SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 2
Current Report Under to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 15, 1996
Commission File Number: 0-14096
FORELAND CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 87-0422812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12596 W. Bayaud Avenue
Suite 300, Lakewood, Colorado 80228
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(303) 988-3122
N/A
(Former name, former address, and formal fiscal year, if changed since
last report)
ITEM 2. ACQUISITION OF ASSETS
In November 1996, the Company purchased from Plains Petroleum Operating
Company, a wholly-owned subsidiary of Barrett Resources Corporation ("Barrett"),
its 40% working interest in the Eagle Springs field, including related wells,
fixtures, facilities, and equipment, effective as of August 1, 1996. With this
purchase of the 40% minority interest, the Company will own 100% of the working
interest in this field in which it is conducting an ongoing development program.
The purchase price for the 40% working interest was $2.5 million, with
adjustments for oil sales, oil inventory, operating expenses, and accrued unpaid
property and production taxes after that date for a net amount of approximately
$2.4 million delivered at the closing of the transaction on November 15, 1996.
The purchase of the working interest was pursuant to the Company's exercise of
its right of first refusal to purchase such interest on the same terms as
offered by Barrett to third parties and was the result of arm's length
negotiations.
The source of funds for the acquisitions was approximately $1.4 million
from net proceeds received from the sale of equity securities during the fourth
fiscal quarter and $1 million drawn under the Company's recently established
bank credit facility with Colorado National Bank, Denver, Colorado. (See the
Company's quarterly report on form 10-Q for the quarter ended September 30,
1996.)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired. The following financial
statements respecting the acquired properties are included as part of this
report:
Independent Auditor's Report
Historical Summaries of Oil Revenue and Direct Operating Expenses
Notes to Historical Summaries of Oil Revenue and Direct Operating
Expenses
(b) Pro forma financial information. The following pro forma financial
information is included as part of this report:
Introduction to Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet (unaudited) September 30, 1996
Pro Forma Consolidated Statement of Operations (unaudited) Nine Months
Ended September 30, 1996
Pro Forma Consolidated Statement of Operations (unaudited) Year Ended
December 31, 1995
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibits. The following exhibit is included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
2.01 2 Purchase and Sale Agreement dated November 14, 1996, Original
between Plains Petroleum Operating Company an Eagle Filing
Springs Production Limited Liability Company, respecting
the purchase of Plains' interest in the Eagle Springs field,
with related Assignment, Conveyance, and Bill of Sale
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: January 27, 1997
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele, President
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Foreland Corporation
Lakewood, Colorado
We have audited the accompanying Historical Summaries of Oil Revenue and Direct
Operating Expenses (the "Historical Summaries") of the Eagle Springs Properties
(the "Properties") for the period from August 1, 1994 through December 31, 1994
and for the year ended December 31, 1995. The Historical Summaries are the
responsibility of Foreland Corporation's management. Our responsibility is to
express an opinion on the Historical Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summaries are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summaries. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summaries. We believe that our audits provides a reasonable basis for our
opinion.
The Historical Summaries were prepared on the basis described in Note 1 and are
not intended to be a complete presentation of the Properties' revenues and
expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the oil revenues and direct operating expenses of the
Properties, for the period from August 1, 1994 through December 31, 1994 and for
the year ended December 31, 1995 in conformity with generally accepted
accounting principles on the basis described in Note 1.
HEIN + ASSOCIATES LLP
/s/ Hein + Associates LLP
Denver, Colorado
January 17, 1997
EAGLE SPRINGS PROPERTIES
HISTORICAL SUMMARIES OF OIL REVENUE AND
DIRECT OPERATING EXPENSES
Period from
August 1, 1994
through Year Ended Nine Months Ended
December 31, December 31, September 30,
-----------------
1994 1995 1995 1996
------------ --------- ------- ------
(Unaudited)
Revenue -
Oil sales $ 54,598 $621,121 $437,666 $651,035
Expenses -
Direct operating expenses 89,520 274,168 199,050 268,942
--------- -------- -------- --------
Revenue in excess of (less than) direct $ (34,922) $346,953 $238,616 $382,093
operating expenses ========= ======== ======== ========
The accompanying notes are an integral part of these historical summaries.
