Filed Pursuant to Rule 424(b)(3)
Registration No. 333-31279
PROSPECTUS
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28,571,429 SHARES
[LOGO OF MCMORAN OIL & GAS APPEARS HERE]
COMMON STOCK
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McMoRan Oil & Gas Co., a Delaware corporation ("MOXY" or the "Company"), is
distributing to holders of record of shares of its common stock, par value
$.01 per share (the "Common Stock"), transferable subscription rights (the
"Rights") to subscribe for and purchase additional shares of Common Stock for
a price of $3.50 per share (the "Subscription Price"). Each holder of Common
Stock of record as of the close of business on October 10,, 1997 (the "Record
Date"), is entitled to receive approximately 2.0 Rights for each share of
Common Stock held as of such time. The number of Rights distributed by the
Company to each record holder of Common Stock will be rounded up to the
nearest whole number and no fractional Rights or cash in lieu thereof will be
distributed or paid by the Company. Rights holders ( the "Holders") may
purchase one share of Common Stock for each Right held. Each Right also
carries the right to subscribe (the "Oversubscription Privilege") at the
Subscription Price for a pro rata portion (based on the number of Rights so
exercised) of the shares of Common Stock, if any, that are not subscribed for
through the exercise of the Rights. The offering by the Company of the shares
of Common Stock purchasable upon exercise of the Rights, including the
Oversubscription Privilege, is referred to herein as the "Rights Offering."
See "The Rights Offering."
On July 14, 1997, the Company entered into an agreement with Freeport-
McMoRan Resource Partners, Limited Partnership ("FRP"), a publicly traded
limited partnership of which Freeport-McMoRan Inc. ("FTX") is the
administrative managing general partner, pursuant to which, subject to
completion of the Rights Offering, MOXY will acquire the two producing oil and
gas properties (the "MCN Producing Properties") developed as part of MOXY's
exploratory drilling program with affiliates of MCN Energy Group Inc. (the
"MOXY/MCN Program") for $26 million, subject to adjustment, and repay all of
the indebtedness incurred by MOXY under the MOXY/MCN Program. The MOXY/MCN
Program will then be terminated and MOXY and FRP will enter into an aggregate
$200 million multi-year exploration program (the "MOXY/FRP Exploration
Program").
The Company also has entered into a standby purchase agreement (the "Standby
Purchase Agreement") with FRP pursuant to which, subject to certain
conditions, FRP has provided a standby commitment (the "Standby Commitment")
to purchase for the Subscription Price all of the shares of Common Stock that
are not purchased by Holders in the Rights Offering, pursuant to which FRP may
acquire as much as 67% of the oustanding Common Stock if no Rights are
exercised. FRP will receive a $6 million fee (the "Standby Fee") for the
Standby Commitment, acquiring and holding the MCN Producing Properties for
resale to MOXY and entering into the MOXY/FRP Exploration Program. FRP also
has the option to purchase additional shares of Common Stock so that if
following the Rights Offering it has not acquired 30% of the outstanding
Common Stock pursuant to the Standby Commitment, it may acquire at the
Subscription Price such additional shares of Common Stock as are necessary to
provide it with up to a 30% ownership position in MOXY (the "FRP Purchase
Option").
The Rights Offering, together with the Standby Commitment and FRP Purchase
Option, is part of a comprehensive plan to recapitalize the Company to enable
it to enter into the MOXY/FRP Exploration Program, purchase the MCN Producing
Properties and repay indebtedness incurred under the MOXY/MCN Program. There
can be no assurance that the Company will receive significant proceeds, if
any, from the Rights Offering. However, the Standby Purchase Agreement
requires FRP to purchase all of the shares of Common Stock that are not
purchased by Holders in the Rights Offering. If Holders do not exercise a
significant number of Rights and FRP purchases a significant number of shares
of Common Stock pursuant to the Standby Commitment or FRP Purchase Option, FRP
may acquire the power to control or significantly influence the management of
the Company. See "Risk Factors--Potential Change of Control of the Company,"
"Use of Proceeds" and "Certain Relationships and Related Transactions."
The Rights Offering and the Rights will expire at 5:00 p.m., New York City
time, on November 13, 1997 unless extended by the Company (subject to FRP's
consent) from time to time (such date, as it may be extended, is referred to
herein as the "Expiration Date"), provided that the Expiration Date shall in
no event be later than December 12, 1997. Holders who exercise their Rights
will not be entitled to revoke their subscriptions. Holders who do not
exercise or sell their rights will relinquish any value inherent in the
Rights. Accordingly, Holders are strongly urged to exercise or sell their
rights. See "Risk Factors--Dilution."
The Common Stock is traded on the Nasdaq National Market ("Nasdaq") under
the symbol "MOXY." On July 14, 1997 (the last day on which trading prices were
reported prior to the public announcement of the Rights Offering) and on
October 8, 1997 the last reported per share sales price of the Common Stock
was $3 5/8 and $5 1/2, respectively. It is anticipated that the Rights will
trade on Nasdaq under the symbol "MOXYR." Certain registered broker-dealers
have indicated to the Company that they intend to make a market in the Rights.
There can be no assurance, however, that a market for the Rights will develop.
Rights may also be sold in over-the-counter and private sales transactions.
Orders to sell Rights must be received by the Subscription Agent not later
than 11:00 a.m. on the third Nasdaq trading day prior to the Expiration Date
if a Holder wishes to sell Rights through the Subscription Agent.
CURRENT STOCKHOLDERS OF THE COMPANY WHO DO NOT PARTICIPATE IN THE RIGHTS
OFFERING WILL SUFFER A SUBSTANTIAL DILUTION IN THEIR RELATIVE PERCENTAGE
OWNERSHIP IN THE COMPANY UPON ISSUANCE OF COMMON STOCK TO HOLDERS EXERCISING
RIGHTS AND TO FRP.
SEE "RISK FACTORS," BEGINNING ON PAGE 11, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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UNDERWRITING
SUBSCRIPTION DISCOUNTS AND PROCEEDS TO
PRICE COMMISSIONS COMPANY(1)
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Per share........................ $3.50 -- $3.50
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Total............................ $100,000,000 -- $100,000,000
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(1) Before deducting estimated expenses of $7.0 million payable by the
Company, including the Standby Fee payable to FRP.
THE DATE OF THIS PROSPECTUS IS OCTOBER 9, 1997
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C., 20549, and at the regional offices of the Commission located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661 and at
Seven World Trade Center, 13th Floor, New York, New York, 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed
rates. The Commission maintains a Website that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission (http://www.sec.gov). The Common Stock is
traded on Nasdaq and reports, proxy statements and other information may also
be inspected at the offices of the National Association of Securities Dealers,
Inc., at 1735 K Street, N.W., Washington, DC 20006.
The Company has filed a registration statement on Form S-3 (together with
all amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Common Stock issuable upon exercise of
the Rights. This Prospectus, which is filed as a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document filed as an exhibit to the Registration Statement
are summaries of the terms of such contracts, agreements or documents.
Reference is made to each such exhibit for a more complete description of the
matters involved, and such statements are qualified in their entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-23870), (ii) Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997 and June 30, 1997 (iii) Form 10, as amended,
initially filed on April 19, 1994, (iv) Current Reports on Form 8-K dated
January 7, 1997, May 9, 1997, July 1, 1997, July 15, 1997 and September 2,
1997 and (v) Proxy Statement dated September 5, 1997 which have been filed by
the Company with the Commission pursuant to the Exchange Act, are by this
reference incorporated in and made a part of this Prospectus.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the Rights Offering shall be
deemed to be incorporated by reference herein and to be part of this
Prospectus from their respective dates of filing. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, upon a written or oral request, a copy of
any or all of the documents that are incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
either (a) McMoRan Oil & Gas Co., Attention: Secretary, 1615 Poydras Street,
New Orleans, Louisiana, 70112 (Telephone: (504) 582-4000) or (b) Georgeson &
Company Inc., 88 Pine Street, 30th Floor, Wall Street Plaza, New York, New
York 10005 (Telephone: (212) 440-9800).
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements contained elsewhere in this Prospectus or
incorporated by reference herein and does not purport to be complete. Reference
is made to, and this Prospectus Summary is qualified in its entirety by and
should be read in conjunction with, the more detailed information contained
elsewhere in this Prospectus or incorporated by reference herein. Prospective
investors should carefully consider the information set forth under "Risk
Factors."
THE COMPANY
MOXY is an independent oil and gas company engaged in the exploration,
development and production of oil and natural gas. The Company's operations are
conducted offshore in the Gulf of Mexico (the "Gulf") and onshore in the Gulf
Coast area. The Company commenced operations in May 1994 following the
distribution of all of the Company's Common Stock to the stockholders of FTX in
order to carry on substantially all of the oil and natural gas exploration
activities previously conducted by FTX. The Company and its predecessors have
conducted exploration, development and production operations offshore in the
Gulf and onshore in the Gulf Coast and other areas for more than 25 years,
which have provided the Company an extensive geological and geophysical
database, and extensive technical and operational expertise.
The Rights Offering is part of a comprehensive plan to recapitalize the
Company to enable MOXY to implement an aggregate $200 million, multi-year
exploration program with FRP, to purchase the MCN Producing Properties and to
repay the indebtedness incurred by MOXY under the MOXY/MCN Program. At a
special meeting of MOXY's stockholders on October 9, 1997, MOXY's stockholders
approved the Rights Offering, the Standby Commitment, the FRP Purchase Option,
purchase of the MCN Producing Properties and the MOXY/FRP Exploration Program.
See "Business and Properties--MOXY/FRP Exploration Program" and "The Rights
Offering."
In July 1997, FRP agreed to acquire from affiliates of MCN Energy Group Inc.
("MCN") their contractual rights to the MOXY/MCN Program, the MCN Producing
Properties and other exploratory properties acquired under the MOXY/MCN Program
for $31.0 million, as adjusted for the net revenues and costs attributable to
such properties from April 1, 1997 until their acquisition by FRP, and an
additional amount equal to the amount loaned by MCN to MOXY under the MOXY/MCN
Program. On August 4, 1997, FRP paid MCN, after adjustments, $34.0 million for
such assets together with $12.4 million for the outstanding indebtedness. MCN
is not affiliated with either FRP or MOXY and will no longer have any
involvement or interest in the MOXY/MCN Program.
MOXY and FRP have amended the MOXY/MCN Program to extend the program term,
include their interests in the seven offshore leases acquired by MOXY and FRP
at the Central Gulf of Mexico lease sale held in March 1997 and provide for the
conduct of mutually agreed exploration projects until the earlier of December
31, 1997 or the date of completion of the Rights Offering. The amendment also
provides that FRP will reimburse MOXY for approximately $290,000 of overhead
per month and will continue to advance funds to MOXY under the MOXY/MCN Program
during the remaining program term.
Upon completion of the Rights Offering, MOXY will acquire the MCN Producing
Properties for $26.0 million, subject to the adjustments described above for
revenues and costs attributable to the MCN Producing Properties from April 1,
1997 until their acquisition by MOXY plus interest, calculated on the daily
outstanding balance of the $26.0 million purchase price, as adjusted, from
August 4, 1997 until MOXY's acquisition of the properties, at an annual rate
publicly announced by The Chase
3
Manhattan Bank from time to time plus 2%. At the same time, MOXY will repay to
FRP all amounts advanced to MOXY under the MOXY/MCN Program. Thereafter, MOXY
will retain a 100% interest in the MCN Producing Properties, and MOXY and FRP
will dedicate to the MOXY/FRP Exploration Program all other oil and gas
properties subject to the MOXY/MCN Program. See "Business and Properties--
MOXY/MCN Program" and "--MOXY/FRP Exploration Program."
The Company's business strategy is to create value for its stockholders
through the discovery of oil and gas reserves in its exploration and
development activities. MOXY expects to continue to concentrate its efforts in
selected geographic areas where the Company's management team has significant
exploration experience. The Company evaluates substantially all of its
exploratory prospects with 3-D seismic surveys prior to drilling. MOXY intends
to continue to generate exploratory prospects and evaluate selected
opportunities to acquire producing oil and gas properties and to maximize its
geological and geophysical experience and expertise by using 3-D seismic data
and other state-of-the-art technology.
RECENT DEVELOPMENTS
On August 27, 1997, FTX, which is the administrative managing general partner
of and owns a 51.6% interest in FRP, and IMC Global Inc. ("IGL") announced that
they had executed an Agreement and Plan of Merger dated as of August 26, 1997,
in which FTX and IGL agree to merge, with IGL as the surviving entity. The
proposed combination, which is subject to several conditions, including
approval by the stockholders of both companies, will result in the acquisition
of control by IGL of FTX and, as a result, FRP. Immediately prior to the
merger, the sulphur business and certain related oil and gas assets owned by
FRP and IGL, including Main Pass, will be transferred to a subsidiary of FRP
and the shares of the subsidiary will be distributed to the FRP public
unitholders and FTX shareholders on a pro rata basis. The transactions, if
consummated, will not have any impact on the sale of the MCN Producing
Properties to MOXY, the consummation of the transactions contemplated by the
Standby Purchase Agreement or the establishment of the MOXY/FRP Exploration
Program. FTX and IGL have stated that the merger transaction is expected to be
completed by the end of 1997.
The principal executive offices of the Company are located at 1615 Poydras
Street, New Orleans, Louisiana 70112, and its telephone number at such offices
is (504) 582-4000.
THE RIGHTS OFFERING
Rights......................... Each holder of Common Stock will receive
approximately 2.0 transferable Rights for
every share of Common Stock held of record
as of the close of business on October 10,
1997 (the "Record Date"). The number of
Rights distributed by the Company to each
Common Stock holder will be rounded up to
the nearest whole number. An aggregate of
approximately 28.6 million Rights will be
distributed. Each Right will be exercisable
for one share of Common Stock. If all the
Rights are exercised, an aggregate of
approximately 28.6 million shares of Common
Stock (the "Underlying Shares") will be sold
upon exercise of the Rights. See "The Rights
Offering--The Rights."
Subscription Price............. $3.50 in cash per share of Common Stock.
Basic Subscription Privilege... Holders are entitled to purchase for the
Subscription Price one share of Common Stock
for each Right held
4
(the "Basic Subscription Privilege"). See
"The Rights Offering--Subscription
Privileges--Basic Subscription Privilege."
Oversubscription Privilege..... Each Holder who elects to exercise in full
his or her Basic Subscription Privilege may
also subscribe at the Subscription Price for
additional Underlying Shares available as a
result of unexercised Rights, if any, (the
"Oversubscription Privilege"). If an
insufficient number of Underlying Shares are
available to satisfy fully all exercises of
the Oversubscription Privilege, the
available Underlying Shares will be prorated
among Holders who exercise their
Oversubscription Privilege based on the
respective numbers of Rights exercised by
such Holders pursuant to the Basic
Subscription Privilege. See "The Rights
Offering--Subscription Privileges--
Oversubscription Privilege."
Record Date.................... October 10, 1997.
Expiration Date................ November 13, 1997, at 5:00 p.m., New York
City time, unless extended. The Company may
extend the Expiration Date with FRP's
consent and will announce any extension by
not later than 9:00 a.m., New York time, on
the business day following the previously
scheduled Expiration Date.
Any extension of the Expiration Date will be
for a period of at least three Nasdaq
trading days, provided that the Expiration
Date shall in no event be later than
December 12, 1997. See "The Rights
Offering--Expiration Date."
Standby Purchase Commitment.... FRP has agreed, subject to the terms and
conditions of the Standby Purchase
Agreement, to purchase at the Subscription
Price all of the shares of Common Stock
offered hereby that are not purchased by the
Holders. Pursuant to the Standby Purchase
Agreement, FRP also has the option to
purchase (the "FRP Purchase Option")
additional shares of Common Stock so that if
following the Rights Offering it has not
acquired 30% of the outstanding Common Stock
pursuant to the Standby Commitment, it may
acquire at the Subscription Price such
additional shares of Common Stock as are
necessary to provide it with up to a 30%
ownership position in MOXY. MOXY has agreed
to pay FRP a fee (the "Standby Fee") of $6
million, payable upon closing of the Rights
Offering, for providing the Standby
Commitment, acquiring and holding the MCN
Producing Properties for resale to MOXY and
entering the MOXY/FRP Exploration Program.
See "The Rights Offering--Standby Purchase
Agreement" and "Risk Factors--Potential
Change of Control of the Company."
5
Shares of Common Stock
Outstanding after Rights
Offering....................... Based on the number of shares outstanding on
the date of this Prospectus, approximately
42.7 million shares will be outstanding
following the Rights Offering (before giving
effect to any exercise of the FRP Purchase
Option). If all Rights are exercised and the
FRP Purchase Option is exercised in full,
approximately 61.0 million shares of Common
Stock will be outstanding.
Transferability of Rights...... The Rights are transferable and will be
evidenced by transferable subscription
certificates (a "Subscription Certificate").
It is anticipated that they will trade on
Nasdaq under the symbol "MOXYR" until the
close of business on the last Nasdaq trading
day prior to the Expiration Date. Certain
registered broker-dealers have indicated
that they intend to make a market in the
Rights during the period the Rights are
outstanding. No assurance can be given,
however, that a market for the Rights will
develop or, if such a market develops, how
long it will continue.
The Subscription Agent will attempt to sell
Rights for Holders who deliver a
Subscription Certificate with the
instruction for sale contained on the
reverse side thereof properly executed to
the Subscription Agent no later than 11:00
a.m., New York City time, on the third
Nasdaq trading day preceding the Expiration
Date. There can be no assurance that the
Subscription Agent will be able to sell any
Rights or as to the price that the
Subscription Agent will be able to obtain if
it is able to effect any such sale. See "The
Rights Offering--Method of Transferring
Rights."
How to Exercise Rights......... The Basic Subscription Privilege and
Oversubscription Privilege may be exercised
by properly completing and signing the
Subscription Certificate and forwarding it
(or following the Guaranteed Delivery
Procedures described below), with payment of
the Subscription Price for each Underlying
Share subscribed for pursuant to the Basic
Subscription Privilege and the
Oversubscription Privilege, to the
Subscription Agent on or prior to the
Expiration Date. If the mail is used to
forward Subscription Certificates, it is
recommended that insured, registered mail be
used. No interest will be paid on funds
delivered upon exercise of the Basic
Subscription Privilege or the
Oversubscription Privilege. See "The Rights
Offering--Exercise of Rights."
Once a holder of Rights has exercised the
Basic Subscription Privilege or the
Oversubscription Privilege, such exercise
may not be revoked. See "The Rights
Offering--No Revocation."
6
How Foreign and Certain Other
Stockholders Can Exercise
Rights......................... Subscription Certificates will not be mailed
to Holders whose addresses are outside the
United States or who have an APO or FPO
address, but will be held by the
Subscription Agent for their account. To
exercise such Rights, such Holders must
notify the Subscription Agent on or prior to
11:00 a.m., New York City time, on the third
Nasdaq trading day preceding the Expiration
Date, and must establish to the satisfaction
of the Subscription Agent that such exercise
is permitted under applicable law. If such a
Holder does not notify the Subscription
Agent and provide acceptable instructions to
the Subscription Agent by such time, such
Rights will be sold, if feasible, and the
net proceeds, if any, remitted to such
Holder. See "The Rights Offering--Foreign
and Certain Other Stockholders."
Persons Holding Shares, or
Wishing to Exercise Rights,
Through Others................. Persons holding shares of Common Stock and
receiving the Rights distributed with
respect thereto through a broker, dealer,
commercial bank, trust company or other
nominee, as well as persons holding
certificates of Common Stock personally who
would prefer to have such institutions
effect transactions relating to the Rights
on their behalf, should contact the
appropriate institution or nominee and
request it to effect the transaction for
them. See "The Rights Offering--Exercise of
Rights."
Issuance of Common Stock....... Certificates representing shares of Common
Stock purchased in the Rights Offering will
be delivered as soon as practicable after
the Expiration Date. See "The Rights
Offering--Subscription Privileges."
Use of Proceeds................ The net proceeds received by the Company
from the Rights Offering and Standby
Commitment, after payment of fees and
expenses, including the Standby Fee, will be
approximately $93 million. The net proceeds,
together with any proceeds from the exercise
of the FRP Purchase Option, will be used to
purchase the MCN Producing Properties, to
repay the debt incurred by MOXY under the
MOXY/MCN Program, to fund a portion of the
Company's estimated capital requirements
under the MOXY/FRP Exploration Program and
for additional working capital and general
corporate purposes. MOXY will not purchase
the MCN Producing Properties or establish
the MOXY/FRP Exploration Program if the
Standby Commitment is not
7
fulfilled and will use the net proceeds from
the Rights Offering for additional working
capital and general corporate purposes. See
"Use of Proceeds," "The Rights Offering--The
Rights" and "Certain Relationships and
Related Transactions."
Certain Federal Income Tax
Considerations................. For United States federal income tax
purposes, Holders generally will not
recognize taxable income in connection with
the issuance to them or exercise by them of
Rights. Holders may incur a gain or loss
upon the sale of the Rights or the shares of
Common Stock acquired upon exercise of the
Rights. See "Certain Federal Income Tax
Considerations."
Subscription Agent............. ChaseMellon Shareholder Services, L.L.C. See
"The Rights Offering--Subscription Agent."
Information Agent.............. Georgeson & Company Inc. See "The Rights
Offering--Information Agent."
Risk Factors................... There are substantial risks in connection
with this offering that should be considered
by prospective purchasers. See "Risk
Factors."
8
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company for the six months ended June 30, 1997 and 1996 and for each of the
three years in the period ended December 31, 1996 (since inception). The table
also sets forth unaudited pro forma financial information as of and for the six
months ended June 30, 1997 and for the year ended December 31, 1996 based on
the assumptions described in the footnotes below. The annual historical
information is derived from the audited financial statements of the Company and
the historical information for the six-month periods ended June 30,1997 and
1996 is unaudited. The historical and pro forma results of operations are not
necessarily indicative of future results. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results Of Operations" and the Company's historical and pro forma financial
statements and notes thereto included elsewhere in this Prospectus.
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------- ----------------------------------------
PRO FORMA(1) PRO FORMA(1)
1997 1997 1996 1996 1996 1995 1994(2)
------------ ------- ------- ------------ ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Oil and gas sales...... $ 11,188 $ 4,203 $ 1,204 $ 7,410 $ 2,434 $ 2,722 $ 174
Management fees........ 818 818 818 1,636 1,636 545 --
-------- ------- ------- ------- ------- -------- --------
Total revenues.......... 12,006 5,021 2,022 9,046 4,070 3,267 174
-------- ------- ------- ------- ------- -------- --------
Costs and expenses:
Production and
delivery, including
depreciation and
amortization.......... 11,471 5,312 802 4,525 1,500 2,623 --
Exploration expenses... 4,097 4,097 3,871 9,818 9,818 11,756 15,518
General and
administrative
expenses.............. 1,353 1,353 1,384 2,635 2,635 3,687 2,338
Gain on sale of oil and
gas property.......... (2,289) (2,289) -- -- -- -- --
-------- ------- ------- ------- ------- -------- --------
Total costs and
expenses............... 14,632 8,473 6,057 16,978 13,953 18,066 17,856
-------- ------- ------- ------- ------- -------- --------
Operating loss.......... (2,626) (3,452) (4,035) (7,932) (9,883) (14,799) (17,682)
Interest expense........ -- (681) (7) -- (403) -- --
Other income, net....... 249 249 237 424 424 164 2,482
-------- ------- ------- ------- ------- -------- --------
Net loss................ $ (2,377) $(3,884) $(3,805) $(7,508) $(9,862) $(14,635) $(15,200)
======== ======= ======= ======= ======= ======== ========
Net loss per share...... $ (0.06) $ (0.27) $ (0.27) $ (0.18) $ (0.71) $ (1.06) $ (1.10)
Average shares
outstanding............ 42,707 14,136 13,847 42,469 13,898 13,772 13,770
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital......... $ 50,244 $(3,076) $ 2,368 $ 2,972 $ 8,257 $ 15,063
Oil and gas properties,
net.................... 48,489 19,322 14,125 18,231 9,878 17,094
Production loan, less
current portion........ -- 10,980 2,000 12,391 530 --
Total assets............ 111,474 30,627 21,966 30,980 21,633 34,425
Stockholders' equity.... 97,625 4,625 14,052 8,246 17,605 32,157
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(1) Adjusted to reflect consummation of the Rights Offering (assuming exercise
of all the Rights), the application of a portion of the net proceeds to
purchase the MCN Producing Properties and repay the Company's debt under
the MOXY/MCN Program, the purchase of certain oil and gas interests and the
formation of the MOXY/FRP Exploration Program, as if each had occurred as
of January 1, 1996 in the statement of operations data, and as of June 30,
1997 for the balance sheet data. No effect is given to any exercise of the
FRP Purchase Option.
Assuming the same transactions occurred and the FRP Purchase Option was
exercised in full, the Pro Forma Statement of Operations Data would be
unchanged, with the exception of average shares outstanding and net loss per
share (60,985,000 shares and $0.04 per share for the 1997 period and
60,747,000 shares and $0.12 per share for 1996). Pro Forma Balance Sheet
Data as of June 30, 1997 would change as follows (in thousands):
Working capital................. $114,217
Total assets.................... 175,447
Stockholders' equity............ 161,598
(2) Reflects the period since inception (May 1994).
9
RESERVE DATA
The following table sets forth summary information with respect to the proved
oil and gas reserves owned by the Company and those attributable to the MCN
Producing Properties (Vermilion Block 160 Field Area and Vermilion Block 410
Field) at May 31, 1997, as estimated by Ryder Scott Company, Petroleum
Engineers ("Ryder Scott"). For additional information relating to the oil and
gas reserves of the Company and attributable to the MCN Producing Properties,
see "Business and Properties--Oil and Gas Reserves," and note 7 to the
Company's audited financial statements and Note 2 of the audited financial
statements of the MCN Producing Properties included elsewhere in this
Prospectus.
