly-owned subsidiary of the
Company. Effective January 31, 1996, the preferred shares under appraisal
rights were reinstated.
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No. 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. Accordingly, on August 15, 1995, the Company recorded the assets
and liabilities of Patrick at fair value, whereas the assets and liabilities
of La/Cal are reflected at historical book value. The consolidated financial
statements reflect the operations solely of La/Cal for periods prior to August
15, 1995, whereas such financial statements reflect the operations of the
combined entities for periods subsequent to August 15, 1995. As a result,
comparison of the current and prior period financial statements presented are
significantly impacted by the combination transactions and, accordingly, are
not necessarily indicative of future operating results.
Prior to the combination transactions, La/Cal was a privately owned
Louisiana general partnership which was formed on July 15, 1993, by the
contribution of certain oil and gas properties owned by the partners.
Changes in Financial Condition (December 31, 1995 versus December 31, 1994)
As noted above, the balance sheet presented as of December 31, 1994 reflects
the assets and liabilities of La/Cal only whereas the balance sheet as of
December 31, 1995 reflects the assets and liabilities of the combined
entities. Variances in significant asset, liability and equity accounts are
addressed in the following paragraphs.
The December 31, 1995 balance sheet reflects the Company's investment in
marketable equity securities and investment in a pipeline joint venture which
were assets held by Patrick. Property and equipment reflects an increase of
approximately $9,000,000, substantially due to the addition of oil and gas
properties of Patrick which were recorded at their fair value on August 15,
1995, the acquisition date. December 31, 1995 amounts for accounts receivable
and prepaid expenses are the result of the activities of the Company
subsequent to the business combination. The reduction in deferred charges
primarily represents the charge for the early extinguishment of La/Cal's debt
as more fully discussed below.
Included in the December 31, 1995 amount for accrued liabilities is $400,000
which is related to possible future amounts payable in the Company's role as a
potentially responsible party for the cost of clean-up of "hazardous
substances" at an oil field waste disposal site. This liability was a Patrick
liability and was recorded by the Company as a part of the combination
transactions.
The December 31, 1995 balance sheet reflects $387,000 included accrued
liabilities and $573,000 in other liabilities representing the current and
long-term portions of the Company's obligation under consulting
12
agreements with Patrick's former chairman and his son, a former employee of
Patrick. Other changes in accrued expenses and accounts payable are the result
of activities of the Company subsequent to the business combination.
Long term debt as of December 31, 1995 represents the outstanding balance
under the Company's credit facility with a bank. The original amount drawn
under the facility immediately following the business combination was
$21,000,000 but was reduced by $10,000,000 in September, 1995 primarily due to
proceeds from the sale of the investment in the Penske Corporation (see Note G
to the consolidated financial statements). This debt was further reduced
during the fourth quarter of 1995 by $1,250,000 from proceeds from the sale of
certain properties located in Michigan, Montana and North Dakota. Debt
outstanding as of December 31, 1994 reflected amounts issued under La/Cal's
10% Senior Secured General Obligation Notes. This debt was paid off in
connection with the combination.
Due to La/Cal being a partnership and its recorded liabilities exceeding its
assets, the December 31, 1994 balance sheet reflects an amount for partners'
deficit of $2,081,217. The December 31, 1995 balance sheet reflects
stockholder equity accounts of the Company, a corporation. Convertible
preferred stock of Patrick was assumed as preferred stock of Goodrich and
recorded at its par value of $1,098,710 in the business combination. This
amount was reduced by $363,851 as the result of the October 1995 conversion of
certain shares of preferred stock to common. Common stock reflects 39,530,452
shares issued in the business combination transactions at $.20 per share par
value plus 2,274,058 shares as a result of the preferred stock conversion. The
December 31, 1995, additional paid in capital balance is the result of the
effects of the combination transactions, primarily the elimination of
partners' deficit of La/Cal, issuance of the Company's common and preferred
stock, and the recording of Patrick's assets and liabilities at fair value.
Accumulated deficit at December 31, 1995 reflects only the operations less
preferred stock dividends of the Company since August 15, 1995, the date of
the combination transactions.
Results of Operations
As noted above, the consolidated statements of operations for the year ended
December 31, 1994 and the period from July 15, 1993 through December 31, 1993
reflect the operations of La/Cal only, whereas the statement of operations for
the year ended December 31, 1995 reflect the operations solely of La/Cal prior
to the combination date (August 15, 1995) and the operations of the combined
entities subsequent to the combination date. The consolidated statement of
operations for the period from July 15, 1993 through December 31, 1993
reflects the income information for La/Cal for 1993 subsequent to its
formation on July 15,1993. The statement of revenues and direct operating
expenses of "Properties Contributed to La/Cal Energy Partners" presents the
revenues and direct operating expenses of the properties contributed to La/Cal
prior to its formation.
Year ended December 31, 1995 versus year ended December 31, 1994--Revenues
in 1995 amounted to $6,174,000 and were $1,161,000 (23%) higher than 1994 due
to the inclusion of the combined entities subsequent to August 15, 1995, which
produced higher oil and gas sales. This was primarily due to higher volumes of
oil production for the period slightly offset by lower gas production and
prices (see volume and price table below). Additionally, 1995 includes the
revenues from the pipeline joint venture which was acquired from Patrick and
contributed $573,000 in the period.
1995 1994
------------------------ ------------------------
PRODUCTION AVERAGE PRICE PRODUCTION AVERAGE PRICE
---------- ------------- ---------- -------------
Gas (MCF)............... 2,213,923 $ 1.72 2,386,130 $ 1.85
Oil (BBLS).............. 102,731 $16.27 36,487 $15.99
Lease operating expense and production taxes were $345,000 or 50% higher due
to the higher production volumes and depletion, depreciation and amortization
was $603,000 or 52% higher than 1994 due to the addition of the Patrick
properties subsequent to August 15, 1995, including the amortization of the
pipeline joint venture.
13
The Company recorded an impairment from the adoption of Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of in the fourth quarter of
1995 in the amount of $157,000. Additionally, the Company incurred $193,000 of
exploration expense in 1995, whereas the 1994 amount was only $4,000 due to
La/Cal having virtually no exploration activities.
The large variance ($658,000) in general and administrative expenses is due
to the fact that La/Cal was provided substantially all of its general and
administrative expenses at no cost by an affiliate whereas the Company
provides its own general and administrative services. Additionally, as a
public company, the Company incurs a higher level of general and
administrative expenses than as a privately held company. However, based on
the Company's current and anticipated future level of operations on a combined
basis, such expenses were, and are anticipated to be less than the combined
historical general and administrative expenses of La/Cal and Patrick.
Interest expense was $60,000 (6%) higher in 1995 due to the Company (from
August 15, 1995 through December 31, 1995) and La/Cal (from January 1, 1995
through August 14, 1995) having slightly higher average debt outstanding in
1995 than La/Cal in 1994. A partial offsetting factor to this was the
Company's lower effective interest rate from August 15, 1995 to December 31,
1995.
The statements of operations reflect no income taxes due to: 1) the
individual partners of La/Cal being responsible for such taxes for the periods
containing the operations of La/Cal only and 2) the Company incurring a loss
for the period from August 15, 1995, through December 31, 1995, as a result of
the extraordinary item.
In connection with the combination transactions, the Company paid off
La/Cal's General Obligation Notes and the related unamortized debt financing
costs of $482,906 were charged to operations as an extraordinary item in the
third quarter of 1995.
The Company assumed Patrick's Convertible Preferred Stock and has incurred
related dividends of $255,000 from August 15, 1995 to December 31, 1995.
Year ended December 31, 1994 versus year ended December 31, 1993--For
purposes of this discussion, references to La/Cal's 1993 operations include
the sum of the operations of the properties contributed prior to La/Cal's
formation and its operations subsequent to its formation. Revenues were
$5,013,000 in 1994 and were $2,998,000 (149%) higher than 1993. This was due
to the higher volumes of production (see table below) resulting from
significant well development and acquisition of producing properties by La/Cal
in December, 1993 and February, 1994, offset by somewhat lower prices.