EAGLE SPRINGS PROPERTIES
NOTES TO HISTORICAL SUMMARIES OF OIL REVENUE AND
DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION:
---------------------
Effective August 1, 1994, Plains Petroleum Operating Company (Plains)
entered into an agreement (the "Acquisition Agreement") with Foreland
Corporation (Foreland), which provided that Plains would pay 80% of the
drilling costs related to certain wells in Foreland's Eagle Springs Field,
until Plains incurred cumulative costs of $1,920,000. Foreland was
responsible for the remaining 20% of drilling costs and the Acquisition
Agreement provided an option to permit Plains to acquire a 40% interest in
all of Foreland's wells in the Eagle Springs field with an effective date of
August 1, 1994. During 1995, Plains met its obligation for the $1,920,000
of drilling costs and exercised its option. Foreland was the operator of
the Eagle Springs field with the remaining 60% working interest.
On November 14, 1996, Foreland entered into an asset purchase agreement (the
"Purchase Agreement") to reacquire Plains 40% working interest (the "Eagle
Springs Properties") in the Eagle Springs field. The accompanying
Historical Summaries have been prepared from accounting records maintained
by Foreland and include only revenue and direct operating expenses
attributable to the properties which were acquired from Plains pursuant to
the Purchase Agreement.
The accompanying Historical Summaries are included to provide historical
information on the revenues and direct operating expenses of the Eagle
Springs Properties and may not be representative of future operations. A
provision for depreciation, depletion and amortization has not been included
since Foreland's basis in the properties will be significantly different
from the basis of the previous owners. General and administrative expenses
have not been included because the historical expenses incurred by Plains
may not be comparable to amounts expected to be incurred by Foreland. The
Historical Summaries also do not include Federal and state income taxes or
interest.
The financial information for the nine-month periods ended September 30,
1995 and 1996 is unaudited but reflects, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the interests in the oil revenue and direct operating
expenses for such periods. The oil revenue and direct operating expenses
for such interim periods are not necessarily indicative of the results to be
expected for the full year.
2. SIGNIFICANT CONCENTRATIONS:
--------------------------
The Eagle Springs Properties are located in north-central Nevada where the
net price realized for oil is typically discounted due to gravity
adjustments and transportation costs. Accordingly, in comparison to the net
price received by oil producers in many other areas of the United States, a
lower net sales price is often received for production from the Eagle
Springs Properties. Furthermore, 100% of the oil production from the Eagle
Springs Properties is sold to a single customer.
3. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED):
--------------------------------------------------------------
Costs Incurred in Oil and Gas Producing Activities - The following table
sets forth property acquisition, exploration, and development costs
incurred by Plains related to the Eagle Springs Properties during the period
from August 1, 1994 through December 31, 1994, and for the year ended
December 31, 1995.
1994 1995
--------- ----------
Acquisition costs $ 762,000 $ 198,000
Exploration costs 762,000 526,000
Development costs - 892,000
Management estimates that approximately $960,000 of Plains' initial capital
commitment discussed in Note 1 relates to the option to acquire a 40%
interest in the Eagle Springs field. Accordingly, this amount is included
as an acquisition cost of $762,000 in 1994 and $198,000 in 1995.
Oil Reserve Quantities - Proved oil reserves are the estimated quantities of
crude oil, which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed oil reserves
are those reserves expected to be recovered through existing wells with
existing equipment and operating methods. However, reserve information
should not be construed as the current market value of the oil reserves or
the costs that would be incurred to obtain equivalent reserves. Reserve
calculations involve the estimation of future net recoverable reserves of
oil and the timing and amount of future net revenues to be received
therefrom. These estimates are based on numerous factors, many of which are
variable and uncertain. Accordingly, it is common for the actual production
and revenue to vary from earlier estimates.
Reserve estimates for recently drilled wells and undeveloped properties are
subject to substantial upward or downward revisions after drilling is
completed and a production history obtained. Hence, reserve estimates and
estimates of future net revenues from production may be subject to
substantial revision from year to year. Reserve information presented
herein is based on reports prepared by independent petroleum engineers for
1995 and by a petroleum engineer who was employed by Foreland for 1994.
Set forth below is the unaudited summary of the changes in the net
quantities of proved oil reserves (in barrels) for the Eagle Springs
Properties for the period from August 1, 1994 through December 31, 1994, and
for the year ended December 31, 1995.