PRESENT VALUE OF
FUTURE NET CASH FLOWS
OIL GAS AT A 10% DISCOUNT RATE
------------------ ---------------- --------------------------
MCN MCN MCN
PRODUCING PRODUCING PRODUCING
MOXY PROPERTIES MOXY PROPERTIES MOXY PROPERTIES
------- ---------- ----- ---------- ----------- --------------
(BBLS) (MMCF) (IN THOUSANDS)
RESERVE DATA AS OF MAY
31, 1997:
Proved Developed........ 70,442 102,919 6,790 9,638 $10,431 $15,153
Proved Undeveloped...... 55,933 77,443 2,928 3,098 2,814 4,345
------- ------- ----- ------ ----------- -----------
Total................... 126,375 180,362 9,718 12,736 $13,245 $19,498
======= ======= ===== ====== =========== ===========
- --------
(1) In preparing such estimates, Ryder Scott used prices of $20.21 per barrel
of oil and $2.21 per Mcf of gas, the weighted average prices that the
Company estimates it would have received, assuming production from all of
the properties with proved reserves.
OPERATING DATA
The following table sets forth summary information with respect to the
production of oil and gas and average sales price received by the Company for
the six months ended June 30, 1997 and 1996 and the years ended December 31,
1996 and 1995. The table also sets forth unaudited pro forma information for
the six months ended June 30, 1997 and the year ended December 31, 1996 that
gives effect to the acquisition of the MCN Producing Properties. See "Business
and Properties."
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ ------------------------------
PRO FORMA(1) PRO FORMA(1)
1997 1997 1996 1996 1996 1995
------------ --------- ------- ------------ ------- ---------
PRODUCTION DATA:
Production:
Oil (Bbls)............. 23,500 9,400 15,800 72,500 29,000 45,000
Gas (Mcf).............. 4,052,500 1,621,000 306,700 1,577,500 631,000 1,093,000
Average sales price per
unit:
Oil ($/Bbl)............ $21.89 $21.89 $20.76 $22.22 $22.22 $18.83
Gas ($/Mcf)............ $ 2.44 $ 2.44 $ 2.76 $ 2.72 $ 2.72 $ 1.63
- --------
(1) Gives effect to the acquisition of the MCN Producing Properties as if
consummated at the beginning of the periods presented and should be read in
conjunction with the unaudited pro forma financial statements of the
Company and notes thereto included elsewhere in this Prospectus.
10
RISK FACTORS
Holders of the Company's Common Stock should consider carefully the
following risk factors relating to the business of MOXY and the Rights
Offering, together with the information and financial data set forth elsewhere
in this Prospectus in connection with an investment in the Common Stock
offered hereby.
LIMITED OPERATING HISTORY AND SIGNIFICANT HISTORICAL OPERATING LOSSES
The Company commenced operations in 1994. The Company has only two producing
fields, which have been in production for only a short period of time, making
proved reserves and levels of future production attributable to these fields
less susceptible to estimation than fields with longer production histories.
As a result of the Company's exploratory drilling, the Company has incurred
significant operating losses to date. The Company experienced net losses of
$9.9 million, $14.6 million and $15.2 million for the years ended December 31,
1996, 1995 and 1994, respectively, and $3.9 million for the six months ended
June 30, 1997. As of June 30, 1997, the Company had an accumulated deficit of
$43.6 million. The Company's future viability must be considered in light of
the risks and difficulties frequently encountered by companies engaged in the
early stages of oil and gas exploration, development and production
activities.
SUBSTANTIAL CAPITAL REQUIREMENTS
The development of the Company's business will continue to require
substantial expenditures. The Company's future financial results will depend
primarily on its ability to locate hydrocarbons in commercial quantities and
on the market prices for oil and gas. There can be no assurance that the
Company will achieve or sustain profitability or positive cash flows from
future operating activities.
The Company makes, and will continue to make, substantial capital
expenditures for the exploration, development, and production of oil and
natural gas reserves and related projects. If the Company fails to discover
significant reserves, experiences operating difficulties or if oil and gas
prices decline and reduce cash generated from operations, the Company may be
required to obtain additional financing to fund its operations. No assurance
can be given that such financing will be available, and if it is not
available, the Company may be required to curtail its operations.
FRP's obligations to provide the Standby Commitment, sell the MCN Producing
Properties to MOXY and establish the MOXY/FRP Exploration Program are subject
to customary closing conditions. If such conditions are not satisfied or
waived, FRP will not fulfill the Standby Commitment, sell the MCN Producing
Properties to MOXY or establish the MOXY/FRP Exploration Program. To the
extent Rights remain unexercised, failure to close the Standby Commitment will
result in less proceeds to the Company than expected and may limit the
Company's exploration and development activities. The Company cannot predict
the amount of proceeds that it will receive from the Rights Offering if the
Standby Commitment is not fulfilled. See "Use of Proceeds" and "The Rights
Offering--The Rights."
DETERMINATION OF SUBSCRIPTION PRICE AND MARKET CONSIDERATIONS
The Subscription Price was determined by negotiation between the Company and
FRP. The Subscription Price does not necessarily bear any relationship to the
book value of the Company's assets, past operations, cash flow, earnings,
financial condition or any other established criteria for value and should not
be considered an indication of the underlying values of the Company. The
market price of the Common Stock could be subject to significant fluctuations
in response to MOXY's operating results and other factors, including the size
of the public float of the Common Stock (which will depend, in part, on the
percentage of the Rights that are exercised by Holders) after the Rights
Offering. See "The Rights Offering--Determination of Subscription Price."
11
There is currently no public market for the Rights. Although MOXY has been
advised by certain broker-dealers that they intend to make a market in the
Rights, they are under no obligation to do so, and any market making activity
may be discontinued at any time. Although the Rights will be transferable and
listed on Nasdaq, there can be no assurance that the Rights will have any
economic value or that a public market for the Rights will develop or be
sustained. There also can be no assurance that, following the issuance of the
Rights and of the Underlying Shares upon exercise of Rights, a subscribing
Holder will be able to sell shares of Common Stock purchased in the Rights
Offering at a price equal to or greater than the Subscription Price.
POTENTIAL CHANGE OF CONTROL OF THE COMPANY
Pursuant to, and subject to the terms and conditions of, the Standby
Purchase Agreement, FRP has agreed to purchase from MOXY all shares of Common
Stock that are offered but not purchased pursuant to the exercise of the
Rights. Accordingly, if less than approximately 25% of the Rights are
exercised by the holders, then FRP will acquire pursuant to the Standby
Commitment a majority of the outstanding Common Stock and will have the power
to control MOXY's business and affairs. If, as a result of the Standby
Commitment or the FRP Purchase Option, FRP acquires or holds more than 10% but
less than a majority of the outstanding Common Stock, pursuant to the
Stockholder Agreement, it will be entitled to designate a number of directors
proportionate to its stock ownership in MOXY and may have the power to
significantly influence the Company's business and affairs.
MOXY's Certificate of Incorporation does not provide for cumulative voting
in the election of directors. As a holder of a majority of the Common Stock,
FRP would have the ability to elect all of the directors on MOXY's Board. The
Board is empowered by the Delaware General Corporation Law ("DGCL") to direct
the management of the business of MOXY and to make numerous major decisions
without stockholder approval. Matters and decisions subject to Board control
include, among other things, the purchase and sale of assets of MOXY (other
than a disposition of all or substantially all of MOXY's assets outside of the
ordinary course of business), the issuance of additional equity or debt
securities (subject to limitations imposed by the Certificate of Incorporation
and debt agreements), the declaration of dividends in respect of MOXY's
capital stock, the election and removal of officers of MOXY, capital
expenditure decisions, strategic planning, by-law amendments, officer
compensation matters, and the recommendation for stockholder approval of
certain major corporate transactions (including mergers, certain asset sales,
charter amendments and dissolutions).
If FRP acquires a majority of the outstanding Common Stock, FRP will hold a
majority of the voting power and have the right to elect all of the directors
of the Board. Under the DGCL and the Certificate of Incorporation and By-laws,
the following matters generally require the approval of the holders of a
majority of the outstanding shares entitled to vote (subject to any additional
rights of the holders of any class or series of stock to vote on such matters
separately as a class): (i) a merger of MOXY with or into another corporation
or other entity; (ii) a sale, lease, exchange or disposition of all or
substantially all of MOXY's assets other than in the ordinary course of
business; (iii) the amendment of the Certificate of Incorporation, subject to
certain exceptions; and (iv) a dissolution of MOXY. In addition, the
Independent Committee (as defined herein) will be required to approve certain
transactions. See "Description of Capital Stock--Stockholder Agreement and
Registration Rights." Subject to certain exceptions, the Nasdaq rules also
require that the following securities issuances by listed companies be
approved by at least a majority of the votes cast at a properly constituted
meeting of stockholders: (a) the establishment of a stock option or purchase
plan or arrangement pursuant to which stock may be acquired by officers and
directors, except for warrants or rights issued generally to security holders
or broadly-based plans or arrangements including other employees; (b) the
issuance of common stock in exchange for the acquisition, directly or
indirectly, of stock or assets from a director, officer or substantial
security holder of the company who holds a 5% or greater interest in the
assets or company to be acquired; (c) the issuance of common stock or
securities convertible into or exchangeable for common stock representing more
than 20% of the common stock or voting power outstanding prior to the
issuance,
12
other than in a public offering for cash; and (d) an issuance of securities
that will result in a change of control of the company.
Assuming that FRP will hold more than a majority of the Common Stock, the
directors elected by FRP, if they vote together, would have the ability to
control the outcome of all votes taken by the Board, subject to the approval
of the Independent Committee in certain limited instances. Under applicable
law, such directors, like all directors, will have fiduciary obligations to
all of MOXY's stockholders, not just to FRP. However, FRP's right to control
the Board could have the effect of delaying, deterring or preventing tender
offers or takeover attempts that some or a majority of MOXY's stockholders
might consider to be in their best interests, including offers or attempts
that might result in the payment of a premium over the market price for the
Common Stock.
MOXY and FRP have agreed to adhere to the policies described under the
heading "Description of Capital Stock--Stockholder Agreement and Registration
Rights" at any time that FRP owns more than 10% of the outstanding Common
Stock. See "The Rights Offering--Standby Purchase Agreement" and "Certain
Relationships and Related Transactions--MCN Properties; Standby Purchase
Agreement."
IRREVOCABILITY OF SUBSCRIPTIONS
The election to exercise Rights is irrevocable. Until certificates
representing shares of Common Stock are delivered, subscribing Holders may not
be able to sell such shares. Certificates representing shares of Common Stock
purchased in the Rights Offering will be delivered by mail as soon as
practicable following the Expiration Date. No interest will be paid to Holders
on funds delivered to the Subscription Agent pursuant to the exercise of
Rights pending delivery of such certificates. See "The Rights Offering--
Subscription Privileges," "Exercise of Rights" and "No Revocation."
DILUTION
Stockholders who do not exercise their Rights will experience a significant
decrease in their proportionate interest in the equity ownership and voting
power of the Company. The sale of the Rights may not compensate a stockholder
for all or any part of any reduction in the market value of such stockholder's
Common Stock resulting from the Rights Offering. Stockholders who do not
exercise or sell their rights will relinquish any value inherent in the
Rights.
After giving effect to the exercise of the Rights and the Standby Commitment
(and assuming no exercise of the FRP Purchase Option or other issuances of
Common Stock), the Company will have approximately 42.7 million shares of
Common Stock issued and outstanding, as compared with approximately 14.1
million shares of Common Stock issued and outstanding as of the date of this
Prospectus. If all Rights are exercised and the FRP Purchase Option is
exercised in full, approximately 61.0 million shares of Common Stock will be
outstanding.
Purchasers of Common Stock in the Rights Offering will experience immediate
and substantial dilution in the net tangible book value per share attributable
to such shares of Common Stock. See "Dilution."
DEPENDENCE ON MANAGEMENT AND ADMINISTRATIVE SERVICES
The Company depends upon certain management and administrative services
provided by FM Services Company ("FMS") pursuant to a Services Agreement (the
"Services Agreement") to manage and support certain of its operations. The
Services Agreement does not assure the Company unlimited access to all of the
executive officers listed under "Management," and there will be competition
13
among the Company, FTX, FRP, Freeport-McMoRan Copper & Gold Inc. ("FCX"),
their respective affiliates and any other companies contracting for services
of FMS for the time and effort of the employees of FMS who provide services to
the Company. If the Company were deprived of adequate access to certain key
members of its management team or other personnel, or lost access to such
services altogether, the Company's results of operations could be materially
and adversely affected. See "Certain Relationships and Related Transactions--
Services Agreement."
CONFLICTS OF INTEREST
FRP currently produces oil and gas in connection with the sulphur mining
operations at its Main Pass complex offshore Louisiana. FTX is the
administrative managing general partner of FRP. In addition to the Services
Agreement, the Company is a party to other material contracts with FTX, FRP
and their affiliates. See "Certain Relationships and Related Transactions."
The Company may also enter into additional material transactions and
agreements with FTX and FRP and their affiliates after the date of this
Prospectus. Because the Company has not and does not intend to seek
competitive bids for such services, it is possible that the terms of certain
transactions with affiliates may be more or less favorable to MOXY than they
would be if the transactions were among unrelated parties. In addition,
certain officers and directors of the Company are also officers, directors
and/or stockholders of FTX and FRP and, as a result of their positions as
officers and directors of FTX, have interests that are in addition to and may
conflict with those of the Company's stockholders generally. It is possible
that conflicts of interest could arise in the future as a result of such
relationships. See "Management." Conflicts of interest could arise, for
example, if either the Company or FRP were presented with the opportunity to
engage in a business competing with the other or if the Company and FRP were
to enter into a business relationship together. See "Description of Capital
Stock--Stockholder Agreement and Registration Rights" for a description of the
policies to be followed by the Company following the consummation of the
Rights Offering for transactions with FRP and its affiliates. It is possible
that conflicts of interest arising from any such transactions may be resolved
in a manner that is not favorable to the Company.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues depend substantially on the prevailing prices for
natural gas and, to a lesser extent, oil. In recent years, natural gas and oil
prices and, therefore, the level of industrywide drilling, exploration,
development and production, has been extremely volatile. During the past five
years, the average quarterly price for Henry Hub natural gas has ranged from
$1.51 to $3.44 per Mmbtu and the average quarterly price for West Texas
intermediate grade oil has ranged from $14.83 to $24.60 per barrel. Prices are
affected by supply and demand as well as actions of state and local agencies,
U.S. and foreign governments and international cartels. All of these factors
are beyond the control of the Company. Any significant or extended decline in
natural gas and oil prices will have a material adverse effect on the
Company's financial condition and operations and could impair its access to
capital.
EXPLORATION AND DEVELOPMENT RISKS
Exploration and development of natural gas and oil involves a high degree of
risk that no commercial production will be obtained or that the production
will be insufficient to recover drilling and completion costs. The cost of
drilling, completing and operating wells is often uncertain, and cost overruns
in exploration and development operations can adversely affect the economics
of a project. The Company's drilling operations may be curtailed, delayed or
canceled as a result of numerous factors, including title problems, equipment
failures, weather conditions, marine accidents, fires and explosions,
compliance with governmental requirements and shortages or delays in the
delivery of equipment. Furthermore, completion of a well does not ensure a
profit on the investment or a recovery of drilling, completion and operating
costs.
14
REPLACEMENT OF RESERVES
MOXY's future performance depends in part upon its ability to acquire
mineral leases and to find and develop oil and gas reserves that are
economically recoverable. Without successful exploration or development
activities, MOXY's reserves will decline. No assurance can be given that MOXY
will be able to find and develop additional reserves on an economic basis.
MOXY's business is capital intensive, and significant operating cash flow
must be reinvested in development and exploration activities in order for MOXY
to maintain and increase its asset base of proved oil and gas reserves. To the
extent that cash flow from operations is reduced and external sources of
capital become limited or unavailable, MOXY's ability to make the necessary
capital investments to maintain or expand its asset base would be impaired.
See "Substantial Capital Requirements." Without such investment, MOXY's oil
and gas reserves would decline. For a discussion of MOXY's reserves, see
"Business and Properties--Oil and Gas Reserves."
PURCHASE OF RESERVES
Although the Company currently emphasizes reserve growth through exploratory
drilling, it may make acquisitions from time to time of producing properties
and properties with proved undeveloped reserves. Evaluation of recoverable
reserves of natural gas and oil, which is an integral part of the property
selection process, depends on evaluation of geological, engineering and
production data, some or all of which may prove to be unreliable or not
indicative of future performance. See "-- Reserves and Future Net Cash Flow."
RESERVES AND FUTURE NET CASH FLOW
Information relating to proved oil and gas reserves owned by MOXY and those
attributable to the MCN Producing Properties is based upon engineering
estimates. Reserve engineering is a subjective process of estimating the
recovery from underground accumulations of oil 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. Estimates of economically recoverable oil and gas
reserves and of future net cash flows necessarily depend upon a number of
variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
governmental regulations and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, development costs and
workover and remedial costs, all of which may vary considerably from actual
results. Because all reserve estimates are to some degree speculative, 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 vary from those assumed in
these estimates and such variances may be material. In addition, different
reserve engineers may make different estimates of reserve quantities and cash
flows based on the same data. See "Business and Properties--Oil and Gas
Reserves."
The present values of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the
estimated proved oil and gas reserves attributable to MOXY's properties or of
the MCN Producing Properties. In accordance with applicable requirements of
the Commission, the estimated discounted future net cash flows from proved
reserves are generally based on prices and costs as of the date of the
estimate, while actual future prices and costs may be materially higher or
lower. Actual net cash flows also will be affected by factors such as the
amount and timing of production, supply and demand for oil and gas,
curtailments or increases in consumption by gas purchasers and changes in
governmental regulations and taxation. The timing of future net cash flows
from proved reserves, and thus their actual present value, will be affected by
the timing of production and the incurrence of expenses incurred in the
development and production of oil and gas
15
properties. In addition, the 10% discount factor, which is required by the
Commission to be used to calculate discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
the oil and gas properties owned by MOXY, the MCN Producing Properties or the
oil and gas industry in general.
OPERATING HAZARDS; LIMITED INSURANCE COVERAGE
MOXY's operations are subject to hazards and risks inherent in drilling for,
producing and transporting natural gas and oil, such as fires, explosions,
natural disasters, encountering formations with abnormal pressures, mechanical
problems, blowouts, cratering, pipeline ruptures and spills, any of which can
result in environmental pollution, personal injuries, property damage and
substantial losses to MOXY. Moreover, MOXY's offshore operations in the Gulf
are subject to a variety of operating risks peculiar to the marine
environment, such as hurricanes and other adverse weather conditions, more
extensive governmental regulation (including regulations that may, in certain
circumstances, impose strict liability for pollution damage) and interruption
or termination of operations by governmental authorities based on
environmental or other considerations.
MOXY maintains insurance coverage against some, but not all, potential
losses. MOXY's coverages include, but are not limited to, operator's extra
expense, physical damage on certain assets, employer's liability,
comprehensive general liability, automobile, workers' compensation and loss of
production income insurance, and limited coverage for sudden environmental
damages. MOXY does not believe that insurance coverage is available at a
reasonable cost for environmental damages that occur over time or the full
potential liability that could be caused by sudden environmental damages.
Accordingly, MOXY may be subject to material uninsured liabilities or may lose
substantial portions of its properties in the event of environmental damages.
The occurrence of an event that is not fully covered by insurance could have a
material adverse effect on MOXY's financial condition and results of
operations. See "Business and Properties--Operating Hazards and Insurance."
GOVERNMENTAL REGULATION
General. MOXY's operations are affected by political developments and
federal and state laws and regulations. In particular, oil and natural gas
production, operations and economics are or have been affected by price
controls, taxes and other laws relating to the oil and natural gas industry,
by changes in such laws and by changes in administrative regulations. MOXY
cannot predict how existing laws and regulations may be interpreted by
enforcement agencies or court rulings, whether additional laws and regulations
will be adopted, or the effect such changes may have on its business or
financial condition. See "Business and Properties--Regulation."
Environmental. MOXY's operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production, limit or
prohibit drilling on certain lands lying within wilderness, wetland and other
protected areas, and impose substantial liabilities for pollution that could
result from MOXY's operations. Moreover, the recent trend toward stricter
standards in environmental legislation and regulation is likely to continue.
For instance, legislation has been proposed in Congress from time to time that
would reclassify certain crude oil and natural gas exploration and production
wastes as "hazardous wastes" which would make the wastes subject to much more
stringent handling, disposal and clean-up requirements. If such legislation
were to be enacted, it could have a significant impact on MOXY's operating
costs, as well as the oil and gas industry in general. Initiatives to further
regulate the disposal of crude oil and natural gas wastes are also pending in
certain states and could have a similar impact. MOXY could incur substantial
costs to comply with environmental laws and regulations.
16
In addition to compliance costs, government entities and other third parties
may assert substantial liabilities against owners and operators of oil and gas
properties for oil spills, discharges of hazardous materials, remediation and
clean-up costs and other environmental damages, including damages caused by
previous property owners. The imposition of any such liabilities on MOXY could
have a material adverse effect on MOXY's financial condition and results of
operations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution
Act of 1990, could have a material adverse impact on MOXY. See "Business and
Properties--Regulation--Environmental."
SHORTAGES OF SUPPLIES AND EQUIPMENT
The Company's ability to conduct its operations in a timely and cost
effective manner is subject to the availability of oil and gas field supplies,
equipment and service crews. The industry is currently experiencing a shortage
of certain types of drilling rigs and work boats in the Gulf of Mexico. This
shortage could result in delays in the Company's operations as well as in
higher operating and capital costs. Shortages of other drilling equipment,
tubular goods, drilling service crews and seismic crews may occur from time to
time, further hindering the Company's ability to conduct its operations as
planned.
COMPETITION
MOXY operates in the highly competitive areas of oil and natural gas
production, development and exploration with many other companies, many of
which have significantly greater financial and other resources than MOXY.
Factors affecting MOXY's ability to compete effectively include the
availability of capital, access to information relating to a property and the
standards established by MOXY for the minimum projected return on investment.
MOXY's competitors include major integrated oil companies and a substantial
number of independent energy companies, many of which may have substantially
larger financial resources, staffs and facilities than MOXY. See "Business and
Properties--Competition."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this
Prospectus are forward-looking statements. Such statements include without
limitation the statements under "Prospectus Summary," "Use of Proceeds,"
"Price Range of Common Stock and Dividend Policy," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business
and Properties" regarding MOXY's financial position and liquidity, payment of
dividends, its strategic alternatives, future capital needs, exploration,
development and capital expenditures (including the amount and nature
thereof), the drilling of wells, reserve estimates and future net revenues
attributable thereto, business strategies, and other plans and objectives of
management of the Company for future operations and activities. These
statements are based on certain assumptions and analyses made by the Company
in light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate under the circumstances. Such statements are subject to risks and
uncertainties, including the risk factors discussed above, general economic
and business conditions, the business opportunities that may be presented to
and pursued by the Company, changes in laws or regulations and other factors,
many of which are beyond the control of the Company. Although MOXY believes
that the expectations reflected in such forward-looking statements are
reasonable, it
17
can give no assurance that such expectations will prove to have been correct.
Prospective investors are therefore cautioned that any such statements are not
guarantees of future performance and the actual results or developments may
differ materially from those projected in the forward-looking statements.
Certain important factors that could cause actual results to differ materially
from MOXY's expectations are disclosed in this Prospectus.
USE OF PROCEEDS
The net proceeds from the Rights Offering and Standby Commitment are
estimated to be approximately $93 million after payment of fees and expenses,
including the Standby Fee. The net proceeds, together with any proceeds from
the exercise of the FRP Purchase Option, which will be approximately $64
million if the FRP Purchase Option is exercised in full, will be used to
purchase the MCN Producing Properties, to repay the indebtedness incurred by
MOXY under the MOXY/MCN Program (which bears interest at the annual base rate
announced from time to time by The Chase Manhattan Bank plus 2%), to fund a
portion of MOXY's estimated capital requirements under the MOXY/FRP
Exploration Program and for additional working capital and general corporate
purposes. Assuming that the Rights Offering and Standby Commitment are
consummated in November 1997, the Company anticipates that approximately $28
million of the net proceeds will be used to purchase the MCN Producing
Properties and that approximately $29 million will be used to repay
indebtedness incurred under the MOXY/MCN Program. See "Business and
Properties--MOXY/MCN Program" and "--MOXY/FRP Exploration Program."
MOXY will not purchase the MCN Producing Properties or establish the
MOXY/FRP Exploration Program if the Standby Commitment is not fulfilled and
will use the net proceeds from the Rights Offering for additional working
capital and general corporate purposes. See "Risk Factors--Substantial Capital
Requirements" and "The Rights Offering--The Rights."
THE RIGHTS OFFERING
THE RIGHTS
MOXY is distributing transferable Rights at no cost to the record holders of
shares of its outstanding Common Stock as of the close of business on the
Record Date. MOXY will distribute approximately 2.0 Rights for each share of
Common Stock held on the Record Date. An aggregate of approximately 28.6
million Rights exercisable to purchase an aggregate of approximately 28.6
million shares of Common Stock are being distributed in connection with the
Rights Offering. The Rights will be evidenced by transferable Subscription
Certificates. Each Right will entitle the Holder to purchase one share of
Common Stock upon the payment of the Subscription Price ($3.50 in cash). There
can be no assurance that the Common Stock will trade at prices above the
Subscription Price. See "Risk Factors--Determination of Subscription Price and
Market Considerations."