1994 1993
------------------------ ------------------------
PRODUCTION AVERAGE PRICE PRODUCTION AVERAGE PRICE
---------- ------------- ---------- -------------
Gas (MCF)............... 2,386,130 $ 1.85 933,435 $ 2.02
Oil (BBLS).............. 36,487 $15.99 7,319 $16.65
Lease operating expenses and production taxes increased to $684,000 in 1994
compared to $331,000 in 1993. This increase is largely the result of increased
production and the acquisition of producing properties and development
activity in the Pecan Lake and Lake Charles fields. Depreciation, depletion
and amortization expense was substantially higher for the year 1994 compared
to the period from July 15, 1993 through December 31, 1993 due to the
significant increase in capitalized costs and production volumes.
Interest expense of $1,072,000 in 1994 was significantly higher than the
$199,000 incurred for the period from July 15, 1993 through December 31, 1993
due to the financing of substantially all property acquisitions and
development activity with advances under La/Cal's loan agreement with an
institutional lender. Such acquisitions and development activity took place in
late 1993 and throughout 1994.
14
Liquidity and Capital Resources
Net cash provided by operating activities was $3,579,000 in 1995 compared to
$2,823,000 in 1994 and $479,000 from July 15, 1993, through December 31, 1993.
The Company's accompanying consolidated statements of cash flows identify
major differences between net income and net cash provided by operating
activities for each of the periods presented.
Net cash provided by investing activities amounted to $8,877,000 in 1995
compared to net cash used of $3,720,000 in 1994 and $1,968,000 from July 15,
1993, through December 31, 1993. The year ended December 31, 1995, reflects
the receipt by the Company of $9,600,000 cash in September from the sale of
the investment in the Penske Corporation as well as $1,514,000 from the sale
of certain properties in Michigan, Montana and North Dakota in the fourth
quarter. This was offset by the payment by the Company of $1,088,000 in
connection with the business combination and $650,000 for capital
expenditures. The 1994 and 1993 periods reflect $3,720,000 and $1,968,000 in
capital expenditures, respectively due to extensive drilling and completion
activities and acquisition of producing properties by La/Cal during those
periods.
Net cash used by financing activities in 1995 total $12,553,000 compared to
net cash provided by financing activities of $856,000 in 1994 and $2,241,000
from July 15, 1993, through December 31, 1993. The 1995 amount included the
borrowing of $21,000,000 by the Company which was used primarily to pay off
the La/Cal debt ($9,151,000) and the debt assumed from Patrick ($10,626,000).
The remainder of the loan proceeds were used to provide working capital and
pay accrued interest. The year ended December 31, 1995 also reflects debt
paydowns as follows: 1) $915,000 by La/Cal on its General Obligation Notes
prior to August 15, 1995; 2) $9,500,000 by the Company on its credit facility
in September from the Penske sale proceeds; 3) $500,000 by the Company on its
credit facility from operations/working capital 4) $1,250,000 by the Company
in the fourth quarter from the sale of certain oil and gas properties. The
1995 amount also includes partnership distributions by La/Cal of $1,133,000
prior to August 15, 1995 and the Company's preferred stock dividends
subsequent to the business combination in the amount of $363,000. The 1994 and
1993 amounts consist of La/Cal borrowings used to partially fund the
significant capital expenditures mentioned above. This was offset by
partnership distributions of $3,107,000 and $4,073,000, respectively.
Additionally, the amounts include subsequent payments of $1,757,000 and
$407,000 on the borrowings.
The Company has a credit facility with a bank which provides for a total
borrowing base determined by the bank every six months in part, based on the
Company's oil and gas reserve information. Any and all amounts drawn are due
and payable on June 1, 1997. Interest on related borrowings is based on either
of two methods at the option of the Company: the bank's prime lending rate or
LIBOR plus 2%. Interest rates are set on specific draws for one, two, three or
six month periods, also at the option of the Company.
The original borrowing base of $22,000,000 was reduced to $15,000,000 after
the sale of the Company's investment in the Penske Corporation (see Note G to
the consolidated financial statements), in accordance with the specific
provisions of the credit facility. The amount drawn by the Company as of
December 31, 1995 was $9,750,000.
The Company plans to incur capital expenditures in the amount of
approximately $7,000,000 in calendar 1996. The Company plans to finance such
expenditures from operating cash flow and draws on its bank credit facility.
The Company's business strategy is to explore and develop drilling prospects
along the Gulf Coast and in West Texas and pursue strategic acquisitions of
oil and gas properties that offer additional development drilling
opportunities. It is anticipated that such acquisitions would be financed with
bank or other institutional borrowings.
Newly Issued Accounting Pronouncements
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of.
15
Under SFAS No. 121, an impairment is determined to have occurred and a loss is
recognized when the net of future cash inflows expected to be generated by an
identifiable long-lived asset and cash outflows expected to be required to
obtain those cash inflows is less than the carrying value of the asset. The
Company performs this comparison for its oil and gas properties on a field-by-
field basis. The Company adopted this accounting standard during the fourth
quarter of 1995 and recorded an impairment amounting to $157,000.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation. This statement encourages companies to recognize compensation
expense for certain equity instrument issuances in accordance with new fair
value accounting guidelines. The Company has decided not to adopt the
recognition provisions of the Statement and will adopt the disclosure
provisions of the Statement in 1996.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Goodrich Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1995 and 1994, and the period from
July 15, 1993 (inception) through December 31, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the years ended
December 31, 1995 and 1994, and the period from July 15, 1993 (inception)
through December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note D to the consolidated financial statements, in 1995,
the Company adopted the provisions of Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 26, 1996
17
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
ASSETS 1995 1994
------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents.......................... $ 613,450 $ 710,762
Marketable equity securities....................... 759,600 --
Accounts receivable
Trade and other, net of allowance................ 170,593 --
Accrued oil and gas revenue...................... 1,545,501 934,910
Prepaid insurance.................................. 302,113 --
Other.............................................. 33,532 --
----------- -----------
Total current assets........................... $ 3,424,789 1,645,672
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties............................. 16,262,033 7,271,549
Furniture, fixtures and equipment.................. 101,333 --
----------- -----------
16,363,366 7,271,549
Less accumulated depletion, depreciation and
amortization...................................... (2,217,425) (1,309,866)
----------- -----------
Total property and equipment..................... 14,145,941 5,961,683
----------- -----------
OTHER ASSETS
Investment in pipeline joint venture, net.......... 4,676,500 --
Deferred charges................................... 135,486 623,141
----------- -----------
4,811,986 623,141
----------- -----------
TOTAL ASSETS................................... $22,382,716 $ 8,230,496
=========== ===========
See notes to consolidated financial statements.
18
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ------------ ------------
CURRENT LIABILITIES
Current portion of long term debt...................... $ -- $ 1,816,723
Accounts payable....................................... 656,886 135,916
Accrued liabilities.................................... 1,740,028 109,074
------------ -----------
Total current liabilities............................ 2,396,914 2,061,713
------------ -----------
LONG TERM DEBT........................................... 9,750,000 8,250,000
OTHER LIABILITIES........................................ 572,990 --
STOCKHOLDERS' EQUITY (DEFICIT)
Partners' capital (deficit)............................ -- (2,081,217)
Preferred stock, par value $1.00 per share; authorized
10,000,000 shares; issued 734,859 at December 31, 1995
(liquidating preference $10 per share, aggregating to
$7,348,590)........................................... 734,859 --
Common stock, par value--$0.20 per share; authorized
100,000,000 shares; issued and outstanding 41,804,510
at December 31, 1995.................................. 8,360,902 --
Additional paid-in capital............................... 1,200,140 --
Accumulated deficit...................................... (633,089) --
------------ -----------
Total stockholders' equity (deficit)................. 9,662,812 (2,081,217)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $ 22,382,716 $ 8,230,496
============ ===========
See notes to consolidated financial statements.