1994 1995
---------- ----------
Proved reserves, beginning of period - 1,219,000
Production (5,000) (54,000)
Purchase of reserves in place 955,000 -
Discoveries, extensions and other 269,000 483,000
additions
Revisions of previous estimates - (322,000)
----------- -----------
Proved reserves, end of period 1,219,000 1,326,000
=========== ===========
Proved developed reserves, end of period 644,000 772,000
=========== ===========
Standardized Measure of Discounted Future Net Cash Flows - Statement of
Financial Accounting Standards No. 69 prescribes guidelines for computing a
standardized measure of future net cash flows and changes therein relating to
estimated proved reserves. These guidelines are briefly discussed below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated quantities
of oil to be produced. Estimated future income taxes are computed using
current statutory income tax rates. The resulting future net cash flows are
reduced to present value amounts by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed
by the Financial Accounting Standards Board and, as such, do not necessarily
reflect expectations for the actual revenue to be derived from those reserves
nor their present worth. The limitations inherent in the reserve quantity
estimation process, as discussed previously, are equally applicable to the
standardized measure computations since these estimates are the basis for the
valuation process.
DECEMBER 31,
1994 1995
-------------- ------------
Future cash inflows $ 12,806,000 $ 16,727,000
Future production costs (3,742,000) (7,062,000)
Future development costs (1,568,000) (1,824,000)
Future income tax expense (2,333,000) (2,347,000)
-------------- ------------
Future net cash flows 5,163,000 5,494,000
10% annual discount for estimated timing of cash flows (2,873,000) (2,679,000)
-------------- ------------
Standardized measure of discounted future net cash flows $ 2,290,000 $ 2,815,000
============== ============
The following are the principal sources of change in the standardized measure
of discounted future net cash flows for the period from August 1, 1994
through December 31, 1994, and for the year ended December 31, 1995:
1994 1995
-------------- ---------------
Standardized measure, beginning of period $ - $ 2,290,000
Sales of oil, net of production costs 35,000 (347,000)
Extensions, discoveries and other, net 1,348,000 2,749,000
Purchase of reserves in place 3,447,000 -
Net change due to revisions in quantity estimates - (1,447,000)
Net change due to changes in prices and production - (407,000)
costs
Net change in future development costs (1,505,000) (245,000)
Net change in income taxes (1,035,000) (7,000)
Accretion of discount - 229,000
-------------- ---------------
Standardized measure, end of period $ 2,290,000 $ 2,815,000
============== ===============
FORELAND CORPORATION AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
In November 1996, a wholly-owned subsidiary of Foreland Corporation
(Foreland) entered into an asset purchase agreement with Plains Petroleum
Operating Company (Plains) whereby Foreland acquired Plains' 40% working
interest in a number of producing oil wells located in Nevada (the "Eagle
Springs Properties"). Prior to the purchase from Plains, Foreland owned the
remaining 60% interest and was the operator of the Eagle Springs Properties.
These pro forma consolidated financial statements give effect to this
transaction by recording the cost of the Eagle Springs Properties at an
adjusted purchase price of approximately $2,372,000. At September 30, 1996,
Foreland had sufficient cash and short-term investments to finance the
purchase price. However, for most of the periods covered by the pro forma
statements of operations, Foreland did not have adequate capital resources to
finance the purchase price. Accordingly, for purposes of the pro forma
statements of operations, the purchase price was assumed to be financed from
the weighted average cash balances during each period presented plus debt
financing at an assumed interest rate of 10.9%.
The pro forma consolidated statements of operations combine the consolidated
statements of operations of Foreland with the oil sales and direct operating
expenses attributable to Plains' 40% working interest in the Eagle Springs
Properties for the nine months ended September 30, 1996 and for the year
ended December 31, 1995. The pro forma consolidated statements of operations
are presented as if the asset purchase occurred at the beginning of each
period presented.
The pro forma consolidated balance sheet is presented as if the asset
purchase had occurred on September 30, 1996.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the transactions been consummated
at the beginning of the periods indicated. The pro forma consolidated
financial statements should be read in conjunction with the historical
consolidated financial statements and notes thereto of Foreland and the
Historical Summaries for the Eagle Springs Properties included elsewhere in
this document.