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights distributed to each stockholder will be rounded up to the
nearest whole number of Rights. No Subscription Certificate may be divided in
such a way as to permit the Holder of such Subscription Certificate to receive
a greater number of Rights than the number to which such Subscription
Certificate entitles its Holder, except that a depository, bank, trust company
or securities broker or dealer holding shares of Common Stock on the Record
Date for more than one beneficial owner may, upon proper showing to the
Subscription Agent, exchange its Subscription Certificate to obtain a
Subscription Certificate for the number of Rights to which all such beneficial
owners in the aggregate would have been entitled had each been a record holder
of Common Stock on the Record Date. MOXY reserves the right to refuse to issue
any such Subscription Certificate if such issuance would be inconsistent with
the principle that each beneficial owner's holdings will be rounded up to the
nearest whole Right.
18
Because the number of Rights distributed to each record holder will be
rounded up to the nearest whole number, beneficial owners of Common Stock who
are also the record holders of such shares will receive more Rights under
certain circumstances than beneficial owners of Common Stock who are not the
record holders of their shares and who do not obtain (or cause the record
holder of their shares to obtain) a separate Subscription Certificate with
respect to the shares of Common Stock beneficially owned by them, including
shares held in an investment advisory or similar account. To the extent that
record holders or beneficial owners of Common Stock who obtain a separate
Subscription Certificate receive more Rights, they will be able to subscribe
for more shares of Common Stock pursuant to the Basic Subscription Privilege.
The issuance by MOXY of shares of Common Stock pursuant to the Rights
Offering is not conditioned upon the subscription of any minimum number of
shares of Common Stock by holders of the Rights. See "The Rights Offering--
Subscription Privileges--Oversubscription Privilege."
FRP's obligations under the Standby Purchase Agreement are subject to
certain customary, limited exceptions. MOXY will not purchase the MCN
Producing Properties or establish the MOXY/FRP Exploration Program if these
conditions are not satisfied or waived. MOXY's management believes that the
conditions to FRP's obligations under the Standby Purchase Agreement will be
satisfied or waived and that the Standby Commitment will be fulfilled and that
MOXY will purchase the MCN Producing Properties and establish the MOXY/FRP
Exploration Program. See "--Standby Purchase Agreement," "Risk Factors--
Substantial Capital Requirements" and "Use of Proceeds."
BEFORE EXERCISING OR SELLING ANY RIGHTS, POTENTIAL INVESTORS ARE URGED TO
READ CAREFULLY THE INFORMATION SET FORTH UNDER "RISK FACTORS."
EXPIRATION DATE
The Rights Offering and the Rights will expire on the Expiration Date
(November 13, 1997) at 5:00 p.m., New York City time, unless extended. The
Company may, with FRP's consent, extend the Expiration Date and will announce
any extensions thereof by not later than 9:00 a.m., New York City time, on the
business day following the previously scheduled Expiration Date; provided that
the Expiration Date in no event shall be later than December 12, 1997. An
extension of the Expiration Date will be for a period of at least three Nasdaq
trading days. After the Expiration Date, unexercised Rights will be null and
void. MOXY will not be obligated to honor any purported exercise of Rights
received by the Subscription Agent after the Expiration Date, regardless of
when the documents relating to such exercise were sent, except pursuant to the
guaranteed delivery procedures described below.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Each Right will entitle the holder thereof to
receive, upon payment of the Subscription Price, one share of Common Stock. To
exercise the Basic Subscription Privilege, Rights holders must pay the
Subscription Price in full and fully comply with the instructions set forth
below under the heading "--Exercise of Rights." Certificates representing
shares of Common Stock purchased pursuant to the Basic Subscription Privilege
will be delivered to subscribers as soon as practicable after the Expiration
Date.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation procedure described
below, each Right also carries an Oversubscription Privilege right to
subscribe at the Subscription Price for additional shares of Common Stock not
subscribed for by other Holders through the exercise of the Basic Subscription
Privilege (the "Excess Shares"). Only Holders who exercise the Basic
Subscription Privilege in full will be entitled to exercise the
Oversubscription Privilege. The Oversubscription Privilege must be exercised
at the same time as the Basic Subscription Privilege is exercised by paying
the Subscription Price of the Excess Shares in full and by properly complying
with the
19
instructions set forth below under the heading "--Exercise of Rights." Holders
who intend to subscribe for additional shares of Common Stock through the
Oversubscription Privilege so that after the Rights Offering they may own 15%
or more of the outstanding shares of Common Stock should be aware of the terms
of the Company's Preferred Rights Agreement. See "Description of Capital
Stock--Preferred Stock Purchase Rights." Certificates representing Excess
Shares purchased pursuant to the Oversubscription Privilege will be delivered
to subscribers as soon as practicable after the Expiration Date and after all
prorations and adjustments contemplated by the terms of the Rights Offering
have been effected.
Only Excess Shares not subscribed for through the Basic Subscription
Privilege will be available for purchase pursuant to the Oversubscription
Privilege. If the Excess Shares are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, the Excess Shares
will be allocated pro rata (subject to the elimination of fractional shares)
among those Holders exercising the Oversubscription Privilege in proportion to
the number of shares each Holder subscribed for pursuant to the Basic
Subscription Privilege; provided, however, that if such pro rata allocation
results in any Holder being allocated a greater number of Excess Shares than
such Holder subscribed for pursuant to the exercise of such Holder's
Oversubscription Privilege, then such Holder will be allocated only such
number of Excess Shares as such Holder subscribed for, and the remaining
Excess Shares will be allocated among all other Holders exercising the
Oversubscription Privilege.
STANDBY PURCHASE AGREEMENT
MOXY and FRP have entered into a Standby Purchase Agreement, pursuant to
which, subject to certain customary, limited exceptions, FRP has agreed to
provide a Standby Commitment to purchase at the Subscription Price a number of
shares of Common Stock equal to the number of shares of Common Stock not
purchased pursuant to the exercise of Rights. Pursuant to the Standby Purchase
Agreement, FRP also has the option to purchase additional shares of Common
Stock so that if following the Rights Offering it has not acquired 30% of the
outstanding Common Stock pursuant to the Standby Commitment, it may acquire at
the Subscription Price such additional shares of Common Stock as are necessary
to provide it with up to a 30% ownership position in MOXY. MOXY has also
agreed to pay the Standby Fee to FRP upon the closing of the Standby
Commitment. The rights and obligations of the Company and FRP under the
Standby Purchase Agreement are subject to certain customary conditions,
including the absence of any pending or threatened action, suit or proceeding
relating to the Rights Offering or the Standby Purchase Agreement. See
"Certain Relationships and Related Transactions--MCN Properties; Standby
Purchase Agreement."
MOXY and FRP also will enter into a Stockholder Agreement (the "Stockholder
Agreement") that provides for (i) the implementation of certain corporate
governance measures designed to protect the stockholders of MOXY other than
FRP (ii) the ability of FRP to elect a certain number of directors if it owns
more than 10% but less than a majority of the outstanding Common Stock and
(iii) certain registration rights with respect to the shares of Common Stock
that FRP may acquire pursuant to the Standby Purchase Agreement. If FRP
acquires a majority of the outstanding shares of Common Stock as a result of
the Standby Commitment, it will be in a position to control the election of
all of the Company's directors and to otherwise direct the business and
affairs of the Company. If FRP acquires less than a majority of the
outstanding shares of Common Stock, but acquires a significant number of
shares through the Standby Commitment or the FRP Purchase Option, it will have
the ability to significantly influence the management and control of the
Company. See "Risk Factors--Potential Change of Control of the Company." The
Stockholder Agreement provides that the Company will not, without the approval
of a committee composed of independent members of the Board of Directors, take
certain actions, including, among other things, purchases of Common Stock and
certain transactions with FRP involving aggregate payments in excess of $5
million. There can be no assurance that the actions taken by the Company will
always be in the best interests of public stockholders. In addition, if
20
the Independent Committee approves an amendment or modification, the
Stockholder Agreement may be amended or modified by the Board without
stockholder approval. See "Certain Relationships and Related Transactions--MCN
Properties; Standby Purchase Agreement" and "Description of Capital Stock--
Stockholder Agreement and Registration Rights."
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by negotiations between the Company
and FRP. The Company's objective in establishing the Subscription Price was to
approximate recent trading prices, raise the targeted proceeds and provide all
of MOXY's stockholders with a reasonable opportunity to make an additional
investment in the Company and avoid an involuntary dilution of their ownership
and voting percentage in the Company. In approving the Subscription Price, the
Board of Directors considered such factors as the alternatives available to
MOXY for raising capital, the market price of the Common Stock, the pro rata
nature of the offering, pricing of similar transactions, the business
prospects for MOXY and the general condition of the securities markets. There
can be no assurance, however, that the market price of the Common Stock will
not decline during the subscription period or that, following the issuance of
the Rights and of the Underlying Shares upon exercise of Rights, a subscribing
Holder will be able to sell the Rights or sell the Underlying Shares purchased
in the Rights Offering at a price equal to or greater than the Subscription
Price.
EXERCISE OF RIGHTS
Rights may be exercised by delivery to the Subscription Agent, on or prior
to the Expiration Date, of the properly completed and duly executed
Subscription Certificate evidencing such Rights (together with any required
signature guarantees), accompanied by payment in full of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. All payments must
be made by (i) check or bank draft drawn upon a United States bank or postal,
telegraphic or express money order payable to "ChaseMellon Shareholder
Services, L.L.C., as Subscription Agent," or (ii) wire transfer of same-day
funds to the account maintained by the Subscription Agent for such purpose at
Mellon Bank, Pittsburgh, PA, Account No. Reorg Acct 100-2331 (MOXY
subscription), ABA No. 043 000 261 Attn: ChaseMellon Shareholder Services,
Evelyn O'Connor (201) 296-4515. Payment of the Subscription Price will be
deemed to have been received by the Subscription Agent only upon (a) clearance
of any uncertified check, (b) receipt by the Subscription Agent of any
certified check or bank draft drawn upon a U.S. bank or of any postal,
telegraphic or express money order, or (c) receipt of good funds in the
Subscription Agent's account designated above. PLEASE NOTE THAT FUNDS PAID BY
UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR.
ACCORDINGLY, HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE
OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARED BY
SUCH DATE, AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR
CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
21
Subscription Certificates and payment of the Subscription Price should be
delivered to one of the following addresses:
By Mail: Reorganization Department
PO Box 3301
South Hackensack, NJ 07606
By Hand: Reorganization Department
120 Broadway
13th Floor
New York, NY 10271
By Overnight Delivery Reorganization Department
Service: 85 Challenger Road, Mail Drop-Reorg
Ridgefield Park, NJ 07660
Facsimile: (201) 329-8936
Confirm facsimile by
telephone only: (201) 296-4860
If a Holder wishes to exercise Rights, but time will not permit such Holder
to cause the Subscription Certificate(s) evidencing such Rights to reach the
Subscription Agent on or prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met:
(i) such Holder has caused payment in full of the Subscription Price for
each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be received
(in the manner set forth above) by the Subscription Agent on or prior to
the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration Date, a
notice of guaranteed delivery (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instructions as to Use of
Subscription Certificates (the "Instructions") distributed with the
Subscription Certificates, from a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or a member in good standing of a
recognized signature guarantee medallion program, pursuant to Rule 17Ad-15
of the Exchange Act (each, an "Eligible Institution"), stating the name of
the exercising Holder, the number of Rights represented by the Subscription
Certificate(s) held by such exercising Holder, the number of Underlying
Shares being subscribed for pursuant to the Basic Subscription Privilege
and the number of Underlying Shares, if any, being subscribed for pursuant
to the Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate(s) evidencing such
Rights within three Nasdaq trading days following the date of the Notice of
Guaranteed Delivery; and
(iii) the properly completed and duly executed Subscription Certificate(s),
including any required signature guarantees, evidencing the Rights being
exercised is received by the Subscription Agent within three Nasdaq trading
days following the date of the Notice of Guaranteed Delivery relating
thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Subscription Certificates at the
addresses set forth above, or may be transmitted to the Subscription Agent
by facsimile transmission (facsimile no. (201) 329-8926). Additional copies
of the form of Notice of Guaranteed Delivery are available upon request
from the Information Agent whose address and telephone numbers are set
forth under "--Information Agent."
22
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are
to be delivered to the record holder of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Subscription
Certificate must be guaranteed by an Eligible Institution subject to the
standards and procedures adopted by the Subscription Agent.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
Excess Shares that such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued will be returned by mail without
interest or deduction as soon as practicable after the Expiration Date and
after all prorations and adjustments contemplated by the terms of the Rights
Offering have been effected.
A Holder who holds shares of Common Stock for the account of others, such as
a broker, a trustee or a depositary for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights beneficially owned by them. Beneficial owners of Common Stock or
Rights held through such a holder of record should contact the holder and
request the holder to effect transactions in accordance with the beneficial
owner's instructions. If a beneficial owner wishes to obtain a separate
Subscription Certificate, he should contact the nominee as soon as possible
and request that a separate Subscription Certificate be issued. A nominee may
request that any Subscription Certificate held by it be split into such
smaller denominations as it wishes, provided that the Subscription Certificate
is received by the Subscription Agent, properly endorsed, no later than 11:00
a.m., New York City time, three Nasdaq National Market trading days prior to
the Expiration Date.
If either the number of Rights being exercised is not specified on a
Subscription Certificate, or the payment delivered is not sufficient to pay
the full aggregate Subscription Price for all Underlying Shares stated to be
subscribed for, the Holder will be deemed to have exercised the maximum number
of Rights that could be exercised for the amount of the payment delivered by
such Holder. If the payment delivered by the Holder exceeds the aggregate
Subscription Price for the number of Rights evidenced by the Subscription
Certificate(s) delivered by such Holder, the payment will be applied, until
depleted, to subscribe for Underlying Shares in the following order: (i) to
subscribe for the number of Underlying Shares indicated on the Subscription
Certificate(s) pursuant to the Basic Subscription Privilege; (ii) to subscribe
for Underlying Shares until the Basic Subscription Privilege has been fully
exercised with respect to all of the Rights represented by the Subscription
Certificate; and (iii) to subscribe for additional Underlying Shares pursuant
to the Oversubscription Privilege (subject to any applicable proration). Any
excess payment remaining after the foregoing allocation will be returned to
the Holder as soon as practicable by mail, without interest or deduction.
The Instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. PLEASE DO NOT SEND SUBSCRIPTION CERTIFICATES
TO MOXY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY
TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION
DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS
TO CLEAR, HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS
OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
23
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by MOXY, whose determinations will
be final and binding. MOXY, in its sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right by
reason of any defect or irregularity in such exercise. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as MOXY determines in its sole discretion.
Neither MOXY nor the Subscription Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission
of Subscription Certificates or incur any liability for failure to give such
notification.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Information
Agent whose address and telephone numbers are set forth under "--Information
Agent."
NO REVOCATION
ONCE A HOLDER HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED BY SUCH HOLDER.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels, including
banks and brokers. It is anticipated that the Rights will trade on Nasdaq
under the symbol "MOXYR." Rights also may be sold in over-the-counter and
private sales transactions. Certain registered broker-dealers have indicated
that they intend to make a market in the Rights during the period the Rights
are outstanding. However, there can be no assurance that a trading market for
the Rights will develop or, if such a market develops, as to how long it will
continue.
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the instructions included thereon. A portion of the Rights evidenced by a
single Subscription Certificate (but not fractional Rights) may be transferred
by delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the
Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred
Rights). In such event, a new Subscription Certificate evidencing the balance
of the Rights will be issued to the Holder or, if the Holder so instructs, to
an additional transferee. A signature guarantee must be provided by an
Eligible Institution.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate is to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold. If the
Rights can be sold, sales of such Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent for all
Rights sold by it on the day such Rights are sold, less any applicable
brokerage commissions, taxes and other direct expenses of sale. Promptly
following the settlement of any such sale, the Subscription Agent will send
the Holder a check for the net proceeds (after deduction of any applicable
brokerage commissions, taxes and other direct expenses of the sale) from the
sale of any Rights sold. MOXY will pay the fees charged by the Subscription
Agent for effecting such sale. Orders to sell Rights must be received by the
Subscription
24
Agent prior to 11:00 a.m., New York City time, on the third Nasdaq trading day
preceding the Expiration Date. If less than all sales orders received by the
Subscription Agent can be filled, sales proceeds will be prorated among the
Holders based upon the number of Rights each Holder has instructed the
Subscription Agent to sell during such period, irrespective of when during
such period the instructions are received by the Subscription Agent. The
Subscription Agent's obligation to execute orders for the sale of Rights is
subject to its ability to find buyers. Any Rights that cannot be sold by the
Subscription Agent by 5:00 p.m., New York City time the third Nasdaq trading
day preceding the Expiration Date, will be returned promptly by mail to the
Holder.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued
and transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained Rights, if any, and
(iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither MOXY nor the Subscription
Agent shall have any liability to a transferee or transferor of Rights if
Subscription Certificates are not received in time for exercise or sale prior
to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid by
MOXY as described below), all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of Rights will be for the account of the transferor
of the Rights, and none of such commissions, fees or expenses will be paid by
MOXY or the Subscription Agent.
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
Subscription Certificates will not be mailed to Holders or to any subsequent
transferees of any Subscription Certificates whose addresses are outside the
United States or who have APO or FPO addresses, but will be held by the
Subscription Agent for such Holders' accounts. To exercise or sell their
Rights, such Holders must notify the Subscription Agent prior to 11:00 a.m.,
New York City time, three Nasdaq trading days prior to the Expiration Date, at
which time (if no contrary instructions have been received) the Rights
represented thereby will be sold, subject to the Subscription Agent's ability
to find a purchaser. Any such sales will be at prevailing market prices. See
"--Method of Transferring Rights." If the Rights can be sold, a check for the
proceeds from the sale of any Rights, less any applicable brokerage
commissions, taxes and other expenses, will be remitted to such Holders by
mail. The proceeds, if any, resulting from sales of Rights of Holders whose
addresses are not known by the Subscription Agent or to whom delivery cannot
be made will be held by the Subscription Agent in a noninterest bearing
account. Any amount remaining unclaimed on the second anniversary of the
Expiration Date will be turned over by the Subscription Agent to MOXY and,
after such date, any person claiming such proceeds will, as an unsecured
general creditor of MOXY, be entitled to look only to MOXY for payment
thereof.
SUBSCRIPTION AGENT
MOXY has appointed ChaseMellon Shareholder Services, L.L.C. as Subscription
Agent for the Rights Offering. The Subscription Agent's address, which is the
address to which the Subscription Certificates and payment of the Subscription
Price must be delivered, as well as the address to which Notice of Guaranteed
Delivery must be delivered, is:
By Mail: Reorganization Department
PO Box 3301
South Hackensack, NJ 07606
25
By Hand: Reorganization Department
120 Broadway
13th Floor
New York, NY 10271
By Overnight Delivery Reorganization Department
Service: 85 Challenger Road, Mail Drop-Reorg
Ridgefield Park, NJ 07660
Facsimile: (201) 329-8936
Confirm facsimile by
telephone only: (201) 296-4860
MOXY will pay the fees and expenses of the Subscription Agent, and has also
agreed to indemnify the Subscription Agent against any liability that it may
incur in connection with the Rights Offering.
INFORMATION AGENT
MOXY has appointed Georgeson & Company Inc. as Information Agent for the
Rights Offering. Any questions or requests for additional copies of this
Prospectus may be directed to the Information Agent at the following address
and telephone number:
Georgeson & Company Inc.
88 Pine Street, 30th Floor
Wall Street Plaza
New York, New York 10005
Banks and brokers call collect: (212) 440-9800
All others call toll-free (800) 223-2064
MOXY will pay the fees and expenses of the Information Agent and has also
agreed to indemnify the Information Agent from certain liabilities that it may
incur in connection with the Rights Offering.
26
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on Nasdaq under the symbol "MOXY." The following
table sets forth, for the periods indicated, the range of high and low closing
bid prices, as reported by Nasdaq. The quotes represent "inter-dealer" prices
without adjustment or mark-ups, mark-downs or commissions and may not
represent actual transactions.
HIGH LOW
---- ---
1995
----
First Quarter.......................................... $3 1/8 $2 1/2
Second Quarter......................................... 4 1/8 2 3/8
Third Quarter.......................................... 3 5/8 2 5/16
Fourth Quarter......................................... 3 7/16 2 9/16
1996
----
First Quarter.......................................... $3 3/4 $2 13/16
Second Quarter......................................... 3 7/8 2 1/2
Third Quarter.......................................... 2 15/16 1 3/4
Fourth Quarter......................................... 3 1/16 1 1/2
1997
----
First Quarter.......................................... $3 15/16 $2 1/16
Second Quarter......................................... 3 13/16 2 5/16
Third Quarter.......................................... 5 1/2 3 5/16
Fourth Quarter (through October 8, 1997)............... 5 9/16 4 7/8
On October 8, 1997 the last reported sales price of the Common Stock was
$5 1/2. As of October 8, 1997, there were 11,174 record holders of the Company's
Common Stock.
The Company has not in the past paid cash dividends on its Common Stock and
does not expect to do so in the foreseeable future. The Company currently
intends to reinvest its available cash in the identification, exploration and
development of additional oil and gas properties. The decision whether or not
to pay dividends and in what amounts is solely within the discretion of the
Company's board of directors.
DILUTION
The unaudited net tangible book value of the Common Stock as of June 30,
1997, was approximately $4.6 million, or $0.33 per share. See
"Capitalization." "Net tangible book value per share" represents the amount of
total tangible assets less total liabilities divided by the number of shares
of Common Stock outstanding. After giving effect to the consummation of the
Rights Offering (assuming full exercise of the Rights) and after deducting the
estimated offering expenses, including the Standby Fee, the unaudited net
tangible book value of the Company as of June 30, 1997, would have been
approximately $97.6 million, or $2.29 per share. This represents an immediate
increase in unaudited net tangible book value of $1.96 per share to persons
holding shares of Common Stock prior to the exercise of the Rights and an
immediate dilution of $1.21 per share to Holders exercising Rights. The
following table illustrates this per share dilution at June 30,1997.
Subscription Price............................................ $3.50
Unaudited net tangible book value
per share at June 30, 1997................................. $0.33
Increase per share attributable to Holders
exercising Rights.......................................... 1.96
Unaudited net tangible book value per share after
the Rights Offering(1)............................................. 2.29
-----
Dilution per share to Holders exercising Rights(2).................. $1.21
27
- --------
(1) Gives no effect to any possible exercise of the FRP Purchase Option.
Assuming the full exercise of the Rights and the FRP Purchase Option, the
unaudited net tangible book value would be approximately $161.6 million, or
$2.65 per share, resulting in an immediate increase in unaudited net
tangible book value of $2.32 per share to persons holding shares of Common
Stock prior to the exercise of the Rights and an immediate dilution of
$0.85 per share to Holders exercising Rights.
(2) Dilution is determined by subtracting the unaudited pro forma net tangible
book value per share from the Subscription Price paid by a Holder for an
Underlying Share in the Rights Offering.
----------------
The foregoing assumes no exercise of the options issued to employees of the
Company under MOXY's Stock Option Plan. At June 30, 1997, options to purchase
approximately 2,304,000 shares of Common Stock were outstanding with a weighted
average exercise price of $3.77 per share.
28
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at June 30, 1997 and as adjusted based on the assumptions described in the
footnotes below. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's pro forma condensed financial statements and notes thereto and the
Company's historical financial statements and notes thereto included elsewhere
in this Prospectus.
AS OF JUNE 30, 1997
----------------------------------
MINIMUM MAXIMUM
ACTUAL PRO FORMA(1) PRO FORMA(2)
------- ------------ ------------
(IN THOUSANDS)
Production loan, including current portion.. $12,620 $ -- $ --
------- ------- --------
Stockholders' equity:
Common Stock, $.01 par value per share;
150,000,000 shares authorized;
14,076,539, 42,648,000 and 60,926,000
shares issued and outstanding,
respectively............................. 141 427 609
Additional paid-in capital................ 48,065 140,779 204,570
Accumulated deficit....................... (43,581) (43,581) (43,581)
------- ------- --------
Total stockholders' equity.............. 4,625 97,625 161,598
------- ------- --------
Total capitalization........................ $17,245 $97,625 $161,598
======= ======= ========
- --------
(1) Adjusted to give effect to the Rights Offering (assuming full exercise of
all the Rights and no exercise of the FRP Purchase Option), and the
application of the net proceeds therefrom as described in "Use of
Proceeds."
(2) Same adjustments as (1) above, except also gives effect to the full
exercise of the FRP Purchase Option.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
MOXY is an independent oil and gas company engaged in the exploration,
development and production of oil and natural gas. MOXY commenced operations
in May 1994 following the distribution of its common stock to the stockholders
of FTX in order to carry on substantially all of the oil and gas exploration
activities previously conducted by FTX. MOXY and its predecessors have
conducted exploration, development and production operations offshore in the
Gulf and onshore in the Gulf Coast and other areas for more than 25 years,
which have provided MOXY with an extensive geological and geophysical database
and significant technical and operational expertise. MOXY expects to continue
to concentrate its efforts in this selected geographic area where its
management team has significant exploration experience.
MOXY's business strategy is to create value for its stockholders through the
discovery of oil and gas reserves in its exploration and development
activities. Management believes that MOXY has significant opportunities to
discover meaningful oil and gas reserves and that these opportunities can best
be achieved through the use of advanced 3-D seismic technology, applied in
conjunction with an expanded, multi-year exploration program. Moreover, MOXY
believes that its recent and continuing acquisitions of 3-D seismic data will
continue to improve its ability to interpret subsurface geology and allow it
to develop a larger inventory of high-quality prospects which it can pursue at
offshore lease sales and through farm-in opportunities offshore in the Gulf
and onshore in the Gulf Coast areas.