19
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
JULY 15, 1993
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
---------------------- DECEMBER 31,
1995 1994 1993
---------- ---------- -------------
REVENUES
Oil and gas sales....................... $5,477,208 4,995,663 1,059,882
Pipeline joint venture.................. 573,393 -- --
Other, net.............................. 123,811 17,783 8,522
---------- ---------- ----------
Total revenues........................ 6,174,412 5,013,446 1,068,404
---------- ---------- ----------
COSTS AND EXPENSES
Lease operating expense and production
taxes.................................. 1,029,501 684,131 194,054
Depletion, depreciation and
amortization........................... 1,785,502 1,156,624 179,476
Exploration............................. 193,159 4,240 --
Impairment of oil and gas properties.... 157,000 -- --
Interest expense........................ 1,132,488 1,072,098 199,389
General and administrative.............. 739,451 81,535 1,301
---------- ---------- ----------
Total costs and expenses.............. 5,037,101 2,998,628 574,220
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM
AND INCOME TAXES......................... 1,137,311 2,014,818 494,184
========== ==========
Income Taxes............................ --
----------
INCOME BEFORE EXTRAORDINARY ITEM.......... 1,137,311
Extraordinary item--early extinguishment
of debt................................ (482,906)
----------
NET INCOME................................ 654,405
Preferred stock dividends............... 254,932
----------
EARNINGS AVAILABLE TO COMMON STOCK........ $ 399,473
==========
PRO FORMA INFORMATION (UNAUDITED):
Income before extraordinary item and
income taxes............................. $1,137,311 2,014,818 494,184
Pro forma income taxes*................... 402,698 785,779 192,732
---------- ---------- ----------
734,613 1,229,039 301,452
Extraordinary item--early extinguishment
of debt................................ (482,906) -- --
---------- ---------- ----------
Pro forma net income...................... 251,707 1,229,039 301,452
Preferred stock dividends............... 254,932 -- --
---------- ---------- ----------
Pro forma earnings available to common
stock.................................... $ (3,225) 1,229,039 301,452
========== ========== ==========
Pro forma income before extraordinary item
per average common share................. $ .02 .06 .02
Pro forma extraordinary item per average
common share............................. (.02) -- --
---------- ---------- ----------
Pro forma earnings per average common
share.................................... $ -- .06 .02
========== ========== ==========
Pro forma weighted average common shares
outstanding**............................ 27,722,543 19,765,226 19,765,226
========== ========== ==========
- --------
* As described in Note D, no provision for income taxes is included in the
consolidated statements of operations for the periods ended December 31,
1994 and 1993, for the operations of La/Cal Energy Partners (predecessor
company), due to La/Cal being a partnership and income taxes were the
responsibility of the individual partners of La/Cal. Certain unaudited pro
forma information relating to the Company's results of operations had
La/Cal been a corporation, is shown here.
** For purposes of this presentation the number of pro forma shares used for
periods prior to August 15, 1995, is 19,765,226 shares, the number issued
by the Company in exchange for La/Cal's net assets contributed.
See notes to consolidated financial statements.
20
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
JULY 15, 1993
YEAR ENDED DECEMBER 31, (INCEPTION) THROUGH
------------------------- DECEMBER 31,
1995 1994 1993
------------ ----------- -------------------
OPERATING ACTIVITIES
Net income.................... $ 654,405 2,014,818 494,184
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depletion, depreciation and
amortization............... 1,785,502 1,156,624 179,476
Amortization of deferred
debt financing costs....... 101,531 112,530 29,598
Extraordinary item--early
extinguishment of debt..... 482,906 -- --
Exploration costs charged to
income..................... 193,159 4,240 --
Impairment of oil and gas
properties................. 157,000 -- --
Payment of other
liabilities................ (130,010) -- --
(Increase) decrease in:
Accounts receivable....... (28,773) (454,610) (480,300)
Prepaid insurance and
other.................... (322,900) -- --
(Decrease) increase in
Accounts payable.......... 493,343 (72,846) 208,762
Accrued liabilities....... 188,905 61,831 47,243
Other....................... 3,857 -- --
------------ ----------- ----------
Net cash provided by
operating activities... 3,578,925 2,822,587 478,963
------------ ----------- ----------
INVESTING ACTIVITIES
Sale of investment............ 9,600,000 -- --
Proceeds from sales of oil and
gas properties............... 1,514,336 -- --
Cash paid in connection with
business combination......... (1,088,432) -- --
Overdraft bank balances
assumed in business
combination.................. (451,414) -- --
Capital expenditures.......... (649,604) (3,719,782) (1,967,989)
Other......................... (47,883) -- --
------------ ----------- ----------
Net cash provided by
(used in) investing
activities............. 8,877,003 (3,719,782) (1,967,989)
------------ ----------- ----------
FINANCING ACTIVITIES
Proceeds from bank borrowings. 21,000,000 5,719,933 6,510,580
Principal payments of bank
borrowings................... (31,942,841) (1,756,856) (406,934)
Partnership contributions..... -- -- 300,647
Partnership distributions..... (1,132,735) (3,107,258) (4,073,185)
Payment of debt financing
costs........................ (114,771) -- --
Preferred stock dividends..... (362,893) -- --
Organizational costs incurred. -- -- (89,944)
------------ ----------- ----------
Net cash provided by
(used in) financing
activities............. (12,553,240) 855,819 2,241,164
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........... (97,312) (41,376) 752,138
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............ 710,762 752,138 --
------------ ----------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD...................... $ 613,450 710,762 752,138
============ =========== ==========
See notes to consolidated financial statements.
21
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND PERIOD FROM JULY 15, 1993
(INCEPTION) THROUGH DECEMBER 31, 1993
PREFERRED STOCK COMMON STOCK
-------------------- ----------------------
PARTNER'S ADDITIONAL TOTAL
CAPITAL NUMBER NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
(DEFICIT) OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
---------- --------- --------- ---------- ----------- ---------- ----------- ----------------
BALANCE AT JULY 15,
1993................... $ -- -- $ -- -- $ -- -- -- --
Partnership
contributions.......... 2,590,224 -- -- -- -- -- -- 2,590,224
Partnership
distributions.......... (4,073,185) -- -- -- -- -- -- (4,073,185)
Net income.............. 494,184 -- -- -- -- -- -- 494,184
---------- --------- --------- ---------- ----------- --------- -------- ----------
BALANCE AT DECEMBER 31,
1993................... (988,777) -- -- -- -- -- -- (988,777)
Partnership
distributions.......... (3,107,258) -- -- -- -- -- -- (3,107,258)
Net Income.............. 2,014,818 -- -- -- -- -- -- 2,014,818
---------- --------- --------- ---------- ----------- --------- -------- ----------
BALANCE AT DECEMBER 31,
1994................... (2,081,217) -- -- -- -- -- -- (2,081,217)
Partnership
distributions.......... (1,229,344) ---- ---- ---- ---- ---- ---- (1,229,344)
Business Combination.... 3,310,561 1,098,710 1,098,710 39,530,452 7,906,090 258,539 -- 12,573,900
Conversion of preferred
stock.................. -- (363,851) (363,851) 2,274,058 454,812 (90,961) -- --
Preferred stock
dividends.............. -- -- -- -- -- -- (254,932) (254,932)
Net income.............. -- -- -- -- -- 1,032,562 (378,157) 654,405
---------- --------- --------- ---------- ----------- --------- -------- ----------
BALANCE AT DECEMBER 31,
1995................... $ -- 734,859 $ 734,859 41,804,510 $ 8,360,902 1,200,140 (633,089) 9,662,812
========== ========= ========= ========== =========== ========= ======== ==========
See notes to consolidated financial statements.
22
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A--BUSINESS COMBINATION
On August 15, 1995, the transactions contemplated by the Agreement and Plan
of Merger among Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners
("La/Cal"), Goodrich Petroleum Corporation (the "Company"), and Goodrich
Acquisition, Inc. were completed. The Agreement provided for a combination of
Patrick and La/Cal, as a result of which the businesses previously conducted
by Patrick and La/Cal are now conducted by the Company, which is a Delaware
corporation formed for the purpose of consummating such transactions, and its
subsidiaries. The combination of Patrick and La/Cal was effected primarily by
two concurrent transactions: (a) the contribution by La/Cal of all of its
assets and liabilities (excluding cash and accounts receivable accrued prior
to March 1, 1995, and interest thereon) to the Company in exchange for
19,765,226 shares of the Company's common stock (the "Common Stock") and (b)
the merger of Goodrich Acquisition with and into Patrick (the "Merger")
whereby (i) each outstanding share of Patrick common stock ("Patrick Common
Stock") was converted into one share of Common Stock; (ii) each outstanding
share of Patrick Series B Convertible Preferred Stock was converted into one
share of the Company's Series A Convertible Preferred Stock (except for 76,290
shares for which appraisal rights were preserved) and (iii) Patrick, the
surviving corporation in the Merger, became a wholly-owned subsidiary of the
Company.