FORELAND CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
FORELAND PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
CURRENT ASSETS $ 2,939,743 $ (2,372,000) (a)$ 567,743
PROPERTY AND EQUIPMENT:
Oil and gas properties 8,311,055 2,372,000 (a) 10,683,055
Other property and equipment 319,121 - 319,121
Accumulated depreciation, depletion and (3,367,793) - (3,367,793)
amortization ------------ ------------ ------------
Net property and equipment 5,262,383 2,372,000 7,643,383
OTHER ASSETS 130,874 - 130,874
------------ ------------ ------------
TOTAL ASSETS $ 8,333,000 $ - $ 8,333,000
============ ============ ============
CURRENT LIABILITIES $ 1,476,108 $ - $ 1,476,108
LONG-TERM DEBT 19,539 - 19,539
STOCKHOLDERS' EQUITY 6,837,353 - 6,837,353
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,333,000 $ - $ 8,333,000
============ ============ ============
See accompanying notes to pro forma consolidated financial statements.
FORELAND CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
FORELAND PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
REVENUES:
Oil and gas sales $ 1,196,732 $ 651,035 (b) $ 1,847,767
Well service and other income 153,599 (46,687) (g) 106,912
------------- ------------ -------------
Total revenues 1,350,331 604,348 1,954,679
------------- ------------ -------------
EXPENSES:
Oil and gas production 369,646 268,942 (c) 591,901
(46,687) (g)
Oil and gas exploration 517,624 - 517,624
Dry hole and abandonment 443,830 - 443,830
Well service costs and other 8,382 - 8,382
General and administrative 367,789 - 367,789
Shareholder - investor services 361,190 - 361,190
Depreciation, depletion and amortization 574,681 123,684 (h) 698,365
Interest expense 133,733 184,176 (f) 317,909
------------- ------------ -------------
Total expenses 2,776,875 530,115 3,306,990
------------- ------------ -------------
NET INCOME (LOSS) (1,426,544) 74,233 (1,352,311)
------------- ------------ -------------
Preferred stock dividends:
Declared (61,137) - (61,137)
Accrued (797) - (797)
Imputed (1,168,432) - (1,168,432)
------------- ------------ -------------
Total preferred stock dividend (1,230,366) - (1,230,366)
------------- ------------ -------------
NET INCOME (LOSS) APPLICABLE TO COMMON $ (2,656,910) $ 74,233 $ (2,582,677)
SHAREHOLDERS ============= ============ =============
NET LOSS PER COMMON SHARE $ (.50) $ (.49)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON 5,265,225 5,265,225
SHARES OUTSTANDING ============= =============
See accompanying notes to pro forma consolidated financial statements.
FORELAND CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
FORELAND PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
REVENUES:
Oil and gas sales $ 1,017,401 $ 621,121 (d) $ 1,638,522
Well service and other income 239,163 (53,197) (g) 185,966
------------- ----------- ------------
Total revenues 1,256,564 567,924 1,824,488
------------- ----------- ------------
EXPENSES:
Oil and gas production 424,445 274,168 (e) 645,416
(53,197) (g)
Oil and gas exploration 618,895 - 618,895
Dry hole and abandonment 725,648 - 725,648
General and administrative 775,300 - 775,300
Depreciation, depletion and amortization 862,563 145,362 (h) 1,007,925
Interest expense 125,278 218,902 (f) 344,180
------------- ----------- ------------
Total expenses 3,532,129 585,235 4,117,364
------------- ----------- ------------
NET LOSS $ (2,275,565) $ (17,311) $ (2,292,876)
============= =========== ============
NET LOSS PER COMMON SHARE $ (.48) $ (.48)
============= ============
WEIGHTED AVERAGE NUMBER OF COMMON 4,757,000 4,757,000
SHARES OUTSTANDING ============= ============
See accompanying notes to pro forma consolidated financial statements.
FORELAND CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Pro Forma Adjustments:
(a) Entry to record the purchase of Eagle Springs Properties.
(b) Entry to record nine months of oil revenue from Plains' interest in the
Eagle Springs Properties.
(c) Entry to record nine months of lease operating expenses related to Plains'
interest in the Eagle Springs Properties.
(d) Entry to record a full year of oil revenue from Plain's interest in the
Eagle Springs Properties.
(e) Entry to record a full year of lease operating expenses related to Plains'
interest on the purchased share of the Eagle Springs Properties.
(f) Entry to record interest expense on assumed borrowings to finance the
purchase of the Eagle Springs Properties.
(g) Entry to eliminate overhead costs billed by Foreland under the joint
operating agreement with Plains.
(h) Entry to record estimated depreciation, depletion and amortization of the
cost of the Eagle Springs Properties.