CAPITAL RESOURCES AND LIQUIDITY
During 1995, MOXY established the MCN and Phillips joint ventures which
provided MOXY with an inflow of funds. However, in mid-1996, with the pending
completion of the exploration portion of the MOXY/MCN Program, management
began evaluating options to obtain additional long-term funding for its
planned exploration and development activities, including entering into one or
more new long-term exploration joint ventures (MCN later indicated that it did
not wish to enter into the type of multi-year program that MOXY desired),
issuing additional equity or undertaking a business combination with another
entity. MOXY ultimately decided to undertake the Rights Offering (discussed
below), which would allow it to recapitalize, to restructure its current
exploration and development operations, and to engage in a significantly
expanded and more diversified, multi-year exploratory drilling program.
On October 9, 1997, MOXY's shareholders approved the Rights Offering and
related transactions allowing for the issuance of approximately 28.6 million
shares of MOXY common stock, estimated to generate gross proceeds of
approximately $100 million. These proceeds will enable MOXY to acquire the MCN
Producing Properties and to retire all MOXY debt. Furthermore, the remaining
cash proceeds will provide MOXY with the funding necessary to participate in
the aggregate $200 million multi-year MOXY/FRP Exploration Program (discussed
below). MOXY will retain a 100% interest in the MCN Producing Properties, and
MOXY and FRP will dedicate all other properties which were subject to the
MOXY/MCN Program to the MOXY/FRP Exploration Program.
MOXY and FRP will establish the MOXY/FRP Exploration Program to explore and
develop exploratory prospects primarily in the Gulf and onshore in the Gulf
Coast area where MOXY has significant exploration experience and a substantial
geological database. MOXY will manage the program, selecting all prospects and
drilling opportunities, and will serve as operator of the MOXY/FRP Exploration
Program. MOXY and FRP will commit $200 million for exploration expenditures to
be incurred under the program, most of which would be shared 40% by MOXY and
60% by FRP. All revenues and other costs will be shared equally.
30
MOXY was awarded seven tracts at the Central Gulf of Mexico lease sale held
in March 1997 with bids totaling $5.5 million. MOXY and FRP have dedicated
these leases to the MOXY/MCN Program. Upon completion of the Rights Offering,
these leases will be dedicated to the MOXY/FRP Exploration Program.
MOXY incurred $10.3 million of cash exploration and development expenditures
during the first six months of 1997, principally consisting of $3.4 million
for development at Vermilion Blocks 160 and 410, $2.2 million for lease
acquisition costs, $1.0 million in drilling and leasehold costs charged to
expense and $3.1 million of geological and geophysical costs. Exploration
expenditures are expected to increase following the completion of the Rights
Offering and the initiation of the MOXY/FRP Exploration Program.
OPERATIONAL ACTIVITIES
MOXY's recent exploration activities in the Gulf of Mexico have been
conducted primarily through the MOXY/MCN Program in which MOXY currently holds
a 40% interest. In August 1997, FRP acquired MCN's interest in the program,
and upon completion of the Rights Offering, MOXY will purchase the MCN
Producing Properties (Vermilion Block 160 and 410 Fields), and MOXY and FRP
will dedicate all other oil and gas properties subject to the MOXY/MCN Program
to the MOXY/FRP Exploration Program.
Recent activities within the MOXY/MCN Program follow:
. During the fourth quarter of 1996, a development well at the Vermilion
Block 160 field discovered new reserves from eight gas sands with
approximately 215 feet of net pay. Drilling on this well was completed
in the first quarter of 1997, discovering an additional 47 feet of net
pay. During the second quarter of 1997, a second development well to
develop the newly discovered reserves encountered 244 feet of net gas
pay from six sands. A third development well drilled during the third
quarter of 1997 encountered seven sands with approximately 170 feet of
net gas pay. Completion of the three new development wells immediately
commenced and production is expected to begin during the fourth quarter
of 1997. During the third quarter of 1997, MOXY initiated drilling of
the Vermilion Block 160 #4 exploratory well at a location remote from
the existing platform. The MOXY/MCN Program has a 28% net revenue
interest in this field unit which is subject to re-determination
subsequent to final development drilling. In addition, the interest in
two of the four blocks within the Vermilion Block 160 field unit is
subject to a 30% net profits interest. Daily gross production at the
Vermilion Block 160 field is currently averaging approximately 7 million
cubic feet (Mmcf) of natural gas and 300 barrels of condensate during
the second quarter.
. In late December 1996, installation of the production platforms and
related facilities at the Vermilion Block 410 field was completed and
production began from one of the two platforms. Production began from
the second platform in February 1997. The MOXY/MCN Program has a 28% net
revenue interest in this field. Daily gross production currently totals
approximately 60 Mmcf of gas.
. During the third quarter of 1997, the MOXY/MCN Program initiated
drilling of the West Cameron Block 616 #3 exploratory well. In early
October 1997, the well encountered 263 feet of net gas pay in four
sands. MOXY, the operator of the well, believes that these results
indicate commercial quantities of reserves that can be recovered by a
conventional platform development. MOXY is drilling the well deeper to
evaluate additional objectives. The West Cameron 616 #2 well drilled in
1996 located approximately one mile southeast of the #3 well encountered
190 feet of net gas pay in a different fault block.
. During the second quarter of 1997, the MOXY/MCN Program acquired a 50%
working interest in Eugene Island Blocks 18/19 from Shell Offshore Inc.
(SOI) in exchange for a 50% interest in the MOXY/MCN Program's West
Cameron Block 492. During the third quarter of 1997, SOI, as operator,
completed drilling of an exploratory well on Eugene Island Block 19,
which did not encounter commercial hydrocarbons.
31
. In September 1997, MOXY, as operator, unsuccessfully drilled the #2
exploratory well at the Vermilion Block 159 prospect. Mechanical
conditions encountered during drilling prevented the well from reaching
its intended objectives. Based on the geological information acquired
from the well, MOXY is evaluating future drilling. This prospect is
located at a remote location from the existing Vermilion Block 160
platform. The MOXY/MCN Program has a 60% working interest and a 42.3%
net revenue interest in this prospect.
. In April 1997, the MOXY/MCN Program sold its interest in West Cameron
Block 503 for $7.2 million ($2.9 million net to MOXY) with MOXY
recognizing a $2.3 million gain. The proceeds were used to repay
borrowings from MCN.
. Drilling completed in August 1997 at Grand Isle Block 65 was
unsuccessful in discovering hydrocarbons in commercial quantities. MOXY
plans to farm out its working interest and retain an overriding royalty.
. The MOXY/MCN Program was the sole high bidder on the Brazos Block A-26
at the Western Gulf of Mexico lease sale held in August 1997.
MOXY's drilling activities in the onshore Gulf Coast region have taken place
through its 25% owned joint venture with Phillips and FRP, which covers a
project area in south Louisiana, as follows:
. In April 1997, MOXY participated in the drilling of an exploratory well
on the North Bay Junop prospect, the second of two high-risk, high-
potential prospects which have been drilled within the project area. The
well reached total depth but did not encounter commercial hydrocarbons
in the primary objective zones. The well was completed in a shallower
zone with approximately 25 feet of net gas pay. The well was flow tested
at a rate of 5.3 Mmcf of gas and 93 barrels of condensate per day.
Because of the complexity of the salt dome geology and potentially
limited reservoir size, production performance will be required to
determine the reserve volumes associated with this completion. The joint
venture partners are assessing additional prospects in the area which
may result in future exploratory drilling.
In July 1997, MOXY committed to a one year contract for a jack-up rig
capable of drilling in water depths of up to 150 feet. In addition, MOXY
signed a two-well contract with an option for additional wells for a jack-up
rig capable of drilling in water depths of up to 350 feet.
In September 1997, MOXY and FRP acquired from FM Properties Inc. (FMPO)
several working interests and numerous overriding royalty interests in oil and
gas properties. FMPO is a publicly traded real estate corporation of which Mr.
Adkerson is Chairman of the Board and Chief Executive Officer. MOXY's share of
the cost was $2.7 million, funded by borrowings available under the MOXY/MCN
Program. Royalty income generated by these properties totaled $1.4 million for
1996, although a single property which generated $0.7 million in 1996 ceased
production in the second quarter of 1997.
32
RESULTS OF OPERATIONS
SIX MONTHS
-----------------
1994(1) 1995 1996 1996 1997
------- --------- ------- ------- ---------
Revenues (In millions):
Oil and gas sales................. $.2 $ 2.7 $ 2.4 $ 1.2 $ 4.2
Management fees................... -- .6 1.7 .8 .8
--- --------- ------- ------- ---------
$.2 $ 3.3 $ 4.1 $ 2.0 $ 5.0
=== ========= ======= ======= =========
Production quantities:
Gas (Mcf)......................... -- 1,093,000 631,000 306,700 1,621,000
Oil (barrels)..................... -- 45,000 29,000 15,800 9,400
Average realization:
Gas (per Mcf)..................... -- $ 1.63 $ 2.72 $ 2.76 $ 2.44
Oil (per barrel).................. -- $ 18.83 $ 22.22 $ 20.76 $ 21.89
- --------
(1) Inception (May 1994) through December 31, 1994.
MOXY's revenues upon formation were limited to amounts received from various
overriding royalty interests. In late March 1995, MOXY began production from
its Vermilion Block 160 field. In mid-September 1995, MOXY formed the MOXY/MCN
Program which resulted in 60% of MOXY's revenues in the Vermilion Block 160
field being conveyed to MCN. MOXY's revenues for the first six months of 1997
increased significantly over the 1996 period level as the MOXY/MCN Program
initiated production (primarily natural gas) in December 1996 from the first
of two production platforms at the Vermilion Block 410 field, with production
from the second platform commencing in February 1997 (see operating statistics
above). As noted earlier, upon completion of the Rights Offering, MOXY intends
to purchase the MCN Producing Properties from FRP. See the unaudited Pro Forma
Results of Operations contained in this Prospectus.
MCN agreed to pay MOXY a total management fee of $3.0 million covering an
approximate two-year period following formation of the MOXY/MCN Program. MOXY
has recognized this as management fee income equally over this period.
SIX MONTHS
------------
1994(1) 1995 1996 1996 1997
------- ------ ----- ----- -----
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
Production and delivery, including
depreciation and amortization.......... $ -- $ 2.6 $ 1.5 $ 0.8 $ 5.3
Exploration Expenses:
Geological and geophysical.............. $ 6.0 $ 9.8 $ 6.3 $ 3.0 $ 3.1
Exploratory drilling and leasehold
costs.................................. 9.5 2.0 5.6 3.0 1.0
Reimbursement of previously expensed
costs.................................. -- -- (2.1) (2.1) --
------ ------ ----- ----- -----
$ 15.5 $ 11.8 $ 9.8 $ 3.9 $ 4.1
====== ====== ===== ===== =====
Operating loss............................ $(17.7) $(14.8) $(9.9) $(4.0) $(3.5)
Net loss.................................. $(15.2) $(14.6) $(9.9) $(3.8) $(3.9)
Net loss per share........................ $(1.10) $(1.06) $(.71) $(.27) $(.27)
- --------
(1) Inception (May 1994) through December 31, 1994.
The fluctuations in MOXY's production and delivery costs and depreciation
and amortization expenses are consistent with the changes in production
quantities referenced above. During the second quarter of 1997, the reserves
initially assigned to Vermilion Block 410 were adjusted downward on the basis
of production experience, and additional depreciation of $1.0 million was
recognized. Net
33
capitalized costs of this property approximate its undiscounted estimated
future net cash flows at June 30, 1997.
MOXY's geological and geophysical costs, which consist primarily of costs to
acquire and interpret 3-D seismic data, increased during 1995 primarily
because of the significant acquisition of 3-D seismic survey data covering the
project area owned by MOXY's joint venture with Phillips and FRP. MOXY's
unsuccessful exploratory drilling and leasehold costs fluctuate from period to
period based on the related drilling results and the amount of costs involved
in the project. Exploratory drilling and leasehold costs in 1994 included
costs related to four unsuccessful drilling projects, whereas 1995 included
only one unsuccessful drilling project. There were four unsuccessful drilling
projects during 1996 (one during the first six months of 1996) and one during
the first six months of 1997.
General and administrative expenses totaled $1.4 million for the six-month
1997 and 1996 periods, compared with $2.6 million in 1996, $3.7 million in
1995 and $2.3 million in the 1994 period. The decline from 1995 resulted from
steps taken in the third quarter of 1995 to reduce costs. These actions
included a reduction in the number of employees and in the costs of consulting
arrangements and administrative and managerial services.
Interest expense totaled $0.7 million for the six-month 1997 period versus
zero for the six-month 1996 period ($0.4 million for the 1996 year versus zero
for 1995 and 1994) reflecting the increased borrowings from MCN (initiated in
mid-1996), to fund MOXY's share of exploration and development expenditures.
As a result of anticipated future exploration expenditures, MOXY expects to
continue to report operating losses for at least the near future.
ENVIRONMENTAL
Although MOXY has no known environmental liabilities, increasing emphasis on
environmental matters could result in additional costs, which would be charged
against MOXY's operations in future periods. Present and future environmental
laws and regulations applicable to MOXY's operations could require substantial
capital expenditures or could adversely affect its operations in other ways
that cannot be accurately predicted at this time.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. All statements other than
statements of historical fact included in this report, including, without
limitation, statements regarding plans and objectives of MOXY's management for
future operations and MOXY's exploration and development activities are
forward-looking statements.
Important factors that could cause actual results to differ materially from
MOXY's expectations include, without limitation, exploratory drilling results,
economic and business conditions, general development risks and hazards and
risks inherent with the production of oil and gas, such as fires, natural
disasters, blowouts and the encountering of formations with abnormal
pressures, changes in laws or regulations and other factors, many of which are
beyond the control of MOXY. Further information regarding these and other
factors that may cause MOXY's future performance to differ from that projected
in the forward-looking statements are described in more detail in "Risk
Factors."
---------------------
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
34
BUSINESS AND PROPERTIES
The Company is an independent oil and gas company engaged in the
exploration, development and production of oil and natural gas. The Company
currently conducts operations offshore in the Gulf and onshore in the Gulf
Coast area. The Company and its predecessors have conducted exploration,
development and production operations offshore in the Gulf and onshore in the
Gulf Coast and other areas for more than 25 years, which have provided the
Company an extensive geological and geophysical database, and extensive
technical and operational expertise.
The Company's business strategy is to create value for its stockholders
through the discovery of oil and gas reserves by concentrating its efforts in
selected geographic areas where the Company's management team has significant
exploration experience. The Company evaluates substantially all of its
exploratory prospects with 3-D seismic surveys prior to drilling. MOXY intends
to continue to generate prospects, evaluate farm-in opportunities and other
opportunities to acquire oil and gas properties and to maximize its geological
and geophysical expertise by using 3-D seismic data and state of the art
technology.
In order to increase both the size and number of prospects that the Company
has been able to pursue, the Company has followed a strategy of forming
exploration joint ventures in which the venturers participate in the Company's
exploration activities through direct working interests.
MOXY/MCN PROGRAM
In September 1995, the Company and affiliates of MCN established the
MOXY/MCN Program to explore and develop prospects in the Gulf. The Company
manages the MOXY/MCN Program and selects all prospects and drilling
opportunities. The Company and MCN committed $65 million to the MOXY/MCN
Program, with revenues and costs being shared 40% by MOXY and 60% by MCN. MCN
has funded its 60% share of expenditures and is committed to lend funds to
MOXY for its 40% share. The Company's 40% share of future revenues from the
MOXY/MCN Program is dedicated to repaying the loan amounts which bear interest
at the annual base rate quoted from time to time by The Chase Manhattan Bank
plus 2%. The Company's obligation to repay loans under the MOXY/MCN Program is
non-recourse, except to the properties contributed to and developed under the
MOXY/MCN Program.
In July 1997, FRP agreed to acquire from MCN its contractual rights to the
MOXY/MCN Program, the MCN Producing Properties and other exploratory
properties acquired under the MOXY/MCN Program for $31.0 million, as adjusted
for the net revenues and costs attributable to such properties from April 1,
1997 until their acquisition by FRP, and an additional amount equal to the
amount loaned by MCN to MOXY under the MOXY/MCN Program. On August 4, 1997,
FRP paid MCN, after adjustments, $34.0 million for such assets together with
$12.4 million for the outstanding indebtedness. MCN is not affiliated with
either FRP or MOXY and will no longer have any involvement or interest in the
MOXY/MCN Program.
MOXY and FRP have amended the MOXY/MCN Program to extend the program term,
include their interests in the seven offshore leases acquired by MOXY and FRP
at the Central Gulf of Mexico Lease Sale held in March 1997 and provide for
the conduct of mutually agreed exploration projects until the earlier of
December 31, 1997 or the date of completion of the Rights Offering. The
amendment also provided that FRP will reimburse MOXY for approximately
$290,000 of overhead per month and will continue to advance funds to MOXY
under the MOXY/MCN Program during the remaining program term.
In August 1997, MOXY and FRP acquired from FM Properties and dedicated to
the MOXY/MCN Program interests in certain exploration properties for $3.0
million. FM Properties is a publicly traded real estate corporation of which
Mr. Adkerson is Chairman of the Board and Chief Executive Officer. See
"Certain Relationships and Related Transactions--Oil and Gas Properties."
35
Upon completion of the Rights Offering, MOXY will acquire the MCN Producing
Properties from FRP for $26.0 million, subject to the adjustments described
above for the revenues and costs attributable to the MCN Producing Properties
from April 1, 1997 until their acquisition by MOXY plus interest, calculated
on the daily outstanding balance of the $26.0 million purchase price, as
adjusted, from August 4, 1997 until MOXY's acquisition of the properties, at
an annual rate publicly announced by The Chase Manhattan Bank from time to
time plus 2%. See "Business and Properties Oil and Gas Properties--Proved
Properties." At the same time, MOXY will repay to FRP all amounts that have
been advanced to MOXY under the MOXY/MCN Program. Thereafter, MOXY will retain
a 100% interest in the MCN Producing Properties and MOXY and FRP will dedicate
all other oil and gas properties then subject to the MOXY/MCN Program to the
MOXY/FRP Exploration Program. MOXY did not purchase the MCN Producing
Properties directly from MCN since it will not have sufficient funds for the
purchase until completion of the Rights Offering and Standby Commitment. See
"Use of Proceeds" and "--MOXY/FRP Exploration Program."
MOXY/FRP EXPLORATION PROGRAM
Concurrently with the closing of the Standby Commitment, MOXY and FRP will
establish the MOXY/FRP Exploration Program to explore and develop exploratory
prospects primarily in the Gulf and onshore in the Gulf Coast area. MOXY will
manage the MOXY/FRP Exploration Program, selecting all prospects and drilling
opportunities, and will serve as operator of the MOXY/FRP Exploration Program.
MOXY and FRP have committed $200 million for exploration expenditures to be
incurred under the MOXY/FRP Exploration Program, with most exploration
expenditures being shared 40% by MOXY and 60% by FRP. Exploration costs
consist of all costs associated with leasehold acquisition and maintenance,
geological and geophysical studies, seismic surveys, drilling exploratory
wells, overhead reimbursements, and all other aspects of identifying prospects
and drilling exploratory wells. All revenues and other costs will be shared
50% by MOXY and 50% by FRP.
MOXY and FRP will receive credits against the $200 million program
commitment for an aggregate of $8.3 million for certain exploratory costs
incurred under the MOXY/MCN Program prior to the establishment of the MOXY/FRP
Exploration Program. All exploratory prospects in the MOXY/MCN Program will be
transferred to the MOXY/FRP Exploration Program and MOXY will acquire an
additional interest in each such property to reflect the ownership of
interests under the MOXY/FRP Exploration Program. The MOXY/FRP Exploration
Program will terminate after initial exploration program expenditures of $200
million have been committed or on June 30, 2002, whichever is earlier.
MOXY/PHILLIPS/FRP PROGRAM
In June 1995, the Company and Phillips entered into a joint venture
agreement to explore a project area in Terrebonne Parish, Louisiana containing
the North Bay Junop and East Fiddler's Lake prospects. Pursuant to the
agreement, the Company conveyed one-half of its interest in the area, with
Phillips reimbursing the Company $3.8 million for previously incurred costs
related to the project. In June 1996, the Company sold one-half of its
remaining 50% interest in the area to FRP for $2.1 million. This amount
represented the reimbursement for previously expensed exploration costs
incurred by the Company in connection with this project area. MOXY sold the
interest to FRP on the same proportionate basis as the sale of the interest to
Phillips. The project area, with the exception of the North Bay Junop and East
Fiddler's Lake prospects, is subject to a possible 25% participation by a
mineral rights owner.
OIL AND GAS PROPERTIES
As of June 30, 1997, the Company owned interests in 39 oil and gas leases in
the Gulf and onshore Louisiana covering approximately 131,300 gross acres
(approximately 41,900 net acres to the Company).
36
Proved Properties
After the completion of the Rights Offering and the purchase of the MCN
Producing Properties, MOXY will own all of the interest in the following
properties presently held by the MOXY/MCN Program.
VERMILION BLOCK 160 FIELD AREA. Gross production from the field unit
averaged 14.9 Mmcf of natural gas and 687 barrels of condensate per day during
1996 and currently is averaging 7 Mmcf and 300 barrels of condensate per day.
The MOXY/MCN Program has a 40% working interest and an approximate 28% net
revenue interest in the Vermilion Block 160 field unit, which is located
offshore Louisiana in approximately 90 feet of water. In March 1997, MOXY, as
operator, completed drilling a development well that encountered 262 feet of
net gas pay from eight sands. During the second quarter of 1997, a second
development well to develop the newly discovered reserves encountered 244 feet
of net gas pay from six sands. A third development well drilled during the
third quarter of 1997 discovered seven sands with approximately 170 feet of
net gas pay. Completion of the three new development wells immediately
commenced and production is expected to begin in the fourth quarter of 1997.
The current working and net revenue interests within the Vermilion Block 160
field unit are subject to redetermination subsequent to final development
drilling. In Vermilion Block 160, outside the field unit area, the MOXY/MCN
Program has a 53.3% working interest and an approximate 42.5% net revenue
interest. During the third quarter of 1997, MOXY initiated drilling of the
Vermilion Block 160 #4 exploratory well at a location remote from the existing
platform. Also, in Vermilion Block 143, outside the field unit area, the
MOXY/MCN Program has a 26.67% working interest and an approximate 19% net
revenue interest. The MOXY/MCN Program's interest in Vermilion Blocks 143 and
160, including the portion of its interest in the field unit resulting from
these two blocks, is subject to a 30% net profits interest. The Vermilion
Block 160 field unit is comprised of portions of four leases (Vermilion Blocks
143, 144, 159, and 160) totaling 5,625 acres. In addition, the MOXY/MCN
Program owns interests in, or exploration rights to, an additional 9,375 acres
in the four block area, including the farm-in of 3,125 acres in Vermilion
Block 159. See "--Exploration Properties--Vermilion Block 159."
VERMILION BLOCK 410 FIELD AREA. The MOXY/MCN Program has a 37.5% working
interest and 28% net revenue interest in the Vermilion Block 410 field which
is located in 360 feet of water offshore Louisiana. Statoil, as operator,
initiated production from four wells at one platform in late December 1996.
Production from four wells at the second platform began in February 1997 and
gross daily production from both platforms combined currently is approximately
60 Mmcf of gas. The lease blocks cover a total of 11,015 acres.
Exploration Properties
After completion of the Rights Offering, the following properties will be
dedicated to the MOXY/FRP Exploration Program.
VERMILION BLOCK 159. In 1996 MOXY completed a farm-in of a portion of
Vermilion Block 159, which is adjacent to its producing property at Vermilion
Block 160. In September 1997, MOXY, as operator, unsuccessfully drilled the #2
exploratory well at the Vermilion Block 159 prospect at a location remote from
the existing platform in Vermilion Block 160. Mechanical conditions
encountered during drilling prevented the well from reaching its intended
objectives. Based on the geological information acquired from the well, MOXY
is evaluating future drilling. The MOXY/MCN Program has a 60% working interest
and a 43% net revenue interest in the Vermilion Block 159 farm-in.
WEST CAMERON BLOCK 616. The MOXY/MCN Program has a 50% working interest and
41.6% net revenue interest in West Cameron Block 616, where MOXY, as operator,
drilled the #2 exploration well in June 1996 and discovered 190 feet of net
gas pay in multiple sands. The well was saved for future development. The
MOXY/MCN Program acquired an additional 50% working interest with a
37
35.8% net revenue interest in a 625 acres portion of West Cameron Block 616
thereby giving the MOXY/MCN Program a 100% interest in that portion of the
block. During the third quarter of 1997, MOXY initiated drilling of the West
Cameron Block 616 #3 exploratory well located within the 100% working interest
area. In early October 1997, the well encountered 263 feet of net gas pay in
four sands. MOXY, the operator of the well, believes that these results
indicate commercial quantities of reserves that can be recovered by
conventional platform development. MOXY is drilling the well deeper to
evaluate additional objectives. MOXY is evaluating additional development
wells immediately following completion of the #3 well. The MOXY/MCN Program
also owns an interest in the adjacent West Cameron Block 617 lease where
exploratory drilling is contemplated in the fourth quarter of 1997. The blocks
cover a total of 10,000 acres and are located approximately 130 miles offshore
Louisiana in 300 feet of water.
WEST CAMERON BLOCK 492. The MOXY/MCN Program acquired a 100% working
interest and 80% net revenue interest in West Cameron Block 492 in the Central
Gulf of Mexico lease sale in 1996. The block covers 5,000 acres and is located
90 miles offshore in 150 feet of water. In June 1997, the MOXY/MCN Program
exchanged 50% of its interest in West Cameron Block 492 for a 50% working
interest in Eugene Island Blocks 18 and 19. MOXY, as operator, plans to drill
the initial exploratory well during the fourth quarter of 1997.
EUGENE ISLAND BLOCKS 18/19. The MOXY/MCN Program acquired in June 1997 a 50%
working interest in Eugene Island Blocks 18 and 19 in exchange for a 50%
working interest in West Cameron Block 492. During the third quarter of 1997,
SOI, as operator, completed drilling of an exploratory well on Eugene Island
Block 19, which did not encounter commercial hydrocarbons. The blocks cover a
total of 2,436 acres and are located 3 miles offshore of Louisiana in
approximately 10 feet of water.