La/Cal was formed, by the contribution of certain oil and gas properties
owned by the partners, on July 15, 1993, pursuant to the provisions of the
State of Louisiana, for the purpose of engaging in the domestic exploration
for oil and gas reserves primarily in the States of Louisiana and Texas. Under
the provisions of the Agreement of Partnership, the business of La/Cal was to
acquire interests in leases within a defined program area in Louisiana and
certain railroad districts in East Texas (as amended from time to time) and
drill primarily development wells. La/Cal also engaged in the development,
production, and sale of any commercial accumulations of oil and gas
discovered. Profits, losses, and distributable cash were allocated to the
individual partners as defined in the Partnership Agreement.
NOTE B--BASIS OF PRESENTATION
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No. 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. Accordingly, on August 15, 1995, the Company recorded the assets
and liabilities of Patrick at fair value, whereas the assets and liabilities
of La/Cal are reflected at historical book value. The consolidated financial
statements reflect the operations solely of La/Cal for periods prior to August
15, 1995, whereas such financial statements reflect the operations of the
combined entities for periods subsequent to August 15, 1995.
NOTE C--DESCRIPTION OF BUSINESS
The Company is in the primary business of the exploration and production of
crude oil and natural gas. The Subsidiaries have interests in such operations
in eight states, primarily in Louisiana and Texas. The Company's subsidiaries
also have a minority interest in a natural gas pipeline joint venture located
in the state of Texas.
NOTE D--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment--The Company uses the successful efforts method of
accounting for exploration and development expenditures.
Leasehold acquisition costs are capitalized. When proved reserves are found
on an undeveloped property, leasehold cost is reclassified to proved
properties. Significant undeveloped leases are reviewed periodically, and a
valuation allowance is provided for any estimated decline in value. Cost of
all other undeveloped leases is amortized over the estimated average holding
period of the leases.
23
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
Costs of exploratory drilling are initially capitalized, but if proved
reserves are not found, the costs are subsequently expensed. All other
exploratory costs are charged to expense as incurred. Development costs are
capitalized, including the cost of unsuccessful development wells.
During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS
No. 121, an impairment is determined to have occurred and a loss is recognized
when the net of future cash inflows expected to be generated by an
identifiable long-lived asset and cash outflows expected to be required to
obtain those cash inflows is less than the carrying value of the asset. The
Company performs this comparison for its oil and gas properties on a field-by-
field basis. The Company recorded such an impairment in the fourth quarter of
1995 in the amount of $157,000.
Prior to the adoption of SFAS 121, undiscounted future net revenues were
compared annually to net capitalized cost of all oil and gas properties to
determine if an impairment had occurred in the amount capitalized.
Depreciation and depletion of producing oil and gas properties are provided
under the unit-of-production method. Proved developed reserves are used to
compute unit rates for unamortized tangible and intangible development costs,
and proved reserves are used for unamortized leasehold costs. Estimated
dismantlement, abandonment, and site restoration costs, net of salvage value,
are considered in determining depreciation and depletion provisions.
Gains and losses on disposals or retirements that are significant or include
an entire depreciable or depletable property unit are included in income. All
other dispositions, retirements, or abandonments are reflected in accumulated
depreciation, depletion, and amortization.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposit accounts and temporary cash investments with maturities of
ninety days or less at date of purchase.
Marketable Equity Securities--In accordance with Statement of Financial
Accounting Standards No. 115, the Company has classified its investment in
marketable equity securities as available for sale. Accordingly, unrealized
holding gains and losses are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
Investment in Pipeline Joint Venture--The Company's investment consists of a
20% interest in an intrastate natural gas pipeline joint venture. The
Company's carrying basis in the investment was established at August 15, 1995
(fair value) and is being amortized on a basis which matches the amortization
with the monthly maximum average contract quantities over the remaining term
of the joint venture which is estimated to terminate in 2000. Amortization for
the year ended December 31, 1995 amounted to $403,254. The Company records its
equity in joint venture earnings as revenues on the statement of operations.
Income Taxes--The federal income tax effect of La/Cal's activities (prior to
August 15, 1995) is not reflected in the financial statements since such taxes
were the responsibility of the individual partners of La/Cal. The Company
became subject to income taxes as of August 15, 1995, as a result of the
business combination.
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes which requires income taxes be
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected
24
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings Per Share--As discussed previously, La/Cal's activities prior to
the business combination were conducted in the form of a partnership and the
Company was established in corporate form on August 15, 1995. Earnings per
share information has been presented on a pro forma basis to reflect such
information as if La/Cal had been operated as a corporation for the periods
presented.
Commitments and Contingencies--Liabilities for loss contingencies, including
environmental remediation costs, arising from claims, assessments, litigation,
fines and penalties, and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment and/or
remediation can be reasonably estimated. Recoveries from third parties which
are probable of realization are separately recorded, and are not offset
against the related environmental liability.
Use of Estimates--Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
NOTE E--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the carrying amounts and estimated fair values of the
Company's financial instruments at December 31, 1995. FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments, defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
CARRYING FAIR
AMOUNT VALUE
--------- ---------
Financial asset--
Marketable equity securities........................ $ 759,600 759,600
Financial liabilities--
Other liabilities................................... 572,990 482,575
Long-term debt (including current maturities)....... 9,750,000 8,770,098
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payables and
accrued liabilities: The carrying amounts approximate fair value because of
the short maturity of those instruments. Therefore, these instruments were not
presented in the table above.
Marketable equity securities: Fair value is based on bid prices published in
financial media.
Other liabilities and Long-term debt: The fair value is estimated by
discounting the future cash flows of each instrument at rates currently
offered to the Company for similar debt instruments of comparable maturities
by the Company's bankers.
25
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
NOTE F--PATRICK ASSETS AND LIABILITIES ACQUIRED
On August 15, 1995, the Company recorded the combination transactions which
effect was primarily the recording of the assets and liabilities of Patrick at
their fair value. Such amounts were as follows:
Cash overdraft............................................. $ (451,414)
Marketable equity securities............................... 759,600
Accounts receivable........................................ 676,040
Prepaid expenses and other current assets.................. 12,745
Investment in Penske Corporation........................... 9,600,000
Investment in pipeline joint venture....................... 5,079,754
Property and equipment..................................... 10,780,422
Accounts payable........................................... (27,627)
Accrued liabilities........................................ (1,438,070)
Long term debt............................................. (10,626,118)
Other liabilities.......................................... (703,000)
------------
$ 13,662,332
============
The former common shareholders of Patrick received 19,765,226 shares of the
Company's common stock and the former preferred shareholders of Patrick
effectively received 1,098,710 shares of the Company's preferred stock in the
business combination. As reflected in the consolidated statements of
stockholders' equity, the issuance of such shares resulted in an increase in
stockholders' equity of $12,573,900.
NOTE G--SALE OF INVESTMENT IN PENSKE CORPORATION
On September 18, 1995, the Company received $9,600,000 cash as redemption of
its investment in the Penske Corporation. The proceeds were used to pay down
the company's long term debt along with related accrued interest. No gain or
loss resulted from the transaction.
NOTE H--LONG TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
1995 1994
----------- ----------
Borrowings under credit facility, interest, at prime or
LIBOR plus 2% (see below) (weighted average rate at
December 31, 1995--7.89%); principal due
June 1, 1997........................................... $ 9,750,000 --
10% senior secured general obligation notes............. -- 10,066,723
----------- ----------
Total long-term debt.................................... 9,750,000 10,066,723
Less current portion.................................... -- 1,816,723
----------- ----------
Long-term debt, excluding current portion............... $ 9,750,000 8,250,000
=========== ==========
Long-term debt recorded on the December 31, 1994 balance sheet represented
La/Cal's 10% Senior Secured General Obligation Notes ("the General Obligation
Notes"). This debt was paid off with proceeds from the Company's credit
facility.
The Company has a credit facility with a bank which provides for a total
borrowing base determined by the bank every six months in part, based on the
Company's oil and gas reserves. Any and all amounts drawn are due and payable
on June 1, 1997. Interest on related borrowings is based on either of two
methods at the option of the Company: the bank's prime lending rate or LIBOR
plus 2%. Interest rates are set on specific draws for one, two, three or six
month periods, also at the option of the Company.
