SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 28, 1997
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Date of Report (Date of earliest event reported)
COSTILLA ENERGY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-21411 75-2658940
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(State or other jurisdiction) (Commission File Number) (IRS Employer
Identification No.)
400 West Illinois, Suite 1000
Midland, Texas 79701
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(Address of principal executive offices)
(915) 683-3902
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 28, 1997, Costilla Energy, Inc. (the "Registrant") closed an
acquisition of oil and gas properties from Ballard Petroleum LLC ("Ballard"),
by assignment of interests pursuant to a purchase and sale agreement by and
between the Registrant and Ballard dated July 2, 1997. Ballard continues to
own a minority interest in such properties. The oil and gas properties
acquired are located primarily in the Rocky Mountain region of the United
States and consist of approximately 6.0 million barrels of oil equivalent of
proved reserves and 160,000 net acres of undeveloped properties. The
Registrant also acquired from Ballard 150 square miles of 3-D seismic data
and 42,000 miles of 2-D seismic data in the Powder River Basin of Wyoming and
the Paradox Basin of Colorado. The purchase price for the acquired properties
was approximately $38 million, paid in cash at the closing, plus up to $3
million payable on or before May 1, 1998 in the form of a tax reimbursement
to Ballard. The price was determined based upon negotiations between the
parties and a review of reserve, production, projected cash flow and similar
information relating to the properties. The funding of the purchase price
was provided pursuant to two credit facilities between the Registrant and
Bankers Trust Company (the "Lender"): (1) an acquisition credit facility for
$30 million (the "Acquisition Facility"), and (2) a new revolving line of
credit (the "Revolving Facility"), which replaced the Registrant's prior
credit facility. The closing of the Acquisition Facility and the Revolving
Facility occurred contemporaneously with the closing of the acquisition from
Ballard.
Prior to the above-described acquisition neither the Registrant nor any
of its affiliates, officers, or directors (or any associates of its officers
or directors) had any relationship with Ballard. In connection with the
acquisition, the Registrant and Ballard have entered into that certain
Acquisition and Exploration Agreement which establishes an area of mutual
interest between the parties (the "AMI"). Ballard will operate the
properties within the AMI and the parties agree to jointly acquire, explore
and develop properties within the AMI. In addition to its share of
acquisition, exploration and development costs, the Registrant will pay sixty
percent (60%) of Ballard's general and administrative expenses. The
Agreement expires on June 30, 2002.
ITEM 5. OTHER EVENTS
The Acquisition Facility is a term loan in the amount of $30 million and
is subject to a borrowing base to be redetermined at least semi-annually.
Borrowings under the Acquisition Facility bear interest, at the Company's
option, at a floating rate which is above the Lender's prime rate or the
applicable Eurodollar rate. Interest is payable quarterly as to base rate
loans, and at the end of the applicable interest period as to Eurodollar rate
loans. Principal payments commence in February 1998, and are $1.7 million
quarterly for the first year and $1.4 million each quarter thereafter for two
years, with a balloon payment of 40% due at maturity, February 28, 2001.
Borrowings under the Acquisition Facility are secured by the assets acquired
from Ballard.
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The Revolving Facility provides for a maximum availability of $75.0 million,
with an initial borrowing base of $50.0 million. The Company utilized funds
available under the Revolving Facility to fund the remaining portion of the
acquisition from Ballard. Borrowings under the Revolving Facility bear
interest at the Company's option at a floating rate which is at or above the
Lender's prime rate or the applicable Eurodollar rate, depending on the
percentage of committed funds which have been borrowed. Interest is payable
quarterly as to base rate loans, and at the end of the applicable interest
period as to Eurodollar rate loans. The borrowing base of the Revolving
Facility is automatically reduced by 5% each quarter beginning in August
1999, and payments of principal are required in each such quarter in which
the outstanding principal balance is greater than the reduced borrowing base.
The remaining balance is payable on August 28, 2002, the maturity date of
the Revolving Facility. Under the Revolving Facility, the Company is
obligated to pay certain fees to the Lender, including a commitment fee based
on the unused portion of the commitment. The Revolving Facility contains
customary restrictive covenants (including restrictions on the payment of
dividends and the incurrence of additional indebtedness) and requires the
Company to maintain (i) a current ratio of not less than 1.0 to 1.0 on or
after September 30, 1997, (ii) a ratio of EBITDA to interest expense of not
less than 2.25 to 1 until September 30, 1997 and thereafter 2.5 to 1, and
(iii) a minimum tangible net worth. Borrowings under the Revolving Facility
are secured by substantially all of the assets of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
It is impracticable to provide the financial statements and pro forma
financial information required by this item 7 at this time. Such financial
statements will be filed as an amendment to this Form 8-K as soon as the same
are available, but in no event later than 60 days from the date hereof.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COSTILLA ENERGY, INC.
September 12, 1997 By: /s/ Bobby W. Page
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Bobby W. Page, Senior
Vice President and
Chief Executive Officer
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