VERMILION BLOCKS 391/392/408. The MOXY/MCN Program has a 30% working
interest and 24.1% net revenue interest in Vermilion Blocks 392/408 and a
31.9% working interest and 25.7% net revenue interest in Vermilion Block 391.
Statoil, as operator, drilled an unsuccessful exploratory well in the third
quarter of 1996 on Vermilion Block 391. The MOXY/MCN Program acquired the
Vermilion Block 392 lease in the Central Gulf of Mexico lease sale in 1996 and
acquired the shallow rights on Vermilion Block 408 by trading the deep rights
at Vermilion Block 392. Vermilion Blocks 391/392/408 cover a total of 15,000
acres and are located four miles from the Vermilion Block 410 field, which is
approximately 115 miles offshore Louisiana, in approximately 360 feet of
water.
EAST FIDDLER'S LAKE/NORTH BAY JUNOP. MOXY has a 25% working interest and 18%
net revenue interest in approximately 8,925 acres in the East Fiddler's
Lake/North Bay Junop prospects and adjacent areas in Terrebonne Parish,
Louisiana, and owns a proprietary 3-D seismic data survey covering
approximately 35,000 acres. Operations are being undertaken by a joint venture
owned 50% by Phillips (operator), 25% by FRP and 25% by MOXY. See "--Business
and Properties-- MOXY/Phillips/FRP Program." The first exploratory well at
East Fiddler's Lake was drilled in the third quarter of 1996. Although the
well was unsuccessful in discovering commercial hydrocarbons, the geological
data from this well will assist additional drilling activity in the prospect
area. In April 1997, the North Bay Junop well completed drilling. The well did
not encounter commercial hydrocarbons in the primary objective zones.
Subsequently, the well was completed in a shallower zone, which consists of
two sands with approximately 25 feet of net gas pay. The well was flow-tested
at a rate of approximately 5.3 Mmcf of natural gas and 93 barrels of
condensate per day on a 20/64th inch choke with approximately 2,900 pounds per
square inch flowing tubing pressure. Because of the complexities of the salt
dome geology, production performance will be required to determine the reserve
volumes associated with this completion. The joint venture partners are
assessing additional prospects in the area which may result in future
exploratory drilling.
GRAND ISLE BLOCK 65. The MOXY/MCN Program has a 37.5% working interest and
30.2% net revenue interest in Grand Isle Block 65, where Nippon Oil
Exploration, the operator, has drilled and saved the #1 sidetrack discovery
well. The well encountered two gas bearing zones with a total of 29
38
feet of net pay. Nippon Oil has obtained a suspension of production for the
initial well. The MOXY/MCN Program acquired the adjacent Grand Isle Blocks 58
and 59 in the Central Gulf of Mexico lease sale in 1996. In August 1997 at
Grand Isle Block 65 a second exploratory well was unsuccessful in discovering
hydrocarbons in commercial quantities. MOXY plans to farm out its working
interest and retain an overriding royalty.
OTHER EXPLORATION PROPERTIES. The MOXY/MCN Program was the high bidder on
the Brazos Block A-26 at the Western Gulf of Mexico lease sale held in August
1997. During the 1997 fourth quarter MOXY plans to drill an initial
exploratory well on West Cameron Block 156/157 (7,170 gross acres in 32 feet
water depth) and is evaluating potential drilling on West Cameron Block 624
(part of West Cameron Blocks 623/624/625 covering 15,000 gross acres in 348
feet water depth). MOXY is considering potential drilling in 1998 to evaluate
Vermilion Block 145 (covering 5,000 gross acres in 90 feet water depth) and
Main Pass 56 (covering 4,898 gross acres in 26 feet water depth). MOXY and FRP
acquired a 100% working interest and 80.3% net revenue interest in each of
these offshore prospects in the March 1997 Central Gulf of Mexico lease sale.
MOXY is also reviewing farm in opportunities, additional exploration
properties and other opportunities in the onshore and offshore Gulf Coast
region.
OIL AND GAS RESERVES
The total proved developed and proved undeveloped reserves of oil and gas
owned by the Company and the proved reserves attributable to the MCN Producing
Properties as of May 31, 1997, estimated by Ryder Scott, an independent
petroleum engineering firm, were as follows:
GAS(MMCF) OIL(BBLS)
--------------------- ---------------------
PROVED PROVED PROVED PROVED
DEVELOPED UNDEVELOPED DEVELOPED UNDEVELOPED
--------- ----------- --------- -----------
MOXY................................ 6,790 2,928 70,442 55,933
MCN Producing Properties............ 9,638 3,098 102,919 77,443
------ ----- ------- -------
Total............................... 16,428 6,026 173,361 133,376
====== ===== ======= =======
The wells at the Vermilion Block 160 field unit and Vermilion Block 410
field have limited production history. Estimates of proved undeveloped
reserves that may be developed and produced in the future are based upon
volumetric calculations and upon analogy to similar types of reserves rather
than upon actual production history. Estimates based on these methods are
generally less reliable than those based on actual production history.
Subsequent evaluation of the same reserves based upon production history will
result in variations, which may be substantial, in the estimated reserves.
Further, the proved undeveloped reserves will require additional capital to
develop and produce. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
39
The following table sets forth as of May 31, 1997, the estimated future net
cash flows before income taxes and the present value thereof, discounted at
10% per annum, from the production and sale of the proved reserves
attributable to the gas and oil properties owned by the Company as of such
date and the proved reserves attributable to the MCN Producing Properties, as
determined by Ryder Scott.
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
--------- ----------- -------
(IN THOUSANDS)
Estimated future net cash flows before income
taxes(1)
MOXY.......................................... $12,030 $3,856 $15,886
MCN Producing Properties...................... $17,518 $5,827 $23,345
Present value of estimated future net cash
flows before income taxes(1)
MOXY.......................................... $10,431 $2,814 $13,245
MCN Producing Properties...................... $15,153 $4,345 $19,498
- --------
(1) In preparing such estimates, Ryder Scott used prices of $20.21 per barrel
of oil and $2.21 per Mcf of gas, the weighted average prices that the
Company estimates it would have received, assuming production from all of
the properties with proved reserves.
---------------------
In accordance with applicable requirements of the Commission, the estimated
discounted future net revenues from estimated proved reserves are based on
prices and costs at the time of the reserve calculation. Actual future prices
and costs may be materially higher or lower. See "Risk Factors--Reserves and
Future Net Cash Flow."
In accordance with methodology approved by the Commission, specific
assumptions were applied in the computation of the reserve estimates. Under
this methodology, future net cash flows are determined by reducing estimated
future gross cash flows from oil and gas sales by the estimated costs to
develop and produce the underlying reserves, including future capital
expenditures, operating costs, transportation costs, net profits interests,
and royalty and overriding royalty burdens. Future net cash flows were
discounted at 10% per annum to arrive at discounted future net cash flows. The
present value of future net cash flows shown above should not be construed as
the current market value as of May 31, 1997, or any other date, of the
estimated oil and gas reserves attributable to these properties. See "Risk
Factors--Reserves and Future Net Cash Flow."
The Company is periodically required to file estimates of its oil and gas
reserves with various governmental regulatory authorities and agencies. In
some cases the basis for reporting estimates of reserves to these agencies is
not comparable to that furnished above because of the nature of the reports
required. The major variations include differences in when such estimates are
made, in the definition of reserves, in the requirements to report in some
instances on a gross, net or total operator basis and in the requirements to
report in terms of smaller geographical units.
40
PRODUCTION, UNIT PRICES AND COSTS
The following table sets forth information regarding production volumes,
average sales, prices received and average production costs applicable to the
Company's oil and gas sales for the year ended December 31, 1996 and the six
months ended June 30, 1997:
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
Production:
Net gas production (Mcf)..................... 631,000 1,621,000
Net crude oil and condensate production
(Bbls)...................................... 29,000 9,400
Sales prices:
Natural gas (per Mcf)........................ $2.72 $2.44
Crude oil and condensate (per Bbl)........... $22.22 $21.89
Production (lifting) costs (per Mcf
equivalent)(1)................................ $0.94 $0.41
- --------
(1) Production costs were converted to an Mcf equivalent on the basis of one
barrel of oil being equivalent to six Mcf of natural gas. Production costs
exclude all depreciation and amortization associated with property and
equipment. The components of production costs may vary substantially among
wells depending on the production characteristics of the particular
producing formation, the method of recovery employed and other factors,
but include in all cases transportation charges and lease operating
expenses.
---------------------
The relationship between the Company's sales prices and its production
(lifting) costs depicted by the table above is not necessarily indicative of
future results expected by the Company. See "Risk Factors--Volatility of Oil
and Gas Prices" and "--Exploration and Development Risks."
ACREAGE
The following table sets forth the oil and gas acreage in which the Company
held an interest as of June 30, 1997:
DEVELOPED(1) UNDEVELOPED
--------------- ---------------
GROSS(2) NET(3) GROSS(2) NET(3)
ACRES ACRES ACRES ACRES
-------- ------ -------- ------
Offshore (federal waters)....................... 32,891 8,152 89,506 31,560
Onshore Louisiana............................... -- -- 8,925 2,231
------ ----- ------ ------
Total......................................... 32,891 8,152 98,431 33,791
====== ===== ====== ======
- --------
(1) "Developed" acreage includes acreage by lease, unit or offshore block in
which there are one or more producing wells or shut-in wells capable of
commercial production and/or acreage with proved reserves in quantities
deemed sufficient to develop.
(2) The term "gross" refers to acres in which the Company owns a working
interest and/or operating rights.
(3) The term "net" refers to gross acres multiplied by the percentage of the
working interest and/or operating rights owned therein.
41
OIL AND GAS DRILLING ACTIVITY
The following table sets forth the gross and net number of productive, dry
and total exploratory wells and development wells that the Company drilled in
each of the years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997:
YEARS ENDED DECEMBER 31, SIX MONTHS
----------------------------- ENDED
1995 1996 JUNE 30, 1997
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
-------------- -------------- ------- ------
EXPLORATORY
Productive....................... 1.0 0.375 4.0 0.910 1.0 0.2
Dry.............................. -- -- 4.0 0.948 -- --
----- ------- ----- ------- ------ ------
Total.......................... 1.0 0.375 8.0 1.858 1.0 0.2
===== ======= ===== ======= ====== ======
DEVELOPMENT
Productive....................... 5.0 1.875 -- -- 1.0 0.4
Dry.............................. -- -- -- -- -- --
----- ------- ----- ------- ------ ------
Total.......................... 5.0 1.875 -- -- 1.0 0.4
===== ======= ===== ======= ====== ======
OPERATING HAZARDS AND INSURANCE
The Company's operations are subject to the usual hazards incident to
drilling for and producing natural gas and crude oil, such as blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires,
pollution, releases of toxic gas and other environmental hazards and risks.
Offshore oil and gas operations are subject to the additional hazards of
marine operations, such as capsizing, collision and adverse weather and sea
conditions. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, environmental damages and
suspension of operations.
Drilling activities are subject to numerous risks, including the risk that
no commercially productive hydrocarbon reserves will be encountered. The cost
of drilling, completing and operating wells and installing production
facilities and pipelines is often uncertain. The Company's drilling operations
may be curtailed, delayed or canceled as a result of numerous factors,
including, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment.
The Company maintains insurance of various types that it considers to be
reasonably adequate to cover its operations, although certain risks faced by
the Company are either uninsurable or not fully insured. Such insurance is
subject to deductibles that the Company considers reasonable. Consistent with
insurance coverage generally available to the industry, the Company's
insurance policies do not provide coverage for losses or liabilities relating
to pollution, except for sudden and accidental occurrences.
COMPETITION
Competition in the oil and gas industry is intense. In seeking to obtain new
leases and exploration prospects, the Company faces competition from both
major and independent oil and gas companies. Because many of these competitors
have financial and other resources substantially in excess of those available
to the Company, they may be better positioned to acquire and exploit
prospects, hire personnel and market production. In addition, many of the
Company's larger competitors may be better able to withstand the effect of
changes in such factors as worldwide oil and natural gas prices and levels of
production, the cost and availability of alternative fuels and the application
of government regulations.
42
MARKETING
The Company's gas sales are currently made in the "spot market" at
prevailing prices. Crude oil and condensate production is generally sold at
prevailing prices.
REGULATION
General
The oil and gas industry is extensively regulated by federal and state
authorities in the United States. Legislation affecting the oil and gas
industry is under constant review, and relevant statutes are constantly being
adopted, expanded or amended. Further, numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the oil and
gas industry and its individual members, some of which carry substantial
penalties for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently, affects its
profitability.
Exploration, Production and Development
The exploration, production and development operations of the Company are
subject to regulation at both the federal and state levels. Such regulations
require operators to obtain permits to drill wells and to meet certain bonding
and insurance requirements in order to drill or operate wells. Such regulation
also controls the location of wells, the method of drilling and casing wells,
the surface use and restoration of properties upon which wells are drilled and
the plugging and abandoning of wells. The Company's exploration, production
and development operations are also subject to various conservation laws and
regulations. These include the regulation of the size of drilling and spacing
units or proration units, the density of wells that may be drilled, the levels
of production and the unitization or pooling of oil and gas properties.
The Company presently has interests in or rights to 30 offshore leases
located in federal waters on the outer continental shelf ("OCS"). Federal
leases are administered by the Minerals Management Service ("MMS").
Individuals and entities must qualify with the MMS prior to owning and
operating any leasehold or right-of-way interest in federal waters. Such
qualification generally involves filing certain documents with the MMS and
obtaining performance bonds. For offshore operations, lessees must obtain MMS
approval for exploration plans and development and production plans prior to
the commencement of such operations. In addition to permits required from
other agencies (such as the Coast Guard, the Army Corp of Engineers and the
Environmental Protection Agency), lessees must obtain a permit from the MMS
prior to the commencement of drilling. The MMS has promulgated regulations
requiring offshore production facilities located on the OCS to meet stringent
engineering and construction specifications, and has recently proposed and
promulgated additional safety-related regulations concerning the design and
operating procedures of OCS production platforms and pipelines. The MMS also
has regulations restricting the flaring or venting of natural gas, and has
proposed amendments to such regulations that would prohibit the flaring of
liquid hydrocarbons and oil without prior authorization. The MMS has also
promulgated regulations governing the plugging and abandonment of offshore
wells and the removal of production facilities. To cover the various
obligations of an OCS lease, the MMS generally requires that lessees post
substantial bonds or other acceptable assurances that such obligations will be
met. The cost of such bonds or other security can be substantial and there is
no assurance that bonds or other surety can be obtained in all cases. Under
certain circumstances, the MMS may require all Company operations on federal
leases to be suspended or terminated. Any such suspension or termination would
materially and adversely affect the Company's financial condition and
operations.
43
Certain producing states, including Louisiana, have recently adopted or
considered adopting measures that alter the methods used to prorate gas
production from wells located in these states, including those located in
their territorial waters. These measures may limit the rate at which gas may
be produced from the wells in which the Company might acquire an interest.
Congress considered, but rejected, legislation that would have limited the
rights of states to prorate production. The Company cannot predict whether
such legislation will be reintroduced or what effect the new state rules may
have on gas production in such states. At the present time there are no
regulatory measures that would limit the production of oil or gas leases in
which the Company owns an interest.
Environmental
GENERAL. The Company's operations are subject to extensive federal, state
and local regulatory requirements relating to environmental affairs, health,
safety, waste management and chemical products. These laws and regulations
require the acquisition of permits before construction or drilling commences,
limit or prohibit construction and drilling activities on certain lands lying
within wilderness, wetland and other protected areas and impose substantial
liabilities for pollution resulting from the Company's operations.
Moreover, the recent trend toward stricter standards in environmental
legislation and regulations is likely to continue. For instance, legislation
has been proposed in Congress from time to time to reclassify oil and gas
production wastes as "hazardous waste." If such legislation were enacted, it
could have a significant impact on the operating costs of the Company, as well
as the oil and gas industry in general. State initiatives to further regulate
the disposal of oil and gas wastes are also pending in certain states and
could have a similar impact on the Company. Management believes that
compliance with current applicable environmental laws and regulations will not
have a material adverse effect on the Company. The Company believes that its
operations are and will continue to be in substantial compliance with
applicable environmental laws, regulations and ordinances.
It is possible, however, that future developments, such as stricter
environmental laws or regulations could adversely affect the Company's
operations. Moreover, some risk of environmental costs and liabilities is
inherent in the Company's operations as it is with other companies engaged in
similar or related businesses, and there can be no assurance that material
costs and liabilities, including substantial fines or criminal sanctions for
violation of environmental laws and regulations, will not be incurred by the
Company.
SOLID WASTE. The Company's operations may generate or involve the transport
of both hazardous and nonhazardous solid wastes that are subject to the
requirements of the Federal Resource Conservation and Recovery Act and
comparable state statutes. In addition, the Environmental Protection Agency
("EPA") is presently in the process of developing stricter disposal standards
for nonhazardous waste. Changes in these regulations may require additional
capital expenditures or operating expenses by the Company.
HAZARDOUS SUBSTANCES. The Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and comparable state statutes, also known as
"Superfund" laws, impose liability on certain classes of persons that
contribute to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of a site, and companies that
transport, dispose of or arrange for the disposal of, the hazardous substances
found at the site. CERCLA also authorizes the EPA, and in some cases third
parties, to take actions in response to threats to the public health or the
environment and to recover their costs from the responsible classes of
persons. Despite the "petroleum exclusion" of Section 101(14) of CERCLA that
encompasses wastes directly associated with oil and gas production, the
Company may generate or transport "hazardous substances" within the meaning of
CERCLA or comparable state statutes in the course of its ordinary
44
operations. Thus, the Company may be responsible under CERCLA or the state
equivalents for all or part of the costs required to clean up sites where a
release has occurred.
AIR. The Company's operations may also be subject to the Clean Air Act
("CAA") and comparable state statutes. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from
operations. The EPA has been developing regulations to implement these
requirements. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with obtaining or maintaining operating permits and approvals
addressing other air emission-related issues.
WATER. The Federal Water Pollution Control Act ("FWPCA") strictly regulates
the unauthorized discharge of produced waters and other oil and gas wastes
into navigable waters. The FWPCA provides for civil and criminal penalties for
any unauthorized discharges of oil and other hazardous substances in
reportable quantities and imposes substantial potential liability for the
costs of removal, remediation and damages. Similarly, the Oil Pollution Act of
1990 (the "OPA") imposes liability for the discharge of oil into or upon
navigable waters or adjoining shorelines. Among other things, the OPA raises
liability limits, narrows defenses to liability and provides more instances in
which a responsible party is subject to unlimited liability. State laws for
the control of water pollution also provide varying civil and criminal
penalties and liabilities in the case of an unauthorized discharge of
petroleum or its derivatives into state waters. Further, the Coastal Zone
Management Act authorizes state implementation and development of programs or
management measures for nonpoint source pollution to restore and protect
coastal waters.
ENDANGERED SPECIES. Several federal laws impose regulations designed to
ensure that endangered or threatened plant and animal species are not
jeopardized and their critical habitats are neither destroyed nor modified.
These laws may restrict the Company's exploration, development and production
operations and impose civil or criminal penalties for non-compliance.
Safety and Health Regulations
The Company is also subject to laws and regulations concerning occupational
safety and health. It is not anticipated that the Company will be required in
the near future to expend amounts that are material in the aggregate to the
Company's overall operations by reason of occupational safety and health laws
and regulations, but inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
EMPLOYEES
At June 30, 1997, the Company had 15 employees. All of the Company's
employees are devoted primarily to managerial, land, geological and
administrative functions. The Company intends to continue its policy of
limiting its number of permanent employees and, to that end, generally
utilizes the services of independent consultants and contractors to perform
various professional services, particularly in the areas of construction,
design, well site surveillance and environmental assessment. Field and on-site
production operation services such as pumping, maintenance, dispatching,
inspection and testing are also generally provided by independent contractors.
Currently, a major portion of the Company's geological and geophysical
services are performed by CLK Company, L.L.C. ("CLK"). Under the Company's
agreement with CLK, the Company pays CLK an annual fee of $2.4 million, with
$0.5 million of this fee paid in Company common stock, and reimburses CLK's
direct expenses incidental to its work for the Company and for its office
space. In addition, CLK receives a 3% overriding royalty interest on all new
domestic prospects accepted by the Company. For the year ended December 31,
1996, the Company incurred $3.1 million of expenses under its agreement with
CLK.
45
MANAGEMENT
The following table provides certain information regarding the executive
officers and directors of the Company as of the date of this Prospectus.
Officers are elected by the Board of Directors and serve at its discretion.
NAME AGE POSITION
- ---- --- --------
James R. Moffett........ 58 Co-Chairman of the Board and Director
Richard C. Adkerson..... 50 Co-Chairman of the Board, Chief Executive Officer and Director
C. Howard Murrish....... 56 President and Chief Operating Officer
Glenn A. Kleinert....... 54 Senior Vice President
James H. Lee............ 40 Senior Vice President
John G. Amato........... 53 General Counsel
Robert W. Bruce III..... 53 Director
Robert A. Day........... 53 Director
William B. Harrison,
Jr..................... 53 Director
Bobby Lee Lackey........ 59 Director
Gabrielle K. McDonald... 55 Director
George Putnam........... 70 Director
B.M. Rankin, Jr......... 67 Director
J. Taylor Wharton....... 59 Director
James R. Moffett has served as Co-Chairman of the Board and as a director of
the Company since April 1994. Mr. Moffett serves as Chairman of the Board and
Chief Executive Officer of FCX and as Chairman of the Board of FTX.
Richard C. Adkerson has served as Co-Chairman of the Board, Chief Executive
Officer and a director of the Company since May 1994. Mr. Adkerson serves as
Vice Chairman of the Board of FTX. He served as Senior Vice President and
Chief Financial Officer of FTX until 1995 and as Vice President of FTX until
1992. He is the President and Chief Operating Officer of FCX. He served as
Executive Vice President of FCX until April 1997. He also serves as Chairman
of the Board and Chief Executive Officer of FM Properties Inc., real estate
development ("FMPO"). Mr. Adkerson is a director of Hi-Lo Automotive, Inc.
C. Howard Murrish has been President and Chief Operating Officer of the
Company since September 1994. He was a partner in CLK until September 1994. He
was a Senior Executive Vice President of the oil and gas division of FTX from
1986 until February 1992. Prior thereto, since July 1987 Mr. Murrish served as
an officer of various FTX affiliates.
Glenn A. Kleinert has been Senior Vice President of the Company since May
1994. Mr. Kleinert is a Senior Vice President of the oil and gas division of
FTX and has held that position since December 1990.
James H. Lee has been Senior Vice President of the Company since November
1996. Mr. Lee has been a Director of Finance and Business for FTX since August
1993 and a Vice President of the oil and gas division of FTX since 1994.
John G. Amato has been General Counsel of the Company since April 1994. Mr.
Amato is General Counsel of FMPO. Prior to August 1995, Mr. Amato served as
General Counsel of FTX and FCX.
Robert W. Bruce has served as a director of the Company since May 1994. Mr.
Bruce is President of The Robert Bruce Management Co., Inc., an investment
management company. He was Managing Partner of the Steamboat Group until 1992.
He is a director of FTX and FCX.
46
Robert A. Day has served as a director of the Company since May 1994. Mr.
Day is Chairman of the Board of Trust Company of the West, an investment
management company. He also serves as Chairman and President of W. M. Keck
Foundation, a charitable foundation. He is currently a director of Fisher
Scientific International Inc., FTX and FCX.
William B. Harrison, Jr. has served as a director of the Company since May
1994. Mr. Harrison serves as Vice Chairman of The Chase Manhattan Corporation
and its subsidiary, The Chase Manhattan Bank. He is a director of Dillard's
Inc., FTX and FCX.
Bobby Lee Lackey has served as a director of the Company since May 1994. Mr.
Lackey is currently President and Chief Executive Officer of J.S. McManus
Produce Company, Inc., grower of vegetables and shipper of fruits and
vegetables. He is a director of FTX and FCX.
Gabrielle K. McDonald has served as a director of the Company since May
1994. Ms. McDonald currently serves as a Judge for the International Criminal
Tribunal for the Former Yugoslavia. She served as a Distinguished Visiting
Professor of Law at Texas Southern University, Thurgood Marshall School of Law
until 1995. She was a Visiting Professor of Law at St. Mary's University
School of Law, and of counsel at Walker & Satterthwaite, a law firm, until
1993. Ms. McDonald currently serves as a director of FTX and FCX.
George Putnam has served as a director of the Company since May 1994. Mr.
Putnam is Chairman of The Putnam Investment Management Company, Inc. and of
each of the members of the Putnam group of mutual funds. He is a director of
The Boston Company, Inc., Boston Safe Deposit and Trust Company, Houghton
Mifflin Company, Marsh & McLennan Companies Inc., Rockefeller Group, Inc., FTX
and FCX.
B. M. Rankin, Jr. has served as a director of the Company since May 1994.
Mr. Rankin is a private investor. He is also a director of FTX and FCX.
J. Taylor Wharton has served as a director of the Company since May 1994.
Mr. Wharton is the Chairman of the Department of Gynecology at the University
of Texas M.D. Anderson Cancer Center. He also serves as director of FTX and
FCX.
The directors of the Company who also serve as directors of FTX and FCX
constitute a majority of the directors of FTX and FCX, respectively.