26
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
The original borrowing base of $22,000,000 was reduced to $15,000,000 after
the sale of the Company's investment in the Penske Corporation (see Note G
above), in accordance with the specific provisions of the credit facility.
The credit facility requires minimum net worth and debt service ratios be
maintained by the Company. On March 26, 1995, the bank amended the minimum net
worth covenant which lowered the minimum net worth requirement to $8,500,000
plus 50% of net income subsequent to September 30, 1995 effective December 1,
1995. Giving effect to such amendment, the Company had $1,027,326, available
for the payment of dividends at December 31, 1995.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Interest paid during 1995, 1994 and the period from July 15, 1993 (inception
of La/Cal) through December 31, 1993 amounted to $968,190, $1,051,927 and
$194,738 respectively.
NOTE I--EXTRAORDINARY ITEM-EARLY EXTINGUISHMENT OF DEBT
La/Cal's General Obligation Notes were paid off in connection with the
business combination and the related unamortized debt financing costs in the
amount of $482,906 were charged to operations as an extraordinary item, in the
third quarter of 1995.
NOTE J--ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1995 and 1994 consisted of the
following:
1995 1994
----------- -------
Environmental contingency............................. $ 400,000 --
Current portion--consulting agreement contracts....... 387,000 --
Prior years' state income and franchise taxes......... 200,000 --
Taxes other than income............................... 160,000 --
Other................................................. 593,028 109,074
----------- -------
$ 1,740,028 109,074
=========== =======
NOTE K--PRO FORMA FINANCIAL RESULTS OF OPERATIONS (UNAUDITED)
Selected results of operations on a pro forma basis as if the combination
transactions had occurred on January 1, 1995 and January 1, 1994,
respectively, are as follows:
FOR THE YEAR ENDED
DECEMBER 31
-----------------------
1995 1994
----------- -----------
(UNAUDITED)
Revenues......................................... $11,588,318 $15,836,988
Income before extraordinary item................. 2,510,494 3,780,094
Net income....................................... 2,027,588 3,780,094
Income applicable to common stock................ 1,377,588 2,840,094
Income before extraordinary item per average
common share.................................... .04 .07
Income per average common share.................. $ .03 $ .07
27
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
The pro forma operations for the year ended December 31, 1995 contain a net
gain on the sale of an investment which accounted for $1,563,762 of net income
and $ .04 income per share. The operations information for the year ended
December 31, 1994 contains a net gain on sale of investments which accounted
for $6,447,102 of net income and $ .16 income per share. Also the operations
for the year ended December 31, 1994 has been adjusted to eliminate operations
related to certain oil and gas properties sold by Patrick in December, 1994 in
order to present comparable amounts.
NOTE L--COMMITMENTS AND CONTINGENCIES
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion
Parish, Louisiana. The EPA has estimated that the total cost of long-term
clean-up of the site will be approximately $15.4 million with the Company's
percentage of responsibility to be approximately 3.09%. As of December 31,
1995, the Company has paid approximately $115,000 in costs related to this
matter and accrued an additional $400,000 for the remaining liability. The EPA
and PRPs will continue to evaluate the site and revise estimates for the long-
term clean-up of the site. There can be no assurance that the cost of clean-up
and the Company's percentage responsibility will not be higher than currently
estimated by the EPA. In addition, under the federal environmental laws, the
liability costs for the clean-up of the site is joint and several among all
PRPs. Therefore, the ultimate cost of the clean-up to the Company could be
significantly higher than the amount presently accrued for this liability.
Additionally, the Company is party to a number of lawsuits arising in the
normal course of business. The Company has defended and intends to continue to
defend these actions vigorously and believes, based on currently available
information, that adverse results or settlements, if any, in excess of
insurance coverage or amounts already provided, will not be material to its
financial position or results of operations.
NOTE M--INCOME TAXES
Income tax expense for the period from August 15, 1995 through December 31,
1995 consists of:
CURRENT DEFERRED TOTAL
-------- -------- -----
U.S. Federal...................................... $ 25,000 (25,000) --
State and local................................... -- -- --
-------- ------- -----
$ 25,000 (25,000) --
======== ======= =====
Following is a reconciliation of the U.S. statutory income tax rate to the
Company's effective rate on loss before income taxes for the period from
August 15, 1995 through December 31, 1995:
U.S. Statutory Income Tax Rate.................................. (35.0)%
Increase in deductible temporary differences for which no
benefit recorded............................................... 28.2
Nondeductible expenses.......................................... 6.8
-----
--
=====
28
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
The significant components of deferred income tax expense for the period
from August 15, 1995 through December 31, 1995 are as follows:
Deferred tax benefit (exclusive of utilization of net
operating loss carryforwards)............................... 657,938
Utilization of net operating loss carryforward............... 632,938
---------
$ (25,000)
=========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at December 31,
1995 are presented below.
Deferred tax assets:
Differences between book and tax basis of:
Property and equipment.......................................... $ 307,025
Marketable equity securities.................................... 140,156
Contingent liabilities.......................................... 254,962
Consulting agreement contracts.................................. 335,997
Other........................................................... 70,306
AMT Tax credit carryforward....................................... 1,392,176
Statutory depletion carryforward.................................. 4,943,209
Investment tax credit carryforward................................ 1,242,725
Operating loss carryforward....................................... 12,364,772
------------
Total gross deferred tax assets................................... 21,051,328
Less valuation allowance.......................................... (19,461,294)
------------
Net deferred tax assets........................................... 1,590,034
------------
Deferred tax liability:
Differences between book and tax basis of investment in Pecos
pipeline........................................................ (1,565,034)
------------
Total gross deferred liability................................... (1,565,034)
------------
Net deferred tax asset........................................... $ 25,000
============
The valuation allowance for deferred tax assets increased $658,000 for the
period from August 15, 1995 through December 31, 1995 which substantially
offset the change in certain deferred tax assets. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based primarily upon the level
of projections for future taxable income generated primarily by the reversal
of future taxable temporary differences over the periods which the deferred
tax assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance at December 31, 1995. The amount of deferred tax
assets considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
29
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
The following table summarizes the amounts and expiration dates of operating
loss and investment tax credit carryforwards:
OPERATING LOSS CARRYFORWARDS INVESTMENT TAX CREDIT CARRYFORWARDS
--------------------------------- --------------------------------------
AMOUNT EXPIRES AMOUNT EXPIRES
----------------- ------------ ------------------- -------
$ 511,282 2001 $ 193,346 1996
2,994,824 2003 302,001 1997
4,801,898 2004 558,042 1998
1,551,278 2005 22,591 1999
7,564,329 2006 68,171 2000
9,331,128 2007 96,466 2001
4,756,252 2008 2,108 2002
3,695,445 2009
121,484 2010
----------------- -------------------
$ 35,327,920 $ 1,242,725
================= ===================
As a result of the business combination, the Company's annual utilization of
its net operating and statutory depletion carryforwards are limited under
Internal Revenue Code Section 382. Such annual limitation is estimated to be
approximately $1,600,000 plus any built in gains at the date of the business
combination.
The Company's statutory depletion carryforwards and AMT credit carryovers
have no expiration date.
As described in Note D, no provision for income taxes for La/Cal was
included in the statements of operations prior to August 15, 1995 due to the
tax effect of Partnership activities being the responsibility of the
individual Partners.
At December 31, 1994, the book basis of La/Cal's net assets exceeded their
tax basis by $3,798,000 which would have resulted in a deferred income tax
liability of approximately $1,374,000 if La/Cal had been a taxable entity. The
pro forma tax effects of the temporary differences comprising this amount are
as follows at December 31, 1994:
Property and equipment--principally due to accumulated
depletion and depreciation................................. $ 1,105,000
Cash to accrual differences................................. 269,000
-----------
$ 1,374,000
===========
30
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
NOTE N--STOCKHOLDERS' EQUITY
Common Stock--At December 31, 1995, unissued shares of Goodrich common stock
were reserved in the amount of 2,447,080 shares for the conversion of
convertible preferred stock and 2,675,602 shares for stock option plans.
Preferred Stock--In accordance with the terms of the combination
transactions, all of the outstanding shares of Patrick's Series B Convertible
Preferred Stock were converted into Goodrich Series A Convertible Preferred
Stock except for 76,290 shares for which appraisal rights had been preserved.