The Company's Amended and Restated Certificate of Incorporation
("Certificate" or "Certificate of Incorporation") provides that the directors
shall be classified, with respect to the time for which they severally hold
office, into three classes, as nearly equal in number as possible, and that
one class shall be elected each year and serve a three-year term. Mr. Harrison
and Dr. Wharton were elected in April 1997 to serve a term that expires at the
2000 annual meeting of stockholders. Messrs. Moffett, Putnam and Rankin and
Ms. McDonald serve a term expiring at the 1998 annual meeting of stockholders,
and Messrs. Adkerson, Bruce, Day and Lackey serve a term that expires at the
1999 annual meeting of stockholders. The Certificate also provides that all
vacancies on the Company's Board of Directors, including any vacancies
resulting from an increase in the number of directors, may be filled by a
majority of the remaining directors even if that number is less than a quorum.
On or before January 14, 1998, the Company's Board of Directors will take
such actions as are necessary to create at least two vacancies on the Board of
Directors either by (i) an increase in the number of directors in accordance
with its Certificate of Incorporation and By-Laws, (ii) director resignations
or (iii) a combination thereof. MOXY will also designate and elect at least
two directors each of whom (a) would qualify as an independent director within
the meaning given to such term under the rules of the New York Stock Exchange
and (b) is not an affiliate or associate (each as
47
defined under the Securities Act) of FRP, other than solely as a result of
being a director of MOXY (each an "Independent Director"). MOXY will maintain
at all times a committee of the Board of Directors comprised of all such
Independent Directors then on the Board (the "Independent Committee"). See
"Description of Capital Stock--Stockholder Agreement and Registration Rights."
Pursuant to the Stockholder Agreement, as long as FRP owns more than 10% and
less than a majority of the outstanding Common Stock, FRP will be entitled to
nominate that number of directors equal to the nearest whole number obtained
by multiplying FRP's percentage interest in the outstanding Common Stock by
the number of directors that are to serve on the Board of Directors after
giving effect to the FRP designees. MOXY has agreed to create such number of
vacancies on the Board of Directors either by (i) an increase in the Board of
Directors in accordance with the terms of MOXY's Certificate of Incorporation
and Bylaws, (ii) director resignations or (iii) a combination thereof. If FRP
acquires more than a majority of the outstanding shares of Common Stock, it
will be able to elect all of the directors of MOXY. See "Risk Factors--
Potential Change of Control of the Company" and "Description of Capital
Stock--Stockholder Agreement and Registration Rights."
In connection with each meeting of stockholders of MOXY at which the term of
any of FRP's designees expires, the Board of Directors will nominate for
election as a director of MOXY the designee of FRP to stand for election for a
succeeding term and will vote all management proxies in favor of such
designee, except for such proxies that specifically indicate to the contrary.
FRP will have the right to designate replacements for directors designated by
FRP pursuant to the Stockholder Agreement, if such director declines or is
unable to serve for any reason, at termination of such directors term, or upon
such directors resignation or removal.
At the present time, all of the MOXY directors are also directors of FTX.
Accordingly, FRP does not intend to use this provision to make any changes to
the current composition of the Board, subject to the appointment of the
Independent Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICES AGREEMENT
Other than those functions performed by the Company's employees or provided
under third party contracts, since January 1, 1996 substantially all of the
services necessary for the business and operations of the Company, including
certain executive, technical, administrative, accounting, financial, tax and
other services have been performed by FMS pursuant to the Services Agreement.
Prior to 1996, substantially the same services were provided by FTX. Since
September 1995 these services have been provided for a fixed annual fee of
$1.0 million, subject to annual cost of living increases beginning in the
first quarter of 1997. Prior to September 1995, the cost of such services was
provided by FTX as determined and allocated by FTX. For the year ended
December 31, 1996, the Company incurred $1.0 million of expenses under its
agreement with FMS. The Services Agreement is terminable by the Company at any
time upon 90 days notice.
OIL AND GAS PROPERTIES
In June 1996, FRP acquired a 25% leasehold in interest in an oil and gas
venture to explore a project area in Terrebonne Parish, Louisiana from the
Company. In connection with the acquisition of this interest, FRP reimbursed
the Company $2.1 million for previously expensed exploration costs incurred in
the project area. FRP acquired its interest on the same proportionate basis as
Phillips, which owns a 50% interest and is the operator of the joint venture.
In February 1997, FRP agreed to acquire an interest in leases acquired by
the Company at the federal offshore lease sale held in March 1997. At the
lease sale, the Company was high bidder on
48
seven offshore Gulf of Mexico tracts, with bids totaling $5.5 million. MOXY
and FRP have dedicated these leases to the MOXY/MCN Program. Upon completion
of the Rights Offering, these leases will be dedicated to the MOXY/FRP
Exploration Program.
Upon completion of the Rights Offering, MOXY and FRP will enter into an
agreement pursuant to which MOXY will market all of FRP's oil and gas
production, including production from properties included in the MOXY/FRP
Exploration Program and production from FRP's other properties, including its
interest in the Main Pass development.
In September 1997, MOXY and FRP acquired from FM Properties and dedicated to
the MOXY/MCN Program interests in certain exploration properties for $3.0
million. FM Properties is a publicly traded real estate corporation of which
Mr. Adkerson is Chairman of the Board and Chief Executive Officer. In
addition, MOXY also purchased from FM Properties small interests in a large
number of other oil and gas properties for $1.5 million. MOXY was loaned $2.7
million by FRP under the MOXY/MCN Program to pay its share of the aggregate
purchase price. The purchase price for the oil and gas properties was
determined by negotiations between MOXY's and FM Properties' managements based
on the risk adjusted reserves attributable to the overriding royalty interest,
the acreage of the exploration prospects and the cash flow generated by the
other oil and gas properties. See "Business and Properties--MOXY/MCN Program."
During 1996, Mr. Day participated directly or indirectly through various
entities, on substantially the same basis as other parties, in exploration and
development operations on certain properties owned or operated by the Company.
Mr. Day and such entities have ownership interests in such properties ranging
generally from 12.5% to 25%. Mr. Day's and such entities' share of
expenditures for exploration and development operations during 1996 amounted
to approximately $200,000.
MCN PROPERTIES; STANDBY PURCHASE AGREEMENT
On July 14, 1997, MOXY entered into an agreement to acquire the MCN
Producing Properties from FRP concurrently with the closing of the Standby
Commitment for $26.0 million, as adjusted for net revenues and development and
operating costs attributable to the MCN Producing Properties from April 1,
1997 until MOXY's acquisition of these properties, plus interest calculated on
the daily outstanding balance of the $26.0 million purchase price, as
adjusted, from August 4, 1997 until MOXY's acquisition of the properties at an
annual rate publicly announced by The Chase Manhattan Bank from time to time
plus 2%. At the same time MOXY will also repay to FRP all amounts loaned to
MOXY under the MOXY/MCN Program. See "Use of Proceeds."
Pursuant to the Standby Purchase Agreement, MOXY has agreed to pay a Standby
Fee of $6.0 million to FRP upon the closing of the Standby Commitment. In
addition, MOXY has granted to FRP the FRP Purchase Option, pursuant to which
FRP may acquire additional shares of Common Stock at the Subscription Price to
increase its ownership position in MOXY up to 30%, if it does not acquire at
least 30% of the outstanding Common Stock pursuant to the Standby Commitment.
Following the consummation of the Rights Offering and the transactions
contemplated by the Standby Purchase Agreement, FRP may acquire a controlling
interest in MOXY or upon exercise of the FRP Purchase Option, may acquire a
sufficient ownership interest to be able to significantly influence the
business policies and affairs of the Company. If FRP acquires a majority of
the outstanding Common Stock, it will be in a position to control the election
of the Company's directors and to otherwise direct the business policies and
affairs of the Company. See "Risk Factors--Potential Change of Control of the
Company." FRP and the Company will enter into a Stockholder Agreement
providing that the Company will not, without the approval of the Independent
Committee take certain actions, including (i) repurchase any Common Stock,
(ii) certain transactions with FRP involving aggregate payments in excess of
$5 million, (iii) enter into any "Rule 13e-3 transaction" within the
49
meaning of Rule 13e-3 under the Exchange Act, (iv) amend the term of the
MOXY/FRP Exploration Program, (v) amend, modify or grant a waiver under MOXY's
Preferred Rights Agreement, the Participation Agreement or the Stockholder
Agreement and (vi) in connection with any merger or business in combination
involving MOXY and a third party, treat FRP and the other holders of Common
stock on other than equivalent terms. See "Description of Capital Stock--
Stockholder Agreement and Registration Rights."
Management believes that each of the transactions discussed in this section
were conducted on terms as favorable to the Company as could have been
negotiated in unaffiliated, third-party transactions.
50
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the ownership of the
Company's Common Stock by (i) each director of the Company, (ii) each
executive officer, (iii) all directors and executive officers of the Company
as a group, and (iv) the persons known by the Company to be beneficial owners
of more than five percent of the Company's outstanding Common Stock determined
in accordance with Rule 13d-3 under the Exchange Act based on information
furnished by such persons. Unless otherwise indicated, all information is
presented as of August 15, 1997 and all shares shown are held with sole voting
and investment power.
PERCENTAGE
OF
NUMBER OF OUTSTANDING
SHARES BENEFICIALLY COMMON
NAME OF BENEFICIAL OWNER OWNED(1) STOCK
------------------------- ------------------- -----------
Richard C. Adkerson.......................... 123,554 *
John G. Amato................................ 225,763(2) 1.6%
Robert W. Bruce III.......................... 371,388(3) 2.6%
Robert A. Day................................ 23,403(4) *
William B. Harrison, Jr...................... 5,798(5) *
Glenn A. Kleinert............................ 19,054 *
Bobby Lee Lackey............................. 18,493(6) *
James H. Lee................................. 15,000 *
Gabrielle K. McDonald........................ 3,723 *
James R. Moffett............................. 750,971(7) 5.3%
C. Howard Murrish............................ 150,351(8) 1.1%
George Putnam................................ 15,401(9) *
B.M. Rankin, Jr.............................. 253,784(10) 1.8%
J. Taylor Wharton............................ 8,575(11) *
All directors and executive officers
as a group (14 persons)..................... 1,985,258 14.1%
Gerald J. Ford............................... 750,000(12) 5.3%
- --------
* Less than one percent
(1) Includes shares that could be acquired within sixty days after August 15,
1997, upon the exercise of options granted pursuant to the Company's stock
option plans, as follows: Mr. Adkerson, 98,554 shares; Mr. Amato, 70,264
shares; Mr. Bruce, 10,388 shares; Mr. Day, 12,893 shares; Mr. Harrison,
5,378 shares; Mr. Kleinert, 19,054 shares; Mr. Lackey, 13,728 shares; Mr.
Lee, 5,000 shares; Ms. McDonald, 3,723 shares; Mr. Moffett, 365,543
shares; Mr. Murrish, 81,250 shares; Mr. Putnam, 13,728 shares; Mr. Rankin,
13,728 shares; Dr. Wharton, 5,378 shares; all directors and executive
officers as a group, 718,609 shares.
(2) Includes (a) 13,651 shares held in a retirement trust for the benefit of
Mr. Amato, (b) 9 shares held in a retirement trust for the benefit of Mr.
Amato's wife but as to which he disclaims beneficial ownership, (c) 7,390
shares held by Mr. Amato as custodian but as to which he disclaims
beneficial ownership and (d) 38,777 shares held for the benefit of trusts
with respect to which Mr. Amato, as a co-trustee, shares voting and
investment power but as to which he disclaims beneficial ownership.
(3) Includes 310,000 shares held by a limited partnership with respect to
which Mr. Bruce shares voting and investment power.
51
(4) Includes 10,000 shares held by accounts and funds managed by affiliates of
a corporation in which Mr. Day is the chief executive officer and a
stockholder with respect to which he shares voting and investment power
but as to which he disclaims beneficial ownership.
(5) Includes 120 shares owned by Mr. Harrison's wife.
(6) Includes 3,643 shares held in a retirement trust for the benefit of Mr.
Lackey.
(7) Includes 21,464 shares held for the benefit of a trust with respect to
which Mr. Moffett and Mr. Amato, as co-trustees, have sole voting and
investment power but as to which each disclaims beneficial ownership and
363,964 shares held by a limited liability company with respect to which
Mr. Moffett shares voting and investment power.
(8) Includes 1,810 shares held in a retirement trust for the benefit of Mr.
Murrish, 1,110 shares held in a retirement trust for the benefit of Mr.
Murrish's wife, 1,212 shares held by Mr. Murrish as custodian for one of
his sons and 1,112 shares owned by an adult son who shares the same home
as Mr. Murrish as to which he disclaims beneficial ownership.
(9) Includes 323 shares held by a charitable trust with respect to which Mr.
Putnam, as co-trustee, shares voting and investment power but as to which
he disclaims beneficial ownership.
(10) Includes 34,836 shares with respect to which Mr. Rankin has sole voting
and investment power under a power of attorney but as to which he
disclaims beneficial ownership.
(11) Includes 1,252 shares held by Mr. Wharton's wife and 677 shares held by
Mr. Wharton as custodian for his daughters.
(12) Based on the Schedule 13D dated September 18, 1997 that Mr. Ford filed
with the SEC.
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
50,000,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"), and 150,000,000 shares of Common Stock. As of October 8, 1997, there
were 14,124,151 shares of Common Stock issued and outstanding. The following
summary is qualified by reference to the Certificate of Incorporation.
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date will be
entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor, and, in the event of
liquidation, to share pro rata in any distribution of the Company's assets
after payment or providing for the payment of liabilities.
Each holder of Common Stock is entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
stockholders, including the election of directors. Holders of Common Stock
have no cumulative voting rights or preemptive rights to purchase or subscribe
for any stock or other securities and there are no conversion rights with
respect to such stock. Additional shares of authorized Common Stock may be
issued without stockholder approval.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue shares of
Preferred Stock in one or more series and to fix, by resolution, the voting
powers, which may be full or limited or no voting
52
powers, designations, preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions
thereof, without any further vote or action by the stockholders. Any shares of
Preferred Stock so authorized and issued would have priority over the Common
Stock with respect to dividend or liquidation rights.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock will
be available for future issuance without shareholder approval. These
additional shares may be utilized for a variety of proper corporate purposes,
including raising additional capital.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of the Company's management. Issuance of such stock might, under certain
circumstances, deter the acquisition of the Company or its securities by a
person concerned about the terms or effect of such stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BYLAWS AND DELAWARE LAW
Classification of Directors; Removal. The Certificate provides that subject
to the rights to elect additional directors that may be granted to holders of
any class or series of Preferred Stock, the number of directors shall be fixed
from time to time as provided in the Bylaws, but may not consist of less than
three persons. The Certificate further provides that the directors, other than
those who may be elected by the holders of any class or series of Preferred
Stock, shall be classified, with respect to the time for which they severally
hold office, into three classes, designated Class I, Class II and Class III,
as nearly equal in number as possible, and that one class shall be elected
each year and serve for a three-year term.
Board Vacancies. The Certificate also provides that all vacancies on the
Company's Board of Directors, including any vacancies resulting from an
increase in the number of directors, may be filled by a majority of the
remaining directors even if that number is less than a quorum. The affirmative
vote of 85% or more of the Company's voting stock is required to amend, alter,
change or repeal the foregoing provisions. The Bylaws require notice to the
Company not less than 60 days nor more than 90 days prior to any stockholder
meeting to elect directors or make any nomination for the Board of Directors.
Stockholder Meetings. The Certificate provides that any action required or
permitted to be taken by stockholders must be effected at a duly called annual
or special meeting and may not be effected by written consent. Under the
Certificate, except as described below, stockholders are not permitted to call
special meetings of stockholders or to require the Board to call a special
meeting of stockholders and a special meeting of stockholders may be called
only by a majority of the entire Board, the Chairman of the Board or the
President. The Bylaws further require that the Board must receive notice of
stockholder proposals at least 60 days but not more than 90 days prior to any
meeting of stockholders at which such proposal is intended to be presented.
The Board may reject any such proposals that are not made in accordance with
certain procedures set forth in the Bylaws or that are not a proper subject
for stockholder action in accordance with the provisions of applicable law.
Stockholder Approval of Combinations; Fair Price Provision. The Certificate
of Incorporation provides that the approval of the holders of 85% of the
Common Stock is required to approve (a) any merger or consolidation of the
Company or any of its subsidiaries with or into any person or entity, or any
affiliate thereof, other than FTX or any of its affiliates or associates,
including FRP (an "Interested
53
Party"), who was within the two years prior to the relevant transaction a
beneficial owner of 20% or more of the Common Stock, (b) any merger or
consolidation of an Interested Party with or into the Company or any of its
Subsidiaries, (c) any sale, lease, pledge, transfer or other disposition of
more than 10% of the fair market value of the assets of the Company or any of
its subsidiaries in one or more transactions involving an Interested Party,
(d) the adoption of any plan or proposal for liquidation or dissolution of the
Company proposed by or on behalf of any Interested Party, (e) the issuance or
transfer by the Company or any of its subsidiaries of securities having a fair
market value of $1,000,000 or more to any Interested Party or (f) any
recapitalization, reclassification, merger or consolidation of the Company or
any of its subsidiaries which would increase an Interested Party's voting
power in the Company or such subsidiary; provided that the 85% voting
requirement shall not be applicable if (i) a majority of a vote of the
Company's Continuing Directors (defined as a director, and any successor
thereof, who is not an affiliate of an Interested Party and who was a member
of the Board prior to the time the Interested Party involved in any of the
foregoing transactions became an Interested Party) has approved the
transaction, (ii) the transaction is between the Company and any of its
subsidiaries or between any of its subsidiaries or (iii) the transaction is a
merger or consolidation and the consideration to be received by the Company's
stockholders is at least as high as the highest price per share paid by the
Interested Party for the Common Stock during the prior two years.
Delaware Law. The Company is incorporated under the laws of Delaware.
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined as a stockholder owning 15% or more of a corporation's
voting stock) from engaging in a business combination with such corporation
for a period of three years from the date such stockholder became an
interested stockholder unless (a) the corporation's board of directors had
earlier approved either the business combination or the transaction by which
the stockholder became an interested stockholder, or (b) upon attaining that
status, the interested stockholder had acquired at least 85% of the
corporation's voting stock (not counting shares owned by persons who are
directors and also officers), or (c) the business combination is later
approved by the board of directors and authorized by a vote of two-thirds of
the stockholders (not including the shares held by the interested
stockholder). Under Section 203, the restrictions described above do not apply
to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who become an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
Prior to entering the Standby Purchase Agreement, MOXY's board of directors
approved the proposed transaction with FRP and thereby excluded FRP from the
operation of Section 203 of the Delaware General Corporation Law.
PREFERRED STOCK PURCHASE RIGHTS
In May 1994, the Company's Board of Directors declared and paid a dividend
of one preferred stock purchase right (a "Preferred Right") for each
outstanding share of Common Stock. Each Preferred Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Participating Cumulative Preferred Stock, par value $0.01 per share
(the "Series A Preferred Stock"), at an initial purchase price of $10.00 (the
"Purchase Price"), subject to adjustment. The terms of the Preferred Rights
are set forth in the Preferred Rights Agreement between the Company and Mellon
Securities Trust Company, as Preferred Rights Agent (the "Preferred Rights
Agreement").
54
As soon as practicable after the earlier of (i) the tenth day (or such later
date as may be designated by a majority of the Continuing Directors (as
hereinafter defined)) after the date (the "Stock Acquisition Date") of the
first public announcement that a person or group of affiliated or associated
persons other than the Company, any of its subsidiaries or any employee
benefit plan of the Company or any of its subsidiaries has acquired beneficial
ownership (as defined in the Preferred Rights Agreement) of 15% or more of the
outstanding shares of Common Stock (an "Acquiring Person") and (ii) the tenth
business day (or such later date as may be designated by a majority of the
Continuing Directors) after the date of the commencement of a tender or
exchange offer by any person if, upon consummation thereof, such person would
be an Acquiring Person (the earlier of (i) and (ii) being referred to as the
"Preferred Rights Distribution Date"), the Preferred Rights Agent will send to
each record holder of Common Stock as of the close of business on the
Preferred Rights Distribution Date, one or more Preferred Right Certificates
evidencing one Preferred Right (subject to adjustment as provided in the
Preferred Rights Agreement) for each share of Common Stock. The Preferred
Rights are not exercisable until the Preferred Rights Distribution Date and
will expire at the close of business on May 20, 2004, unless previously
redeemed or exchanged by the Company as described below.
If a person becomes an Acquiring Person, each holder of a Preferred Right
(other than Preferred Rights that are, or under certain circumstances
specified in the Preferred Rights Agreement were, beneficially owned by an
Acquiring Person (which will thereafter be void)) will thereafter have the
right to receive upon exercise thereof at the then current Purchase Price,
Common Stock having a market value equal to two times the Purchase Price.
If at any time after any person has become an Acquiring Person (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation or the Common Stock is
changed or converted or (ii) 50% or more of the Company's assets or earning
power is sold, each holder of a Preferred Right will thereafter have the right
to receive, upon exercise thereof at the then current Purchase Price, common
stock of the acquiring company having a market value equal to two times the
Purchase Price.
At any time after any person has become an Acquiring Person (but before such
person becomes the beneficial owner of 50% or more of the outstanding shares
of Common Stock), the Board of Directors of the Company may, at its option,
exchange all or part of the Preferred Rights (other than Preferred Rights that
are, or under certain circumstances were, beneficially owned by an Acquiring
Person) for shares of Common Stock at an exchange ratio of one share of Common
Stock per Preferred Right. The Preferred Rights may, at the option of the
Board of Directors, be redeemed in whole, but not in part, at a price of $.01
per Preferred Right at any time no later than the tenth day after the Stock
Acquisition Date (or such later date as a majority of the Continuing Directors
may designate). Under certain circumstances set forth in the Preferred Rights
Agreement, the decision to redeem shall require the concurrence of a majority
of the Continuing Directors. Immediately upon the requisite action of the
Board of Directors ordering exchange or redemption of the Preferred Rights,
the Preferred Rights will terminate, and thereafter the only right of the
holders of Preferred Rights will be to receive shares of Common Stock or the
redemption price, as the case may be.
"Continuing Director" means any member of the Board of Directors who was a
member of the Board prior to the time an Acquiring Person becomes such, or any
person who is subsequently elected to the Board if such person is recommended
or approved by a majority of the Continuing Directors. Continuing Directors do
not include an Acquiring Person, or an affiliate or associate of an Acquiring
Person, or any representative of the foregoing.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Preferred
Rights are subject to adjustment in certain circumstances. Until a Preferred
Right is exercised, the holder will, as a result thereof, have no rights as a
stockholder of the Company, including the right to vote or to receive
dividends.
55
Stockholders may, depending upon the circumstances, recognize taxable income
in the event that the Preferred Rights become exercisable for Series A
Preferred Stock or other consideration as set forth above. The federal income
tax consequences of any event or transaction involving the Preferred Rights
other than the payment of the Preferred Rights dividend in May, 1994, is
uncertain and tax counsel expresses no opinion of the federal income tax
consequences of such events or transactions.
Prior to the Preferred Rights Distribution Date, the Preferred Rights
Agreement may, if the Company so directs, be amended by the Company and the
Preferred Rights Agent in any manner that the Company may deem necessary or
desirable without the approval of any holders of Common Stock. After the
Preferred Rights Distribution Date, the Preferred Rights Agreement may be
amended in any respect that does not adversely affect Preferred Rights
holders; provided that after a person becomes an Acquiring Person, any
amendment requires the concurrence of a majority of the Continuing Directors.
The Preferred Rights have certain anti-takeover effects. The Preferred
Rights may cause substantial dilution to a person or group that attempts to
acquire the Company without a condition to such an offer that a substantial
number of Preferred Rights be acquired or the Preferred Rights be redeemed or
otherwise not apply. The Company's ability to amend the Preferred Rights
Agreement may, depending upon the circumstances, increase or decrease the
anti-takeover effects of the Preferred Rights. The Preferred Rights do not
prevent the Board of Directors of the Company from approving any merger or
other business combination (under some circumstances, with the concurrence of
the Continuing Directors) since the Preferred Rights may be redeemed by the
Board of Directors as described above.
Prior to entering into the Standby Purchase Agreement, MOXY amended the
Preferred Rights Agreement to exclude FRP and its affiliates and associates
from the operation of the Preferred Rights Agreement.
STOCKHOLDER AGREEMENT AND REGISTRATION RIGHTS
Upon completion of the Rights Offering and the transactions contemplated by
the Standby Purchase Agreement, MOXY and FRP will enter into a Stockholder
Agreement pursuant to which MOXY (i) will implement certain corporate
governance provisions designed to protect the other stockholders of MOXY, (ii)
will grant to FRP the right to elect a certain number of directors if it owns
more than 10% but less than a majority of the outstanding Common Stock and
(iii) will grant certain registration rights with respect to the shares of
Common Stock that are purchased by FRP pursuant to the Standby Purchase
Agreement. The Stockholder Agreement will terminate (i) at such time as FRP no
longer beneficially owns 10% or more of the Common Stock or (ii) by mutual
written agreement of FRP and MOXY.
Non-FRP Stockholder Protections. Pursuant to the Stockholder Agreement MOXY
will agree at all times to have at least two Independent Directors and
maintain the Independent Committee.
Until the date on which FRP ceases to beneficially own at least 10% of the
outstanding Common Stock, MOXY shall not take any of the following actions
without the approval of the Independent Committee: (a) repurchase any
outstanding shares of Common Stock; (b) enter into (i) any sale, lease,
transfer or other disposition by MOXY of any of its properties or assets to,
(ii) any purchase of property or assets by MOXY from, (iii) any investment by
MOXY in, (iv) any agreement by MOXY with or for the benefit of, or (v) any
other transaction with one or more of its affiliates, that involves aggregate
payments in excess of $5 million; (c) enter into any "Rule 13e-3 transaction"
within the meaning of Rule 13e-3 under the Exchange Act; (d) amend, modify or
grant any waiver under the Preferred Rights Agreement, the Participation
Agreement or the Stockholder Agreement; or (e) in connection with any merger
or business combination involving MOXY and a third party, treat FRP and the
other stockholders on other than equivalent terms. If the Independent
Committee approves an amendment
56
or modification, the Stockholder Agreement may be amended or modified by the
Board without stockholder approval.
Until the date on which FRP ceases to own, directly or indirectly, at least
10% of the outstanding voting stock of MOXY, FRP shall not take either of the
following actions without the approval of the Independent Committee: (i)
purchase, acquire, agree to acquire or offer to acquire beneficial ownership
of any additional shares of Common Stock (other than through open-market
purchases that do not constitute a Rule 13e-3 transaction within the meaning
of Rule 13e-3 under the Exchange Act), or (ii) enter into, propose to enter
into, solicit or support any merger or business combination or similar
transaction involving FRP and MOXY.
Registration Rights. Any shares of Common Stock acquired by FRP pursuant to
the Standby Commitment or the FRP Purchase Option will be "restricted"
securities within the meaning of the Securities Act and cannot be sold
publicly for a period of time without registration under the Securities Act.
Pursuant to the Stockholder Agreement, FRP will be entitled to demand
registration rights with respect to any shares of Common Stock that it owns;
provided that FRP registers no less than 10% of the outstanding Common Stock
pursuant to each such registration and that MOXY not be required to effect
more than one such registration in any 12-month period nor more than three
such registrations in the aggregate. In addition, if the Company proposes to
register any Common Stock under the Securities Act in connection with a public
offering, FRP may require MOXY to include all or a portion of the shares owned
by FRP at that time. MOXY has agreed to pay all the expenses of any
registration under the Stockholder Agreement, other than underwriters'
discounts and commissions, and to indemnify FRP for certain liabilities in
connection with any such registration.
Although the Company cannot predict the timing or amount of future sales of
Common Stock pursuant to these registration rights or the effect that the
availability of such shares for sale will have on the market price of the
Common Stock prevailing from time to time, sales of substantial amounts of
Common Stock in the public market pursuant to these registration rights or any
other method could negatively affect the market price of the Common Stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., special counsel to the Company, the following are the federal income
tax consequences of the Rights Offering that are likely to be material to the
Holders (other than the Holders described below) upon the issuance, exercise,
disposition and lapse of the Rights. This opinion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (including
Proposed Regulations and Temporary Regulations) promulgated thereunder,
Internal Revenue Service ("IRS") rulings, official pronouncements and judicial
decisions, all as in effect on the date hereof and all of which are subject to
change, possibly with retroactive effect, or different interpretations. This
opinion is applicable only to Holders who are United States persons for
federal income tax purposes and who hold Common Stock as capital assets and
who will hold any Common Stock received on exercise of the Rights as capital
assets. This opinion does not discuss all aspects of federal income taxation
that may be relevant to a particular investor or to certain types of investors
subject to special treatment under the Code (for example, banks, dealers in
securities, life insurance companies, tax exempt organizations and foreign
taxpayers), nor does it discuss any aspect of state, local or foreign tax
laws.
HOLDERS OF RIGHTS AND COMMON STOCK ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF THE
ISSUANCE, EXERCISE, DISPOSITION AND LAPSE OF THE RIGHTS IN LIGHT OF THEIR OWN
PARTICULAR CIRCUMSTANCES.
57
ISSUANCE OF THE RIGHTS
The holders of Common Stock will not recognize taxable income for federal
income tax purposes in connection with the receipt of the Rights.
BASIS AND HOLDING PERIOD OF THE RIGHTS
If, either (i) the fair market value of the Rights on the date of issuance
is equal to 15% or more of the fair market value (on the date of issuance) of
the Common Stock with respect to which they are received or (ii) the
stockholder elects, in his or her federal income tax return of the taxable
year in which the Rights are received, to allocate part of the basis of such
Common Stock to the Rights, then upon exercise or transfer of the Rights, the
stockholder's basis in such Common Stock will be allocated between the Common
Stock and the Rights in proportion to the fair market values of each on the
date of the issuance. Except as provided in the preceding sentence, the basis
of the Rights received by a stockholder as a distribution with respect to such
stockholder's Common Stock will be zero.
The holding period of a stockholder with respect to the Rights received as a
distribution on such stockholder's Common Stock will include the stockholder's
holding period for the Common Stock with respect to which the Rights were
issued.
In the case of a purchaser of Rights, the tax basis of such Rights will be
the purchase price of the Rights and the holding period of such Rights will
commence on the day following the date of the purchase.
TRANSFER OF RIGHTS
A stockholder who sells the Rights received in the issuance prior to
exercise will recognize gain or loss equal to the difference between the sale
proceeds and such stockholder's basis (if any) in the Rights sold. Such gain
or loss will be capital gain or loss if gain or loss from a sale of Common
Stock held by such stockholder would be characterized as capital gain or loss
at the time of such sale. Any gain or loss recognized on a sale of Rights
acquired by purchase will be capital gain or loss if the Underlying Shares
would be a capital asset in the hands of the seller (if acquired by him).
LAPSE OF THE RIGHTS
Stockholders who allow the Rights received by them to lapse will not
recognize any gain or loss, and no adjustment will be made to the basis of the
Common Stock, if any, owned by such holders of the Rights.
Purchasers of the Rights will be entitled to a loss equal to their tax basis
in the Rights, if such Rights expire unexercised. Any loss recognized on the
expiration of the Rights acquired by purchase will be a capital loss if the
underlying shares would be a capital asset in the hands of the seller (if
acquired by him).
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF COMMON STOCK
Holders of Rights will not recognize any gain or loss upon the exercise of
such Rights. The basis of the Common Stock (including any fractional share
interests) acquired through exercise of the Rights will be equal to the sum of
the Exercise Price therefor and the Holder's basis in such Rights (if any).
The holding period for the Common Stock acquired through exercise of the
Rights will begin on the date the Rights are considered exercised.
58
LEGAL MATTERS
The validity of the issuance of the Rights and the shares of Common Stock
offered hereby will be passed upon for the Company by Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P.
EXPERTS
The financial statements and schedules of the Company included and
incorporated by reference in this Prospectus and elsewhere in the registration
statement to the extent and for the periods indicated have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. With respect to the unaudited interim financial information for the
quarters ended June 30 and March 31, 1997 and 1996, Arthur Andersen LLP has
applied limited procedures in accordance with professional standards for a
review of that information. However, their separate reports thereon state that
they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
that information should be restricted in light of the limited nature of the
review procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is
not a "report" or a "part" of the registration statement prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Securities
Act.
The information included in this Prospectus regarding the gross quantities
of reserves of the oil and gas properties described in this Prospectus and the
future cash flows and the present values thereof from such reserves is based
on estimates of such reserves and present values prepared by Ryder Scott
Company, Petroleum Engineers in reliance upon the authority of such firm as
experts in petroleum engineering.
The information incorporated by reference in this Prospectus regarding the
gross quantities of reserves of the oil and gas properties of the Company and
the future cash flows and the present values thereof from such reserves is
based on estimates of such reserves and present values prepared by Crescent
Technology, Inc. in reliance upon the authority of such firm as experts in
petroleum engineering.
59
INDEX TO FINANCIAL STATEMENTS
HISTORICAL FINANCIAL STATEMENTS OF MCMORAN OIL & GAS CO.
Report of Independent Public Accountants.................................. F-1
Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 and
1995..................................................................... F-2
Statements of Operations for the six months ended June 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995 and 1994......... F-3
Statements of Cash Flow for the six months ended June 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995 and 1994......... F-4
Statements of Changes in Stockholders' Equity for the six months ended
June 30, 1997 (unaudited) and the years ended December 31, 1996, 1995 and
1994..................................................................... F-5
Notes to Financial Statements............................................. F-6
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) OF MCMORAN OIL & GAS CO.
Pro Forma Balance Sheet as of June 30, 1997............................... F-12
Pro Forma Statement of Operations for the six months ended June 30, 1997.. F-13
Pro Forma Statement of Operations for the year ended December 31, 1996.... F-14
Notes to Pro Forma Financial Statements................................... F-15
MCN PRODUCING PROPERTIES
Report of Independent Public Accountants.................................. F-17
Statements of Gross Oil and Gas Revenues and Direct Operating Expenses
for the six months ended June 30, 1997 (unaudited) and for the
years ended December 31, 1996 and 1995................................... F-18
Notes to Financial Statements............................................. F-19
60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of McMoRan Oil & Gas Co.:
We have audited the accompanying balance sheets of McMoRan Oil & Gas Co. (a
Delaware Corporation) as of December 31, 1996 and 1995 and the related
statements of operations, cash flow and changes in stockholders' equity for
the years ended December 31, 1996 and 1995 and for the period from inception
through December 31, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 financial statements referred to above present fairly,
in all material respects, the financial position of McMoRan Oil & Gas Co. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flow for the years ended December 31, 1996 and 1995 and for the period from
inception through December 31, 1994 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
January 21, 1997
F-1
MCMORAN OIL & GAS CO.
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
JUNE 30, ----------------
1997 1996 1995
----------- ------- -------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 7,142 $10,500 $10,323
Accounts receivable and other.................... 4,163 2,249 1,432
-------- ------- -------
Total current assets........................... 11,305 12,749 11,755
-------- ------- -------
Oil and gas properties--successful efforts
method:
Unevaluated.................................... 3,448 2,173 1,869
Proved......................................... 21,778 17,341 8,661
-------- ------- -------
25,226 19,514 10,530
Less accumulated depreciation and amortization... 5,904 1,283 652
-------- ------- -------
Net oil and gas properties..................... 19,322 18,231 9,878
-------- ------- -------
Total assets..................................... $ 30,627 $30,980 $21,633
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......... $ 12,741 $ 9,411 $ 3,405
Current portion of production loan............... 1,640 366 93
-------- ------- -------
Total current liabilities...................... 14,381 9,777 3,498
Production loan, less current portion............ 10,980 12,391 530
Other liabilities................................ 641 566 --
Stockholders' equity:
Preferred stock, par value $0.01, 50,000,000
shares authorized and unissued.................. -- -- --
Common stock, par value $0.01, 150,000,000 shares
authorized, 14,076,539 shares, 13,989,317 shares
and 13,798,784 shares issued and outstanding.... 141 140 138
Capital in excess of par value of common stock... 48,065 47,803 47,302
Accumulated deficit.............................. (43,581) (39,697) (29,835)
-------- ------- -------
4,625 8,246 17,605
-------- ------- -------
Total liabilities and stockholders' equity....... $ 30,627 $30,980 $21,633
======== ======= =======
The accompanying notes are an integral part of these financial statements.
F-2
MCMORAN OIL & GAS CO.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED YEARS ENDED INCEPTION
JUNE 30, DECEMBER 31, THROUGH
------------------ ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
-------- -------- ------- -------- --------
(UNAUDITED)
Revenues:
Oil and gas sales....... $ 4,203 $ 1,204 $ 2,434 $ 2,722 $ 174
Management fees......... 818 818 1,636 545 --
-------- -------- ------- -------- --------
Total revenues........ 5,021 2,022 4,070 3,267 174
-------- -------- ------- -------- --------
Costs and expenses:
Production and delivery,
including depreciation
and amortization....... 5,312 802 1,500 2,623 --
Exploration expenses.... 4,097 3,871 9,818 11,756 15,518
General and
administrative expenses. 1,353 1,384 2,635 3,687 2,338
Gain on sale of oil and
gas property............ (2,289) -- -- -- --
-------- -------- ------- -------- --------
Total costs and
expenses............. 8,473 6,057 13,953 18,066 17,856
-------- -------- ------- -------- --------
Operating loss.......... (3,452) (4,035) (9,883) (14,799) (17,682)
Interest expense........ (681) (7) (403) -- --
Other income, net....... 249 237 424 164 2,482
-------- -------- ------- -------- --------
Net loss................ $ (3,884) $ (3,805) $(9,862) $(14,635) $(15,200)
======== ======== ======= ======== ========
Net loss per share...... $ (0.27) $ (0.27) $ (0.71) $ (1.06) $ (1.10)
======== ======== ======= ======== ========
Average shares
outstanding............ 14,136 13,847 13,898 13,772 13,770
======== ======== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
MCMORAN OIL & GAS CO.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
SIX MONTHS ENDED YEARS ENDED INCEPTION
JUNE 30, DECEMBER 31, THROUGH
------------------ ----------------- DECEMBER 31,
1997 1996 1996 1995 1994
-------- -------- ------- -------- --------
(UNAUDITED)
Cash flow from
operating activities:
Net loss............. $ (3,884) $ (3,805) $(9,862) $(14,635) $(15,200)
Adjustments to
reconcile net loss
to net cash provided
by (used in)
operating
activities:
Depreciation and
amortization...... 4,822 343 741 1,525 --
Exploration
expenses.......... 4,097 3,871 9,818 11,756 15,518
Gain on sale of
Canadian oil and
gas interests..... -- -- -- -- (1,691)
Gain on sale of oil
and gas property.. (2,289) -- -- -- --
(Increase) decrease
in working
capital:
Accounts
receivable and
other........... (2,028) (2,487) (988) (1,347) --
Accounts payable
and accrued
liabilities..... 3,455 3,253 6,954 1,555 340
-------- -------- ------- -------- --------
Net cash provided by
(used in) operating
activities.......... 4,173 1,175 6,663 (1,146) (1,033)
-------- -------- ------- -------- --------
Cash flow from
investing activities:
Exploration and
development
expenditures........ (10,279) (11,105) (20,678) (20,957) (18,768)
Proceeds from joint
venture
arrangements........ -- -- 2,059 14,472 --
Proceeds from sale of
Canadian oil
and gas interests... -- -- -- -- 1,691
Proceeds from sale of
oil and gas
interests........... 2,884 2,059 -- -- --
-------- -------- ------- -------- --------
Net cash used in
investing
activities.......... (7,395) (9,046) (18,619) (6,485) (17,077)
-------- -------- ------- -------- --------
Cash flow from
financing activities:
Proceeds from
production loan..... 4,741 1,377 12,927 750 --
Payments on
production loan..... (4,877) -- (794) (127) --
Cash transferred from
FTX................. -- -- -- -- 35,441
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities.......... (136) 1,377 12,133 623 35,441
-------- -------- ------- -------- --------
Net increase (decrease)
in cash and cash
equivalents........... (3,358) (6,494) 177 (7,008) 17,331
Cash and cash
equivalents at
beginning of year..... 10,500 10,323 10,323 17,331 --
-------- -------- ------- -------- --------
Cash and cash
equivalents at
end of period......... $ 7,142 $ 3,829 $10,500 $ 10,323 $ 17,331
======== ======== ======= ======== ========
Interest paid.......... $ 680 $ -- $ 304 $ -- $ --
======== ======== ======= ======== ========
The accompanying notes, which include information in Notes 1, 3, 4 and 5
regarding noncash transactions, are an integral part of these financial
statements.
F-4
MCMORAN OIL & GAS CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
CAPITAL IN
PREFERRED COMMON EXCESS OF ACCUMULATED
STOCK STOCK PAR VALUE DEFICIT TOTAL
--------- ------ ---------- ----------- -------
Distribution of Common Stock.. $-- $138 $47,219 $ -- $47,357
Net loss.................... -- -- -- (15,200) (15,200)
---- ---- ------- -------- -------
Balance at December 31, 1994.. -- 138 47,219 (15,200) 32,157
Stock payment to CLK and
other...................... -- -- 83 -- 83
Net loss.................... -- -- -- (14,635) (14,635)
---- ---- ------- -------- -------
Balance at December 31, 1995.. -- 138 47,302 (29,835) 17,605
Stock payment to CLK and
other...................... -- 2 501 -- 503
Net loss.................... -- -- -- (9,862) (9,862)
---- ---- ------- -------- -------
Balance at December 31, 1996.. -- 140 47,803 (39,697) 8,246
Stock Payment to CLK and
other...................... -- 1 262 -- 263
Net loss.................... -- -- -- (3,884) (3,884)
---- ---- ------- -------- -------
Balance at June 30, 1997
(Unaudited).................. $-- $141 $48,065 $(43,581) $ 4,625
==== ==== ======= ======== =======
The accompanying notes are an integral part of these financial statements.
F-5
1. ORGANIZATION
McMoRan Oil & Gas Co. (MOXY) was formed in 1994 as a wholly owned subsidiary
of Freeport-McMoRan Inc. (FTX). In May 1994, FTX distributed one MOXY common
share for each ten FTX common shares. The net assets transferred, at FTX's
historical cost, follow (in thousands):
Cash and cash equivalents.............................................. $35,441
Property, plant and equipment.......................................... 13,052
Current liabilities.................................................... (1,138)
-------
$47,355
=======
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. Investments in joint ventures and partnerships are
reflected using the proportionate consolidation method in accordance with
standard industry practice.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents.
Exploration and Development Costs. MOXY follows the successful efforts
method of accounting for its oil and gas operations. Costs of exploratory
wells are capitalized pending determination of whether the wells find proved
reserves. Costs of leases, productive exploratory wells and development
activities are also capitalized. Other exploration costs are expensed.
Depreciation and amortization is determined on a field-by-field basis using
the unit-of-production method. Gains or losses are included in earnings when
properties are sold.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
(FAS 121) which requires a reduction of the carrying amount of long-lived
assets to fair value when events indicate that the carrying amount may not be
recoverable. Measurement of the impairment loss is based on the fair value of
the asset. Generally, MOXY determines fair value using valuation techniques
such as expected future cash flows. MOXY adopted FAS 121 effective January 1,
1995, and since that time has not incurred any impairment losses.
Financial Instruments. The carrying amounts of receivables, other current
assets and accounts payable reported in the balance sheet approximate fair
value. The production loan's interest rate is variable (Note 3) and thus
approximates fair value.
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board issued Statement No. 128 (FAS 128), "Earnings Per Share", which
simplifies the computation of earnings per share. FAS 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement for all prior period earnings per share data presented.
Earnings per share calculated in accordance with FAS 128 would have been
unchanged for the periods presented.
3. EXPLORATION AGREEMENTS
In September 1995, MOXY entered into an agreement with MCN establishing a
$65 million oil and gas exploration and development program in the offshore
Gulf of Mexico area. Revenues and costs are shared 40 percent by MOXY and 60
percent by MCN. MCN is funding its 60 percent share of the expenditures and is
loaning funds for MOXY's 40 percent share at prime plus two percent (average
rate of 10.3 percent for 1996). As of December 31, 1996, MOXY had $12.8
million of borrowings outstanding from MCN, with an additional $6.6 million of
borrowings available for past expenditures.
F-6
MOXY's borrowings under this loan are payable only out of the future net
revenues from the program properties, which are dependent on production
levels, oil and gas prices and numerous other factors. Accordingly, no
scheduled maturities or sinking fund requirements are determinable.
In late 1996, MOXY entered into an agreement with a geophysical services
company in which MOXY committed to purchase 3-D seismic surveys covering a
significant number of lease blocks over a multi-year period. MCN did not
participate in this new 3-D seismic program and will have no right to any of
the leases acquired as a result of the new seismic data. MCN will continue to
provide funding for future development costs on the MOXY/MCN Program's
properties without any extension of the program agreement.
In June 1995, MOXY and Phillips Petroleum Company (Phillips) entered into an
exploration agreement covering a project area in south Louisiana. MOXY
conveyed one-half of its interest in the area to Phillips for $3.8 million. In
June 1996, MOXY conveyed one-half of its remaining 50 percent leasehold
interest to Freeport-McMoRan Resource Partners, Limited Partnership (FRP), an
affiliate of MOXY, for $2.1 million. This payment from FRP represented a
reimbursement of previously expensed exploration costs by MOXY in connection
with this project area and accordingly was recorded as a reduction to
exploration expenses. MOXY sold the interest to FRP on the same proportionate
basis as the prior Phillips sale. The project area, with the exception of the
North Bay Junop and the East Fiddler's Lake prospects (discussed earlier), is
subject to a possible 25 percent participation by a mineral rights owner.
4. TRANSACTIONS WITH FTX AND EMPLOYEE BENEFITS
Management Services. FTX provides certain management and administrative
services for MOXY. During 1995, MOXY restructured its management services
agreement with FTX to provide specified services for an annual fee of $1.0
million. Costs of services provided by FTX, included in general and
administrative expenses, totaled $1.0 million in 1996, $1.3 million in 1995
and $1.2 million in the 1994 period. MOXY believes that the above expenses do
not differ materially from those costs which would have been incurred had the
relevant personnel providing these services been employed directly by MOXY.
MOXY has a contract with CLK Company (CLK), a company independently owned by
its employees, to provide geological and geophysical services to MOXY on an
exclusive basis. The contract was amended during 1997 to provide for an annual
retainer fee of $2.2 million ($0.5 million of the annual fee paid in MOXY
common stock, recorded at fair market value), plus certain expenses and an
overriding royalty interest in prospects accepted by MOXY. Costs of services
provided by CLK, included in exploration expenses, totaled $3.1 million in
1996, $3.5 million in 1995 and $3.9 million in 1994.
Stock Options. MOXY's Stock Option Plan and Stock Option Plan for Non-
Employee Directors (the Plans) authorize MOXY to grant stock options to
purchase up to 1.25 million shares of MOXY stock at no less than market value
at time of grant. Generally, stock options are exercisable in 25 percent
annual increments beginning one year from the date of grant and expire 10
years after the date of grant. Also, in connection with the FTX distribution
of MOXY shares, stock options were granted to employees and directors of FTX.
A summary of stock options outstanding follows:
1996 1995
----------------------- -----------------------
NUMBER OF AVERAGE NUMBER OF AVERAGE
OPTIONS OPTION PRICE OPTIONS OPTION PRICE
--------- ------------ --------- ------------
Beginning of year............... 2,257,828 $3.92 1,829,867 $4.26
Granted......................... 24,904 2.54 529,028 2.85
Exercised....................... (581) 3.03 -- --
Expired/forfeited............... (142,457) 4.33 (101,067) 4.39
--------- ---------
End of year..................... 2,139,694 3.88 2,257,828 3.92
========= =========
F-7
At December 31, 1996, options for approximately 550,000 shares were
available for new grants under the Plans. Summary information of fixed stock
options outstanding at December 31, 1996 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OF OPTIONS REMAINING LIFE OPTION PRICE OF OPTIONS OPTION PRICE
- ------------------------ ---------- ---------------- ---------------- ---------- ----------------
$1.94 to $2.81 515,000 9 years $2.80 126,250 $2.81
$2.94 to $3.88 214,394 8 years 3.58 98,718 3.66
$4.66 to $5.50 1,410,300 7 years 4.32 1,300,305 4.67
--------- ---------
2,139,694 1,525,273
========= =========
MOXY has adopted the disclosure-only provisions of FAS 123 and continues to
apply APB Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for MOXY's fixed stock option grants. Had compensation cost for
MOXY's fixed stock option grants been determined based on the fair value at
the grant dates for awards under those plans consistent with FAS 123, MOXY's
pro forma net loss would have been $10.1 million ($0.73 per share) in 1996 and
$14.7 million ($1.06 per share) in 1995. For the pro forma computations, the
fair values of the fixed option grants were estimated on the dates of grant
using the Black-Scholes option pricing model. The weighted average fair value
for fixed stock option grants was $1.69 per option in 1996 and $2.15 per
option in 1995. The weighted average assumptions used include a risk-free
interest rate of 6.6 percent in 1996 and 6.4 percent in 1995, expected
volatility of 45 percent in 1996 and 60 percent in 1995 and expected lives of
10 years. The pro forma effects on net income for 1996 and 1995 are not
representative of future years because they do not take into consideration
grants made prior to 1995. No other discounts or restrictions related to
vesting or the likelihood of vesting of fixed stock options were applied.
5. INCOME TAXES
MOXY has $26.5 million of net deferred tax assets as of December 31, 1996.
MOXY has provided a valuation allowance equal to these tax assets because of
the expectation of incurring tax losses for at least the near future,
resulting in no tax benefits for the periods presented. The components of
MOXY's deferred taxes follow:
DECEMBER 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
DEFERRED TAX ASSETS:
Net operating loss carryforwards (expires 2006-2011)...... $ 17,976 $ 12,253
Capital losses (expires 1999)............................. 5,511 5,511
Other tax carryforwards................................... 303 184
Property, plant and equipment............................. 2,272 3,053
Other..................................................... 453 139
Less valuation allowance.................................. (26,515) (21,140)
-------- --------
Total deferred tax assets............................... $ -- $ --
======== ========
6. COMMITMENTS AND CONTINGENCIES
Commitments. MOXY has expenditure commitments of approximately $8.7 million
in 1997. In addition, MOXY has minimum committed expenditures under a multi-
year agreement with a geophysical company to purchase 3-D seismic surveys
which totaled $2.1 million at December 31, 1996.
F-8
Environmental. Although MOXY has no known environmental liabilities,
increasing emphasis on environmental matters could result in additional costs,
which would be charged against MOXY's operations in future periods. Present
and future environmental laws and regulations applicable to MOXY's operations
could require substantial capital expenditures or could adversely affect its
operations in other ways that cannot be accurately predicted at this time.
7. SUPPLEMENTARY OIL AND GAS INFORMATION
The supplementary information presented below is prepared in accordance with
requirements prescribed by the Financial Accounting Standards Board.
Costs incurred in Oil and Gas Property Acquisition, Exploration, and
Development Activities.
INCEPTION
YEARS ENDED THROUGH
DECEMBER 31, DECEMBER 31,
--------------- ------------
1996 1995 1994
------- ------- ------------
(IN THOUSANDS)
Acquisition of properties
Proved........................................... $ -- $ -- $ --
Unproved......................................... 2,499 863 575
Exploration costs.................................. 11,672 13,928 14,918
Development costs.................................. 6,507 6,166 3,275
------- ------- -------
$20,678 $20,957 $18,768
======= ======= =======
Proved Oil and Gas Reserves (Unaudited). Proved oil and gas reserves at
December 31, 1996, have been estimated by independent petroleum engineers in
accordance with guidelines established by the Securities and Exchange
Commission (SEC). Thus, the following reserve estimates are based upon
existing economic and operating conditions; they are only estimates and should
not be construed as being exact. MOXY's 1996 proved reserves are located in
offshore United States waters. Oil, including condensate and plant products,
is stated in thousands of barrels and natural gas is in millions of cubic
feet.