The Preferred Stock has a par value of $1.00 per share with a liquidation
preference of $10.00 per share, is convertible at the option of the holder at
any time, unless earlier redeemed, into shares of Common Stock of the Company
at an initial conversion rate of 3.33 shares of Common stock per share of
Preferred. The Preferred Stock also will automatically convert to Common Stock
if the closing price for the Preferred Stock exceeds $15.00 per share for ten
consecutive trading days. Upon any conversion of a share of Preferred Stock
prior to the close of business on September 15, 1997, the stockholder will
receive one Common Stock purchase warrant to purchase one share of Common
Stock at $5.00 per share, subject to adjustment in certain events. Any
outstanding warrants can be called on thirty days notice for $4.25 per warrant
and will expire on September 15, 1997.
The Preferred Stock is redeemable in whole or in part, at $12.00 per share,
plus accrued and unpaid dividends. Dividends on the Preferred Stock accrue at
an annual rate of 8%.
As a result of the combination transactions, the Company was required to
offer a special conversion right to all holders of the Preferred Stock for a
period of 61 days beginning August 18, 1995. On October 18, 1995, holders of
363,851 shares of the Company's preferred stock elected to convert their
shares to Common Stock at an exchange rate of 6.25 to 1. This conversion
resulted in the Company issuing an additional 2,274,058 shares of Common Stock
and resulted in 734,859 preferred shares outstanding as of December 31, 1995.
Effective January 1, 1996, the preferred shares under appraisal rights were
reinstated, resulting in outstanding shares of 811,149.
Stock Option and Incentive Programs--Goodrich currently has two plans which
provide for stock option and other incentive awards for the Company's key
employees and consultants and its directors. The Goodrich Petroleum
Corporation 1995 Stock Option Plan allows the Board of Directors, through its
Compensation Committee, to grant stock options, restricted stock awards, stock
appreciation rights, long-term incentive awards, and phantom stock awards, or
any combination thereof to key employees and consultants. The Goodrich
Petroleum Corporation 1995 Nonemployee Director Stock Option Plan provides for
the grant of options to each director who is not and has never been an
employee of the Company.
Additionally, Goodrich assumed certain outstanding stock options of Patrick
as a result of the business combination.
31
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
Stock option transactions during 1995 were as follows:
NUMBER OF AVERAGE
OPTIONS PRICE
--------- -------
--------- -------
Outstanding January 1, 1995.................................. -- --
Assumed from Patrick....................................... 1,670,602 $ 2.32
Granted--1995 Stock Option Plan............................ 880,000 1.02
Granted--1995 Non Employee Director Stock Option Plan...... 220,000 0.97
Expiration of Options...................................... (95,000) 2.25
--------- ------
Outstanding December 31, 1995................................ 2,675,602 1.78
========= ======
Excercisable December 31, 1995............................... 1,890,602 $ 2.16
========= ======
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. During 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 123,
Accounting for Stock Based Compensation. This statement encourages companies
to recognize compensation expense for certain equity instrument issuances in
accordance with new fair value accounting guidelines. The Company has decided
not to adopt the recognition provisions of the Statement and will adopt the
disclosure provisions of the Statement in 1996.
NOTE O--PATRICK PETROLEUM EMPLOYEE BENEFIT PLANS
Patrick maintained several employee benefit plans prior to the business
combination. In accordance with the business combination, each of these plans
has been or is in the process of being terminated. Accordingly, the only
activities of these plans subsequent to August 15, 1995 were related to their
termination. At December 31, 1995, the Patrick Petroleum Corporation of
Michigan Defined Benefit Plan and Trust held assets of $1,731,000. The Plan is
fully funded and these assets are expected to be distributed to the
participants during 1996.
NOTE P--NATURAL GAS AND CRUDE OIL COST DATA AND RESULTS OF OPERATIONS.
The following reflects the Company's capitalized costs related to natural
gas and oil activities at December 31, 1995 and 1994:
1995 1994
----------- ---------
Proved properties................................... $15,271,879 7,271,549
Unproved properties................................. 990,154 --
----------- ---------
16,262,033 7,271,549
Less accumulated depreciation and depletion......... 2,209,924 1,309,866
----------- ---------
Net property and equipment........................ $14,052,109 5,961,683
=========== =========
32
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
The following table reflects certain data with respect to natural gas and
oil property acquisitions, exploration and development activities:
PERIOD FROM
JULY 15, 1993
YEAR ENDED DECEMBER 31, THROUGH
---------------------------DECEMBER 31,
1995 1994 1993
------------ ------------------------
Acquisition of proved
properties..................... 10,680,422(a) 2,112,308 1,250,000
Exploration costs............... 193,159 4,240 --
Development costs............... 514,431 1,600,235 717,989
- --------
(a) Properties acquired from Patrick.
Results of operations for natural gas and oil producing activities follow:
PERIOD FROM
JULY 15, 1993
YEAR ENDED DECEMBER 31, THROUGH
---------------------------DECEMBER 31,
1994 1994 1993
------------ ------------------------
Sales to unaffiliated customers. 5,477,208 4,995,663 1,059,882
Production costs (lease
operating expense and taxes)... 1,029,501 684,131 194,054
Exploration expenses............ 193,159 4,240 --
Impairment of Oil and Gas
Properties..................... 157,000 -- --
Depreciation, depletion and
amortization................... 1,356,060 1,138,635 171,231
------------ ---------- ---------
2,735,720 1,827,006 365,285
------------ ---------- ---------
Results of operations before pro
forma income taxes............. 2,741,488 3,168,657 694,597
Pro forma income taxes
(Unaudited).................... 970,703 1,235,776 270,893
------------ ---------- ---------
Pro forma results of operations
(Unaudited).................... $ 1,770,785 1,932,881 423,704
============ ========== =========
La/Cal operated as a partnership since its formation to the date of the
business combination (August 15, 1995) and, accordingly, did not directly pay
income taxes. Pro forma income tax expense and the results of oil and gas
operations as adjusted for pro forma income taxes is reflected above for that
period in order to reflect the impact of income taxes as if La/Cal had been
organized as a corporation.
No income taxes have been reflected for the Company since the business
combination due to its estimate that net operating loss and statutory
depletion loss carryforwards will be utilized to offset future taxable income.
NOTE Q--RELATED PARTY TRANSACTIONS.
La/Cal did not have any employees and was dependent on Goodrich Oil Company
to provide substantially all management of oil and gas operations and
administrative functions. La/Cal was not required to pay Goodrich Oil Company
for such services. Goodrich Oil Company was the operator of record of the
majority of the oil and gas properties in which La/Cal had an interest and
owned joint interests in such properties.
The Company entered into additional transactions with Goodrich Oil Company
subsequent to the business combination as more fully described below. Goodrich
Oil Company is owned by Henry Goodrich who is the chairman of the Company and
the father of Walter G. Goodrich, the Company's President and Chief Executive
Officer.
33
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
Goodrich Oil Company continues to be the operator of record of certain oil
and gas properties in which the Company has an interest and Goodrich Oil
Company owns joint interests in such properties.
The Company is a party to a Joint Participation Agreement with Goodrich Oil
Company pursuant to which the Company and Goodrich Oil Company agree to offer
to the other a 50% participation interest in such company's share of all
drilling prospects and acquisitions of producing properties.
Included in accounts payable is $67,906 payable to Goodrich Oil Company at
December 31, 1995.
During 1995, the Company paid Goodrich Oil Company $222,530 for the
repayment of advances for business combination expenses and $50,132 for
general and administrative expenses.
The Company sold an airplane hangar and certain furniture and fixtures to
U.E. Patrick, Patrick's former chairman. Mr. Patrick paid the Company $137,329
for such items. The Company paid $118,750 during 1995 to Mr. Patrick under the
terms of a three-year consulting agreement expiring in August, 1998.
The Company paid $58,250 to Henry Goodrich during 1995 under a consulting
agreement which expires in August, 2000.
In connection with the business combination, Mr. Leo E. Bromberg, a partner
and member of the management committee of La/Cal received a finder's fee paid
in the form of 494,131 shares of the Company's common stock. Such shares were
included in the 19,765,226 shares of the Company's common stock received by
the La/Cal Partners in connection with the transactions.
NOTE R--CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Due to the nature of the industry the Company sells its oil and natural gas
production to a limited number of purchasers and accordingly amounts
receivable from such purchasers could be significant. Additionally, the
Company receives net monthly payments from its partner, Mitchell Marketing
Company, in its pipeline joint venture. Revenues from these sources as a
percent of total revenues for the periods presented were as follows:
PERIOD FROM
JULY 15, 1993
YEAR ENDED DECEMBER 31, THROUGH
----------------------- DECEMBER 31,
1995 1994 1993
----------- ----------- -------------
Tenneco Gas Marketing Company.. -- 41% 70%
Seaber Corporation of
Louisiana..................... 55% 48% --
Mobil Oil Corporation.......... 16% -- --
Mitchell Marketing Company..... 9% -- --
NOTE S--SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The supplemental oil and gas reserve information that follows is presented
in accordance with Statement of Financial Accounting Standards No. 69 (SFAS
No. 69), Disclosures about Oil and Gas Producing Activities. The schedules
provide users with a common base for preparing estimates of future cash flows
and comparing reserves among companies. Additional background information
follows concerning the schedules.
34
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
The supplemental oil and gas reserve information that follows relates to the
properties contributed to La/Cal by its Partners prior to its formation
(period from January 1, 1993 through July 14, 1993), properties owned by
La/Cal subsequent to formation but prior to the business combination with
Patrick (period from July 15, 1993 through December 31, 1993, year ended
December 31, 1994 and period form January 1, 1995 through August 14, 1995) and
properties of the combined entities (period from August 15, 1995 through
December 31, 1995. Therefore, the supplemental oil and gas information for
1993 is presented on a combined basis to include the properties contributed to
La/Cal prior to its inception. All of the subject reserves are located in the
continental United States.
Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves
The Company's reserve information related to crude oil, condensate, and
natural gas liquids and natural gas was compiled based on evaluations
performed by several engineering firms and the Company internally for all
years presented.
Many assumptions and judgmental decisions are required to estimate reserves.
Quantities reported are considered reasonable, but they are subject to future
revisions, some of which may be substantial, as additional information becomes
available. Such additional knowledge may be gained as the result of reservoir
performance, new geological and geophysical data, additional drilling,
technological advancements, price changes, and other factors.
Regulations published by the Securities and Exchange Commission define
proved reserves as those volumes of crude oil, condensate, and natural gas
liquids and natural gas that geological and engineering data demonstrate with
reasonable certainty are recoverable from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those volumes
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those volumes expected to
be recovered as a result of making additional investment by drilling new wells
on acreage offsetting productive units or recompleting existing wells.
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to
Proved Oil and Gas Reserves
SFAS No. 69 requires calculation of future net cash flows using a ten
percent annual discount factor and year end prices, costs, and statutory tax
rates, except for known future changes such as contracted prices and
legislated tax rates.
The calculated value of proved reserves is not necessarily indicative of
either fair market value or present value of future cash flows because prices,
costs, and governmental policies do not remain static; appropriate discount
rates may vary; and extensive judgment is required to estimate the timing of
production. Other logical assumptions would likely have resulted in
significantly different amounts. Average crude oil prices received for oil and
the average price received by well for natural gas, effective at the end of
the year, were used for this calculation, and were $17.90 per Bbl and $2.01
per Mcf, respectively.
No income tax effect has been provided in the amounts below as of December
31, 1994 and 1993 due to the fact La/Cal was a partnership with all income
taxes being the responsibility of the partners themselves.
Schedule 3 also presents a summary of the principal reasons for change in
the standard measure of discounted future net cash flows for each of the three
years in the period ended December 31, 1995.
35
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
SCHEDULE 1--ESTIMATED NET PROVED GAS RESERVES (MCF)
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Proved:
Balance, beginning of period............. 21,983,004 17,550,038 9,313,693
Revisions of previous estimates.......... (5,727,528) (702,870) (653,255)
Purchase of minerals in place............ 5,324,607 4,380,429 3,769,789
Extensions, discoveries, and other
additions............................... 375,800 3,141,537 6,041,157
Production............................... (2,213,923) (2,386,130) (921,346)
Sales of minerals in place............... (854,771) -- --
---------- ---------- ----------
Balance, end of period..................... 18,887,189 21,983,004 17,550,038
========== ========== ==========
Proved developed:
Beginning of period...................... 18,839,882 13,729,911 8,026,445
End of period............................ 13,815,905 18,839,882 13,729,911
SCHEDULE 2--ESTIMATED NET PROVED OIL RESERVES (BARRELS)
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Proved:
Balance, beginning of period............. 523,722 209,941 68,796
Revisions of previous estimates.......... (236,934) (23,246) 51,806
Purchase of minerals in place............ 938,465 47,482 37,106
Extensions, discoveries, and other
additions............................... 3,389 326,033 59,463
Production............................... (102,731) (36,488) (7,230)
Sale of minerals in place................ (185,764) -- --
---------- ---------- ----------
Balance, end of period................... 940,147 523,722 209,941
---------- ---------- ----------
Proved, developed:
Beginning of period...................... 504,908 174,641 30,179
End of period............................ 920,557 504,908 174,641
SCHEDULE 3--STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO
PROVED OIL AND GAS RESERVES
DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Future cash inflows........................ $ 51,615 44,878 38,098
Future production and development cost..... (8,267) (3,803) (2,765)
Future income tax expense.................. (4,150) -- --
---------- ---------- ----------
Future net cash flows before income tax
expense................................... 39,198 41,075 35,333
10% annual discount for estimated timing of
cash flows................................ (12,316) (13,559) (13,900)
---------- ---------- ----------
Standardized measure of discounted future
net cash flows............................ $ 26,882 27,516 21,433
========== ========== ==========
36
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995
Principal sources of change in the standardized measure of discounted net
cash flows for the years shown:
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Net changes in prices and production cost,
including excise taxes.......................... $ 829 $(2,978) $ 840
Sales and transfers of oil and gas produced, net
of production costs............................. (4,448) (4,312) (1,676)
Net change due to revisions, extensions, and
discoveries..................................... (8,327) 4,662 6,899
Net change due to purchase and sales of minerals-
in-place........................................ 11,090 5,105 4,549
Development cost incurred during the period...... 531 1,600 718
Net change in income taxes....................... (3,475) -- --
Accretion of discount............................ 2,752 2,143 931
Change in production rates (timing) and other.... 414 (137) (141)
------- ------- -------
$ (634) $ 6,083 $12,120
======= ======= =======
37
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS:
We have audited the accompanying statement of revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners for the
period from January 1, 1993 through July 14, 1993. This financial statement is
the responsibility of the management of the owners of the properties. Our
responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the statement. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statement of revenues and direct operating expenses was
prepared for the purpose of complying with certain rules and regulations of
the Securities and Exchange Commission and are not intended to be a complete
financial presentation of the Properties Contributed to La/Cal Energy
Partners.
In our opinion, such statement of revenues and direct operating expenses
presents fairly, in all material respects, the revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners as described
in the note to the statement for the period from January 1, 1993 through July
14, 1993, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 31, 1995
38
PROPERTIES CONTRIBUTED TO LA/CAL ENERGY PARTNERS
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
PERIOD FROM
JANUARY 1,
1993
THROUGH
JULY 14,
1993
-----------
Revenues--oil and gas sales.................................. $ 946,939
Direct operating expenses--lease operating expenses and
production and property taxes............................... 136,808
---------
Excess of revenues over direct operating expenses............ $ 810,331
=========
BASIS OF PRESENTATION
The statement of revenues and direct operating expenses ("Statement") was
prepared from historical accounting records related to the properties. The
revenues and direct operating expenses relate to the net working interest in
the properties of their owners who ultimately contributed such properties to
La/Cal Energy Partners on July 15, 1993. Lease operating expenses include
labor, repairs and maintenance, fuel consumed and supplies utilized to operate
and maintain the wells and related equipment and facilities. The Statement
does not include general and administrative expenses, interest or provisions
for depreciation, depletion, amortization and dismantlement costs, or income
taxes.
Complete financial statements, including balance sheets, are not presented
as the properties were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the properties were not
segregated. It is not practicable to identify all assets, liabilities, or
indirect operating costs applicable to the properties.