OIL GAS
---------- --------------
1996 1995 1996 1995
---- ---- ------ ------
Proved reserves:
Beginning of year................................. 94 262 8,521 9,714
Revisions of previous estimates................... 31 54 1,155 88
Discoveries and extensions........................ 72 -- 7,009 4,999
Production........................................ (29) (45) (631) (1,093)
Transfer to MCN................................... -- (177) -- (5,187)
--- ---- ------ ------
End of year....................................... 168 94 16,054 8,521
=== ==== ====== ======
Proved developed reserves:
End of year....................................... 58 20 7,530 779
=== ==== ====== ======
F-9
Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and
Gas Reserves (Unaudited). MOXY's standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves were
computed using reserve valuations based on regulations prescribed by the SEC.
These regulations provide for the use of current oil and gas prices (escalated
only when known and determinable price changes are provided by contract and
law) in the projection of future net cash flows.
DECEMBER 31,
-----------------
1996 1995
-------- -------
(IN THOUSANDS)
Future cash flows........................................... $ 66,260 $22,397
Future costs applicable to future cash flows:
Production costs.......................................... (7,805) (3,834)
Development and abandonment costs......................... (12,874) (7,155)
-------- -------
Future net cash flows before income taxes................... 45,581 11,408
Future income taxes......................................... -- --
-------- -------
Future net cash flows....................................... 45,581 11,408
Discount for estimated timing of net cash flows (10%
discount rate)............................................. (10,240) (3,078)
-------- -------
$ 35,341 $ 8,330
======== =======
Because MOXY has sufficient tax deductions and losses to utilize against
estimated future taxable income, in accordance with FAS 69 no deductions for
future income taxes have been made above.
Oil and natural gas prices have declined subsequent to December 31, 1996.
The future cash flows from proved reserves presented above do not reflect this
decline.
The reserve and cash flow information above includes amounts attributable to
MOXY's interest in West Cameron Block 503, which in March 1997 MOXY agreed to
sell for $2.9 million. Proved undeveloped reserves applicable to MOXY's
interest in this field totaled approximately 16 thousand barrels of oil and
3,300 million cubic feet of gas with estimated discounted net cash flows of
$3.4 million. As MOXY's book basis in this property totals approximately $0.6
million, MOXY would recognize a book gain of approximately $2.3 million on the
completion of this sale.
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil and Gas Reserves (Unaudited).
YEARS ENDED
DECEMBER 31,
----------------
1996 1995
------- -------
(IN THOUSANDS)
Beginning of year............................................ $ 8,330 $ 6,413
Discoveries and extensions, less related costs............... 10,837 3,368
Development costs incurred during the year................... 6,985 1,750
Revisions:
Changes in prices.......................................... 12,894 7,815
Accretion of discount...................................... 833 641
Other changes, including revised estimates of development
costs and rates of production........................... (2,863) (3,083)
Revenues, less production costs.............................. (1,675) (1,589)
Transfer to MCN.............................................. -- (6,985)
------- -------
End of year.................................................. $35,341 $ 8,330
======= =======
F-10
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
OPERATING NET NET INCOME
INCOME INCOME (LOSS)
REVENUES (LOSS) (LOSS) PER SHARE
--------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996
1st Quarter.............. $ 1,073 $ (4,453) $ (4,330) $ (0.31)
2nd Quarter.............. 949 418a 525a 0.04a
3rd Quarter.............. 919 (2,087) (2,148) (0.15)
4th Quarter.............. 1,129 (3,761) (3,909) (0.28)
--------- ----------- -----------
$ 4,070 $ (9,883)b $ (9,862) (0.71)
========= =========== ===========
1995
1st Quarter.............. $ 55 $ (4,051) $ (3,764) $ (0.27)
2nd Quarter.............. 1,351 (6,134) (6,251) (0.45)
3rd Quarter.............. 1,029 (2,439)c (2,621)c (0.19)c
4th Quarter.............. 832 (2,175) (1,999) (0.15)
--------- ----------- -----------
$ 3,267 $ (14,799)b $ (14,635) (1.06)
========= =========== ===========
a. Includes a reduction to exploration expense of $2.1 million ($0.15 per
share) resulting from the reimbursement of previously expensed exploration
costs.
b. Foreign exploration costs totaled $0.4 million in 1996 and $0.5 million in
1995.
c. Includes $0.4 million ($0.03 per share) for personnel severance and other
costs.
9. SUBSEQUENT EVENTS (UNAUDITED)
During March 1997, MOXY was high bidder on seven tracts at the Central Gulf
of Mexico lease sale with bids totaling $5.5 million, with FRP sharing
proportionately in this cost. MOXY fulfilled all conditions associated with
the awarding of these leases as of June 30, 1997, and formal announcement of
the awarding of these leases was made by the Minerals Management Service on
July 1. These leases are not among those acquired by FRP from MCN's interest
in the MOXY/MCN Program. Upon completion of the recapitalization plan
discussed below, these leases will be dedicated to the MOXY/FRP Exploration
Program.
In July 1997, MOXY commenced a plan of recapitalization, subject to
stockholder approval. The plan provides for, among other things, a stock
rights offering to existing stockholders, a standby purchase commitment from
FRP to purchase all shares of common stock offered to, but not purchased by,
the existing stockholders, MOXY's purchase of MCN's interest in the MOXY/MCN
Program's producing properties and the formation of an aggregate $200 million
multi-year exploration program with FRP.
On August 27, 1997 FTX, owner of 51.6 percent of FRP, and IMC Global Inc.
(IGL) announced that they had executed an Agreement and Plan of Merger dated
as of August 26, 1997 in which FTX and IGL agree to merge, with IGL as the
surviving entity. The proposed combination is subject to several conditions,
including approval by the stockholders of both companies. The merger will have
no effect on the proposed MOXY/FRP Exploration Program or the other
transactions between MOXY and FRP discussed above. FTX and IGL have stated
that the merger transaction is expected to be completed by the end of 1997.
In September 1997, MOXY and FRP acquired from FM Properties Inc. (FMPO)
several working interests and numerous overriding royalty interests in oil and
gas properties. FMPO is a publicly traded real estate corporation of which Mr.
Adkerson is Chairman of the Board and Chief Executive Officer. MOXY's share of
the cost was $2.7 million, funded by borrowings available under the MOXY/MCN
Program. Royalty income generated by these properties totaled $1.4 million for
1996, although a single property which generated $0.7 million in 1996 ceased
production in the second quarter of 1997.
F-11
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
PRO FORMA
ADJUSTMENTS
---------------------
FRP
PROPERTY PURCHASE MAXIMUM
ACQUISITIONS OTHER MINIMUM OPTION PRO
HISTORICAL (NOTE 1) (NOTE 2) PRO FORMA (NOTE 3) FORMA
---------- ------------ -------- --------- -------- --------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents............ $ 7,142 $(41,320) $93,000a $ 58,822 $63,973 $122,795
Accounts receivable and
other.................. 4,163 -- -- 4,163 -- 4,163
-------- -------- ------- -------- ------- --------
Total current assets.. 11,305 (41,320) 93,000 62,985 63,973 126,958
-------- -------- ------- -------- ------- --------
Oil and gas properties--
successful efforts
method:
Unevaluated........... 3,448 1,200 -- 4,648 -- 4,648
Proved................ 21,778 27,967 -- 49,745 -- 49,745
-------- -------- ------- -------- ------- --------
25,226 29,167 -- 54,393 -- 54,393
Less accumulated
depreciation and
amortization........... 5,904 -- -- 5,904 -- 5,904
-------- -------- ------- -------- ------- --------
Net oil and gas
properties............. 19,322 29,167 -- 48,489 -- 48,489
-------- -------- ------- -------- ------- --------
Total assets............ $ 30,627 $(12,153) $93,000 $111,474 $63,973 $175,447
======== ======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and
accrued liabilities.... $ 12,741 $ -- $ -- $ 12,741 $ -- $ 12,741
Current portion of
production loan........ 1,640 (1,640) -- -- -- --
-------- -------- ------- -------- ------- --------
Total current
liabilities............ 14,381 (1,640) -- 12,741 -- 12,741
Production loan, less
current portion........ 10,980 (10,980) -- -- -- --
Other liabilities....... 641 467 -- 1,108 -- 1,108
Stockholders' equity:
Preferred stock, par
value $0.01, 50,000,000
shares authorized and
unissued............... -- -- -- -- -- --
Common stock, par value
$0.01, 150,000,000
shares authorized,
14,076,539 shares
(42,648,000 shares
minimum pro forma and
60,926,000 shares
maximum pro forma)
issued and outstanding. 141 -- 286a 427 182 609
Capital in excess of par
value of common stock.. 48,065 -- 92,714a 140,779 63,791 204,570
Accumulated deficit..... (43,581) -- -- (43,581) -- (43,581)
-------- -------- ------- -------- ------- --------
4,625 -- 93,000 97,625 63,973 161,598
-------- -------- ------- -------- ------- --------
Total liabilities and
stockholders' equity... $ 30,627 $(12,153) $93,000 $111,474 $63,973 $175,447
======== ======== ======= ======== ======= ========
The accompanying notes are an integral part of these pro forma financial
statements.
F-12
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
PRO FORMA
ADJUSTMENTS
---------------------
FRP
PROPERTY PURCHASE MAXIMUM
ACQUISITIONS OTHER MINIMUM OPTION PRO
HISTORICAL (NOTE 1) (NOTE 2) PRO FORMA (NOTE 3) FORMA
---------- ------------ -------- --------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Oil and gas sales....... $ 4,203 $6,985 $ -- $11,188 $ -- $11,188
Management fees......... 818 -- -- b 818 -- 818
------- ------ ------- ------- ------ -------
Total revenues........ 5,021 6,985 -- 12,006 -- 12,006
------- ------ ------- ------- ------ -------
Costs and expenses:
Production and delivery,
including depreciation
and amortization....... 5,312 718 5,441c 11,471 -- 11,471
Exploration expenses.... 4,097 -- -- 4,097 -- 4,097
General and
administrative
expenses............... 1,353 -- -- 1,353 -- 1,353
Gain on sale of oil and
gas property........... (2,289) -- -- (2,289) -- (2,289)
------- ------ ------- ------- ------ -------
Total costs and
expenses............... 8,473 718 5,441 14,632 -- 14,632
------- ------ ------- ------- ------ -------
Operating loss.......... (3,452) 6,267 (5,441) (2,626) -- (2,626)
Interest expense........ (681) -- 681d -- -- --
Other income, net....... 249 -- -- 249 -- 249
------- ------ ------- ------- ------ -------
Net loss................ $(3,884) $6,267 $(4,760) $(2,377) $ -- $(2,377)
======= ====== ======= ======= ====== =======
Average shares
outstanding............ 14,136 -- 28,571a 42,707 18,278 60,985
======= ====== ======= ======= ====== =======
Net loss per share...... $ (0.27) $ (0.06) $ (0.04)
======= ======= =======
The accompanying notes are an integral part of these pro forma financial
statements.
F-13
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
PRO FORMA
ADJUSTMENTS
---------------------
FRP
PROPERTY PURCHASE MAXIMUM
ACQUISITIONS OTHER MINIMUM OPTION PRO
HISTORICAL (NOTE 1) (NOTE 2) PRO FORMA (NOTE 3) FORMA
---------- ------------ -------- --------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Oil and gas sales....... $ 2,434 $4,976 $ -- $ 7,410 $ -- $ 7,410
Management fees......... 1,636 -- -- b 1,636 -- 1,636
------- ------ ------- ------- ------- -------
Total revenues......... 4,070 4,976 -- 9,046 -- 9,046
------- ------ ------- ------- ------- -------
Costs and expenses:
Production and delivery,
including depreciation
and amortization....... 1,500 413 2,612c 4,525 -- 4,525
Exploration expenses.... 9,818 -- -- 9,818 -- 9,818
General and
administrative
expenses............... 2,635 -- -- 2,635 -- 2,635
------- ------ ------- ------- ------- -------
Total costs and
expenses............... 13,953 413 2,612 16,978 -- 16,978
------- ------ ------- ------- ------- -------
Operating loss.......... (9,883) 4,563 (2,612) (7,932) -- (7,932)
Interest expense........ (403) -- 403d -- -- --
Other income, net....... 424 -- -- 424 -- 424
------- ------ ------- ------- ------- -------
Net loss................ $(9,862) $4,563 $(2,209) $(7,508) $ -- $(7,508)
======= ====== ======= ======= ======= =======
Average shares
outstanding............ 13,898 -- 28,571a 42,469 18,278 60,747
======= ====== ======= ======= ======= =======
Net loss per share...... $ (0.71) $ (0.18) $ (0.12)
======= ======= =======
The accompanying notes are an integral part of these pro forma financial
statements.
F-14
MCMORAN OIL & GAS CO.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The accompanying Pro Forma Statements of Operations have been prepared
assuming the transactions discussed below occurred on January 1, 1996, whereas
the Pro Forma Balance Sheet assumes the transactions occurred on June 30,
1997. The pro forma financial statements are not necessarily indicative of the
actual results that would have been achieved nor are they indicative of future
results.
1. PROPERTY ACQUISITIONS
ACQUISITION OF THE MCN PRODUCING PROPERTIES
In July 1997, FRP agreed to acquire from MCN their contractual rights to
the MOXY/MCN Program, the MCN Producing Properties (for $26.0 million) and
other exploratory properties acquired under the MOXY/MCN Program (for $5.0
million) for the properties total fair market value of $31.0 million, subject
to adjustments. In July 1997, MOXY entered into an agreement with FRP pursuant
to which MOXY will acquire only the MCN Producing Properties for $26.0 million
(subject to adjustment for revenues and costs attributable to the MCN
Producing Properties from April 1, 1997 until their acquisition by MOXY plus
interest, calculated on the daily outstanding balance of the $26.0 million
purchase price, as adjusted from August 4, 1997 until MOXY's acquisition of
the properties, at an annual rate publicly announced by The Chase Manhattan
Bank plus 2%), and repay all indebtedness incurred by MOXY under the MOXY/MCN
Program. Assuming that the Rights Offering and Standby Commitment are
consummated in October 1997, MOXY anticipates that it would pay FRP
approximately $28 million for the MCN Producing Properties which would result
in an increase to oil and gas properties and a decrease to cash on the pro
forma balance sheet with no impact to the pro forma income statements. In
August 1997, FRP acquired MCN's interest in the MOXY/MCN Program (as discussed
earlier in this Prospectus).
MOXY would not have sufficient funds to purchase the MCN Producing
Properties until the completion of the Rights Offering and Standby Commitment.
Therefore, to facilitate the commencement of exploratory drilling with FRP and
the formation of the MOXY/FRP Exploration Program, FRP agreed to acquire MCN's
interest in the MOXY/MCN Program and resell MCN's interest in the MCN
Producing Properties to MOXY upon completion of the Rights Offering and
Standby Commitment.
The income statement information represents the historical revenues and
direct operating expenses of the MCN Producing Properties for the periods
presented.
The balance sheet information represents the acquisition of the MCN
Producing Properties at FRP's purchase price and the repayment of MOXY's debt
under the MOXY/MCN Program. Because FRP will retain MCN's former interest in
the exploratory properties acquired with the MOXY/MCN Program, no adjustment
is required to the pro forma statements regarding these properties.
ACQUISITION OF THE FM PROPERTIES INC. OIL AND GAS INTERESTS
In August 1997, MOXY and FRP acquired from FM Properties Inc. (FMPO) several
working interests and numerous overriding royalty interests in oil and gas
properties. FMPO is a publicly traded real estate corporation of which Mr.
Adkerson is Chairman of the Board and Chief Executive Officer. MOXY's share of
the cost was $2.7 million, funded by borrowings available under the MOXY/MCN
Program. Royalty income generated by these properties totaled $0.7 million for
the 1997 period and $1.4 million for 1996, although a single property which
generated $0.4 million in the 1997 period and $0.7 million in 1996 ceased
production in the second quarter of 1997.
2. OTHER ADJUSTMENTS
a. MOXY intends to consummate the Rights Offering (as discussed earlier in
this Prospectus) whereby additional MOXY common stock would be issued
sufficient to raise $100 million ($93 million after offering expenses of $1
million, primarily consisting of legal and financial advisory services, and
the FRP Standby Fee of $6 million).
F-15
b. Upon the initiation of the MOXY/FRP Exploration Program, MOXY's level of
general and administrative expense will change, with MOXY allocating
certain exploration and administrative expenses to FRP. Because the level
of expense and allocation is indeterminable at this time, no pro forma
adjustment has been reflected.
In addition, the level of MOXY's future exploration expenditures and
general and administrative expenses would be expected to increase following
the consummation of the Rights Offering as MOXY expands its exploration
activities to pursue opportunities it believes exist. The number and timing
of such available opportunities and extent of successful exploration
results thereon, which cannot be predicted, will also govern the timing and
extent of subsequent development and production activities. As a result,
the extent of any such increases cannot be determined at this time.
c. Represents the depreciation and amortization expense calculated using the
acquisition price of the MCN Producing Properties (Note 1).
d. Represents the elimination of the historical interest expense (Note 1).
3. FRP PURCHASE OPTION
Pursuant to FRP's Standby Commitment, FRP has the option to purchase
additional shares of common stock (Purchase Option) so that if following the
Rights Offering it has not acquired 30% of the outstanding common stock
pursuant to the Standby Commitment, it may acquire at the subscription price
such additional shares of common stock as are necessary to provide it with up
to a 30% ownership position in MOXY. The Maximum Pro Forma balance sheet at
June 30, 1997 assumes that 100% of the Rights are exercised by existing MOXY
shareholders and that FRP exercises its Purchase Option to acquire the
necessary number of shares to own 30% of the outstanding common stock.
4. INVESTMENT OF EXCESS CASH
Upon completion of the Rights Offering and the acquisition of the MCN
Producing Properties, MOXY will have significant additional cash resources. In
accordance with SEC regulations concerning pro forma financial statements,
MOXY has not reflected any additional investment income. However, if MOXY had
invested this excess cash and earned income at MOXY's historical rate for
short-term investments, pro forma net loss would have been $6.2 million ($0.15
per share) for 1996 and $1.7 million ($0.04 per share) for the 1997 period.
Under the Maximum Pro Forma scenario (as described in Note 3), pro forma net
loss would have been $3.0 million ($0.05 per share) for 1996 and $0.1 million
($0.00 per share) for the 1997 period.
F-16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
McMoRan Oil & Gas Co.:
We have audited the accompanying statements of gross oil and gas revenues
and direct operating expenses of the MCN Producing Properties (the Producing
Properties) to be acquired by McMoRan Oil & Gas Co. (see Note 1) for the year
ended December 31, 1996 and for the period from the inception of the MOXY/MCN
Program (September 19, 1995) through December 31, 1995. These statements are
the responsibility of management. Our responsibility is to express an opinion
on the 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 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 presentation
of the statements. We believe our audits provide a reasonable basis for our
opinion.
The accompanying statements present only the gross oil and gas revenues and
direct operating expenses (see Note 1) and are not intended to be a complete
presentation of the revenues and expenses of the Producing Properties.
In our opinion, the statements referred to above present fairly, in all
material respects, the gross oil and gas revenues and direct operating
expenses of the Producing Properties for the year ended December 31, 1996 and
for the period from the inception of the MOXY/MCN Program through December 31,
1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
July 14, 1997
F-17
The following statements of gross oil and gas revenues and direct operating
expenses of the MCN Producing Properties (the Producing Properties) to be
purchased by MOXY for the year ended December 31, 1996 and for the period from
the inception of the MOXY/MCN Program through December 31, 1995 have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their accompanying report. The statements are presented to provide
historical data about the Producing Properties to be acquired and may not be
indicative of future results of operations of the Producing Properties.
Separate financial statements for the Producing Properties have never been
prepared. Depreciation, depletion and amortization has not been included
because the historical expenses incurred by the predecessor owner may not be
comparable to amounts to be incurred by MOXY in future periods. Further, it is
not possible to make a practicable or objective determination of the portion
of general or administrative expenses or other indirect expenses which were
attributable to the Producing Properties and any such allocation would not be
indicative of the level of such expense to be incurred in the future. In
addition, a provision for income taxes has not been included because the tax
position of the predecessor owner will not affect MOXY's future tax
provisions.
MCN PRODUCING PROPERTIES
STATEMENTS OF GROSS OIL AND GAS REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
SIX
MONTHS INCEPTION
ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
(UNAUDITED)
Oil and gas sales......................... $6,285 $3,576 $1,458
Production and delivery................... 718 413 199
------ ------ ------
Revenues over direct operating expenses... $5,567 $3,163 $1,259
====== ====== ======
See accompanying notes to financial statements.
F-18
NOTES TO STATEMENTS OF GROSS OIL AND GAS REVENUES
AND DIRECT OPERATING EXPENSES OF THE MCN PRODUCING PROPERTIES
1. BASIS OF PRESENTATION
In September 1995, MOXY established an exploratory drilling program with MCN
owned 40% by MOXY and 60% by MCN. On July 14, 1997, MOXY entered into an
agreement with FRP pursuant to which MOXY will acquire MCN's interest in the
producing oil and gas properties (the Producing Properties) developed as part
of MOXY's exploratory drilling program with MCN for $26.0 million.
The accompanying statements of gross oil and gas revenues and direct
expenses, which are prepared on the successful efforts basis of accounting,
relate to the interests in producing oil and gas properties described above
and may not be representative of future operations. The statements do not
include Federal and state income taxes, interest, depreciation, depletion and
amortization or general and administrative expenses because such amounts have
historically not been allocated to the Producing Properties or such amounts
would not be indicative of those expenses which would be incurred by MOXY. The
statements include gross oil and gas revenue and direct operating and
production expenses, including production and ad valorem taxes, for the entire
periods presented.
The unaudited statement of gross oil and gas revenues and direct operating
expenses for the six-month period ended June 30, 1997, in the opinion of
management, was prepared on a basis consistent with the audited statements of
gross oil and gas revenues and direct operating expenses and includes all
adjustments (which includes normal recurring adjustments) necessary to present
fairly the gross oil and gas revenues and direct operating and production
expenses for this interim period and may not be indicative of future revenues
and expenses.
2. SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represent estimates only
and should not be construed as the current market value of the properties or
the cost that would be incurred to obtain equivalent reserves.
An analysis of the estimated changes in quantities of proved oil and natural
gas reserves of the Producing Properties for the year ended December 31, 1996
and for the period from the inception of the MOXY/MCN Program through December
31, 1995 is shown below. Oil, including condensate and plant products, is
stated in thousands of barrels and natural gas is in millions of cubic feet.
OIL GAS
---------- --------------
1996 1995 1996 1995
---- ---- ------ ------
Proved reserves:
Beginning of period............................... 141 -- 12,781 --
Revisions of previous estimates................... 46 (16) 1,732 575
Discoveries and extensions........................ 108 -- 10,513 7,498
Production........................................ (43) (20) (946) (479)
Transfers......................................... -- 177 -- 5,187
--- --- ------ ------
End of period..................................... 252 141 24,080 12,781
=== === ====== ======
Proved developed reserves:
End of period..................................... 87 30 11,295 1,168
=== === ====== ======
F-19
The estimated standardized measure of discounted future net cash flows
relating to proved reserves of the Producing Properties is shown below.
DECEMBER 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
Future cash flows.......................................... $ 99,390 $ 33,596
Future costs applicable to future cash flows:
Production costs......................................... (11,707) (5,751)
Development and abandonment costs........................ (19,311) (10,732)
-------- --------
Future net cash flows before income taxes.................. 68,372 17,113
Future income taxes........................................ -- --
-------- --------
Future net cash flows...................................... 68,372 17,113
Discount for estimated timing of net cash flows (10%
discount rate)............................................ (15,360) (4,617)
-------- --------
$ 53,012 $ 12,496
======== ========
Because the tax position of the predecessor owner will not affect MOXY's
future tax provisions, no deductions for future income taxes have been made
above.
Oil and natural gas prices have declined subsequent to December 31, 1996.
The future cash flows from proved reserves presented above do not reflect the
decline.
An analysis of the sources of changes in the standardized measure of
discounted future net cash flows relating to proved reserves of the Producing
Properties is shown below.
INCEPTION
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
Beginning of period.................................. $12,496 $ --
Transfers............................................ -- 6,985
Discoveries and extensions, less related costs....... 16,256 5,052
Development costs incurred during the period......... 10,477 --
Revisions:
Changes in prices.................................. 19,341 5,364
Accretion of discount.............................. 1,249 --
Other changes, including revised estimates of
development costs and rates of production......... (3,644) (3,646)
Revenues, less production costs...................... (3,163) (1,259)
------- -------
End of period........................................ $53,012 $12,496
======= =======
F-20
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE RIGHTS OF-
FERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
PAGE
----
Available Information...................................................... 2
Incorporation of Certain Documents
by Reference.............................................................. 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 11
Use of Proceeds............................................................ 18
The Rights Offering........................................................ 18
Price Range of Common Stock
and Dividend Policy....................................................... 27
Dilution................................................................... 27
Capitalization............................................................. 29
Management's Discussion and
Analysis of Financial Condition and
Results of Operations..................................................... 30
Business and Properties.................................................... 35
Management................................................................. 45
Certain Relationships and Related Transactions............................. 47
Principal Stockholders..................................................... 50
Description of Capital Stock............................................... 51
Certain Federal Income Tax Considerations.................................. 56
Legal Matters.............................................................. 57
Experts.................................................................... 58
Index to Financial Statements.............................................. 59
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28,571,429 SHARES
MCMORAN OIL & GAS CO.
COMMON STOCK
------------
PROSPECTUS
------------
OCTOBER 9, 1997
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