39
GOODRICH PETROLEUM CORPORATION
CONSOLIDATED QUARTERLY INCOME INFORMATION
(UNAUDITED)
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER TOTAL
- ---- ---------- --------- --------- ---------- ---------
Revenues................. $1,133,420 1,047,620 1,549,524 2,443,848 6,174,412
Costs and expenses....... 675,368 568,837 1,295,987 2,496,909 5,037,101
Income (loss) before
extraordinary item and
income taxes............ 458,052 478,783 253,537 (53,061) 1,137,311
Extraordinary item--early
extinguishment of debt.. -- -- 482,906 -- 482,906
Net income (loss)........ 458,052 478,783 (229,369) (53,061) 654,405
Earnings per average
common share............. * * * $ -- *
1994
- ----
Revenues................. $ 881,912 1,115,823 1,637,786 1,377,925 5,013,446
Costs and expenses....... 539,017 631,418 888,803 939,390 2,998,628
Net income............... 342,895 484,405 748,983 438,535 2,014,818
Earnings per average
share common share....... * * * * *
- --------
* Earnings per share information not presented due to the entity not being a
taxable entity during the applicable periods. See pro forma presentation of
earnings per share.
As noted in Note B to the consolidated financial statements, the Company's
operational financial results reflect the operations solely of La/Cal for the
periods prior to August 15, 1995, whereas such results reflect the operations
of the combined entities for the periods subsequent to August 15, 1995.
Accordingly, the fourth quarter of 1995 amounts for revenues and costs and
expenses reflect the operations of the combined entities whereas such amounts
for the third quarter of 1995 reflect the operations solely of La/Cal from
July 1 through August 14, 1995 plus the operations of the combined entities
from August 15, 1995 through September 30, 1995.
The fourth quarter 1995 cost and expense amount contains 1) a charge for
impairment of oil and gas properties of $157,000, 2) a provision for state
franchise taxes of approximately $60,000 and 3) dry hole costs of
approximately $50,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
*
ITEM 11. EXECUTIVE COMPENSATION.
*
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
*
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
*
*Reference is made to information under the captions "Election of Directors",
"Executive Compensation and Other Information", "Security Ownership of Certain
Beneficial Owners and Management", and "Certain Relationships and Other
Transactions", in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
PAGE
-----
(a) 1. Financial Statements
The following consolidated financial statements of Goodrich
Petroleum Corporation are included in Part II, Item 8:
Independent Auditors' Report................................... 17
Consolidated Balance Sheets--December 31, 1995 and 1994........ 18-19
Consolidated Statements of Operations--Years ended December 31,
1995 and 1994, and period from July 15, 1993 (inception)
through December 31, 1993..................................... 20
Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and period from July 15, 1993 (inception) through
December 31, 1993............................................. 21
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1995 and 1994 and period from July 15, 1993
(inception) through December 31, 1993......................... 22
Notes to Consolidated Financial Statements--Years ended
December 31, 1995, 1994 and 1993.............................. 23-37
Independent Auditor's Report--Properties Contributed to La/Cal
Energy Partners............................................... 38
Statement of Revenues and Direct Operating Expenses--Period
from January 1, 1993 through July 14, 1993--Properties
Contributed to La/Cal Energy Partners......................... 39
Consolidated Quarterly Income Information (Unaudited).......... 40
2. Financial Statement Schedules
The schedules for which provision is made in Regulation S-X are not
required under the instructions contained therein, are inapplicable,
or the information is included in the footnotes to the financial
statements.
(b) Reports on Form 8-K
During the fourth quarter 1995 the Company filed a Form 8-K dated October
18, 1995 reporting the conversion of 363,851 shares of its Series A
Convertible Preferred Stock into 2,252,496 shares of its common stock.
(c) Exhibits
3. (i) Amended and Restated Certificate of Incorporation of the Company
dated August 15, 1995, and filed with the Secretary of State of the
State of Delaware on August 15, 1995 (Incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report filed on Form 10-Q for
the three months ended September 30, 1995).
(ii) Bylaws of the Company, as amended and restated (Incorporated by
reference to Exhibit 3.2 of the Company's Quarterly Report filed on
Form 10-Q for the three months ended September 30, 1995).
4.1 Credit Agreement Between Goodrich Petroleum Company of Louisiana and
Compass Bank-Houston dated August 15, 1995 and Amendment thereto dated
December 15, 1995.
4.2 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.6 of the Company's Registration Statement No. 33-01077 filed
February 20, 1996 on Form S-8).
10.1 Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by
reference to
Exhibit 10.21 to the Company' Registration Statement filed June 13,
1995 on Form S-4 (File
No. 33-58631)).
10.2 Goodrich Petroleum Corporation 1995 Nonemployee Director Stock Option
Plan (Incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-
58631)).
42
10.3 Patrick Petroleum Company 1993 Stock Option Plan (Incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement
filed June 13, 1995 on Form S-4 (File No. 33-58631)).
10.4 Form of Joint Participation Agreement between the Company and Goodrich
Oil Company (Incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement filed June 13, 1993 on Form S-4 (No.
33-58631)).
10.5 Form of Marketing Agreement between the Company and Natural Gas
Ventures, L.L.C. (Incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement filed June 13, 1993 on Form S-4 (No.
33-58631)).
10.6 Natural Gas Marketing Joint Venture Agreement between Seaber
Corporation and Natural Gas Ventures, L.L.C. (Incorporated by
reference to Exhibit 10.20 to the Company's Registration Statement
filed June 13, 1993 on Form S-4 (No. 33-58631)).
10.7 Form of Consulting Services Agreement between the Company and Henry
Goodrich (Incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement filed June 13, 1993 on Form S-4 (No. 33-
58631)).
10.8 Form of Employment Agreement between the Company and Walter G.
Goodrich (Incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement filed June 13, 1993 on Form S-4 (No. 33-
58631)).
10.9 Consulting Agreement with U.E. Patrick (Incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement filed June 13,
1993 on Form S-4 (No. 33-58631)).
10.10 Consulting Services Agreement between Leo E. Bromberg and Goodrich
Petroleum Corporation (Incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report filed on Form 10-Q for the three months
ended September 30, 1995.)
21 Subsidiaries of the Registrant
Goodrich Petroleum Company of Louisiana--incorporated in state of
Nevada
Subsidiaries of Goodrich Petroleum Company of Louisiana
Drilling & Workover Company, Inc.--incorporated in state of
Louisiana
LECE, Inc.--incorporated in the state of Texas
National Market Company--incorporated in state of Delaware
Pecos Pipeline & Producing Company--incorporated in the state of
Texas
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule, included elsewhere herein
43
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) 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.
GOODRICH PETROLEUM CORPORATION
(Registrant)
Date: March 28, 1996 /s/ Walter G. Goodrich
By: _________________________________
Walter G. Goodrich, President,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
Date: March 28, 1996
SIGNATURE TITLE
--------- -----
/s/ Walter G. Goodrich
- -------------------------------------------
Walter G. Goodrich President, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Roland L. Frautschi
- -------------------------------------------
Roland L. Frautschi Senior Vice President, Treasurer and Chief
Financial Officer (Principal Financial
Officer)
/s/ Glynn E. Williams, Jr.
- -------------------------------------------
Glynn E. Williams, Jr. Vice President (Principal Accounting
Officer)
/s/ Sheldon Appel
- -------------------------------------------
Sheldon Appel Director
/s/ Jeff H. Benhard
- -------------------------------------------
Jeff H. Benhard Director
/s/ Basil M. Briggs
- -------------------------------------------
Basil M. Briggs Director
/s/ Benjamin F. Edwards, II
- -------------------------------------------
Benjamin F. Edwards, II Director
/s/ Henry Goodrich
- -------------------------------------------
Henry Goodrich Director
/s/ James R. Jenkins
- -------------------------------------------
James R. Jenkins Director
/s/ Wayne G. Kees
- -------------------------------------------
Wayne G. Kees Director
- -------------------------------------------
John C. Napley Director
/s/ Arthur A. Seeligson, III
- -------------------------------------------
Arthur A. Seeligson, III Director
/s/ J. Michael Watts
- -------------------------------------------
J. Michael Watts Director
44