SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 18, 2001 (May 2, 2001)
-------------------------------
VINTAGE PETROLEUM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10578 73-1182669
- ----------------- ---------------- -------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
110 West Seventh Street, Tulsa, Oklahoma 74119
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 592-0101
--------------
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
-1-
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial statements of business acquired.
GENESIS EXPLORATION LTD.
Auditors' Report
Historical Consolidated Balance Sheets as of December 31, 2000
and 1999 (Audited)
Historical Consolidated Statements of Earnings and Retained
Earnings for the years ended December 31, 2000 and 1999 (Audited)
Historical Consolidated Statements of Cash Flow for the years
ended December 31, 2000 and 1999 (Audited)
Notes to Historical Consolidated Financial Statements (Audited)
Historical Consolidated Balance Sheets as of March 31, 2001, and
December 31, 2000 (Unaudited)
Historical Consolidated Statements of Earnings and Retained
Earnings for the three months ended March 31, 2001 and 2000
(Unaudited)
Historical Consolidated Statements of Cash Flow for the three
months ended March 31, 2001 and 2000 (Unaudited)
Notes to Historical Unaudited Consolidated Financial Statements
(Unaudited)
(b) Pro forma financial information.
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants on Pro Forma Adjustments
Pro Forma Combined Statement of Income for the year ended
December 31, 2000 (Unaudited)
Pro Forma Combined Statement of Income for the three months ended
March 31, 2001 (Unaudited)
Pro Forma Combined Balance Sheet as of March 31, 2001 (Unaudited)
Notes to Pro Forma Combined Financial Statements (Unaudited)
-2-
(c) Exhibits.
The following is a list of all exhibits filed as a part of this Form 8-K.
2.* Acquisition Agreement dated as of March 27, 2001, among the
Registrant and Genesis Exploration Ltd.
23.1** Consent of PricewaterhouseCoopers LLP
23.2** Consent of Arthur Andersen LLP
_____________________________
* Previously filed with this Form 8-K on May 15, 2001.
**Filed herewith.
-3-
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.
VINTAGE PETROLEUM, INC.
By: /s/ Michael F. Meimerstorf
--------------------------
Michael F. Meimerstorf
Vice President and Controller
Date: May 18, 2001
-4-
Auditors' Report
To the Directors of Genesis Exploration Ltd.
We have audited the consolidated balance sheets of Genesis Exploration Ltd. as
of December 31, 2000 and 1999, and the consolidated statements of earnings and
retained earnings and cash flows for each of the years in the two year period
ended December 31, 2000. These consolidated 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 Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
years in the two year period ended December 31, 2000, in accordance with
Canadian generally accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Alberta, Canada
February 16, 2001
Comments by Auditor for U.S. Readers on Canada - U.S. Reporting Differences
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the change described in Note 2 to
the consolidated financial statements. Our report to the Directors dated
February 16, 2001, is expressed in accordance with Canadian reporting standards
which do not require a reference to such a change in accounting principles in
the Auditors' Report when the change is properly accounted for and adequately
disclosed in the financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Alberta, Canada
February 16, 2001
-5-
GENESIS EXPLORATION LTD.
HISTORICAL CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 and 1999
(Canadian $, in thousands)
2000 1999
------------ ------------
(as restated)
ASSETS:
Current assets:
Accounts receivable................................................................. $ 44,038 $ 23,235
Property, plant and equipment, full cost method, net (note 2 and 3)................... 473,818 333,764
------------ ------------
$ 517,856 $ 356,999
============ ============
LIABILITIES:
Current liabilities:
Accounts payable.................................................................... $ 60,167 $ 33,466
Long-term debt (note 4)............................................................... 144,574 115,862
Future site restoration costs (note 5)................................................ 1,269 932
Future income taxes (note 2 and 8).................................................... 98,907 51,754
------------ ------------
304,917 202,014
------------ ------------
Commitments (note 9)
SHAREHOLDERS' EQUITY:
Share capital (note 2 and 6).......................................................... 134,080 127,956
Retained earnings (note 2)............................................................ 78,859 27,029
------------ ------------
212,939 154,985
------------ ------------
$ 517,856 $ 356,999
============ ============
The accompanying notes are an integral part of these statements.
-6-
GENESIS EXPLORATION LTD.
HISTORICAL CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
For the Years Ended December 31, 2000 and 1999
(Canadian $, in thousands, except per share amounts)
2000 1999
------------- -------------
(as restated)
OPERATING INCOME:
Petroleum and natural gas revenues.................................... $ 250,408 $ 112,642
Hedging costs......................................................... (2,418) (1,277)
Royalties............................................................. (55,243) (22,012)
Production expenses................................................... (37,684) (23,114)
------------- -------------
155,063 66,239
------------- -------------
EXPENSES:
General and administrative............................................ 5,304 3,974
Financing charges..................................................... 9,967 6,465
Depletion, depreciation and site restoration.......................... 39,290 28,854
------------- -------------
54,561 39,293
------------- -------------
Earnings before taxes................................................... 100,502 26,946
TAXES:
Future income taxes (note 8).......................................... 47,153 11,465
Capital taxes......................................................... 1,519 822
------------- -------------
48,672 12,287
------------- -------------
Net earnings, for the year.............................................. 51,830 14,659
Retained earnings, beginning of year (note 2)........................... 27,029 12,370
------------- -------------
Retained earnings, end of year (note 2)................................. $ 78,859 $ 27,029
============= =============
Earnings per share (note 2):
Basic................................................................. $ 1.37 $ 0.40
============= =============
Fully diluted......................................................... $ 1.27 $ 0.38
============= =============
The accompanying notes are an integral part of these statements.
-7-
GENESIS EXPLORATION LTD.
HISTORICAL CONSOLIDATED STATEMENTS OF CASH FLOW
For the Years Ended December 31, 2000 and 1999
(Canadian $, in thousands)
2000 1999
------------- -------------
(as restated)
OPERATING ACTIVITIES:
Net earnings................................................................... $ 51,830 $ 14,659
Add charges not affecting cash:
Depletion, depreciation and site restoration............................... 39,290 28,854
Future income taxes........................................................ 47,153 11,465
------------- -------------
Cash flow from operations...................................................... 138,273 54,978
Increase in accounts receivable................................................ (25,624) (2,403)
Increase (decrease) in accounts payable........................................ 19,664 (274)
------------- -------------
132,313 52,301
------------- -------------
FINANCING ACTIVITIES:
Increase in long-term debt..................................................... 28,712 18,983
Issue of shares................................................................ 6,124 3,687
------------- -------------
34,836 22,670
------------- -------------
Cash available for investing activities........................................ 167,149 74,971
------------- -------------
INVESTING ACTIVITIES:
Property, plant and equipment expenditures..................................... (178,775) (78,690)
Site restoration expenditures.................................................. (232) (127)
Decrease (increase) in capital:
Accounts receivable.......................................................... 4,821 (7,669)
Increase in capital accounts payable........................................... 7,037 11,515
------------- -------------
(167,149) (74,971)
------------- -------------
Change in cash................................................................. $ - $ -
------------- -------------
Other Supplemental Information:
Cash interest paid........................................................... $ 9,967 $ 6,465
Cash taxes paid.............................................................. $ 1,026 $ 733
The accompanying notes are an integral part of these statements.
-8-
GENESIS EXPLORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
(1) Summary of Significant Accounting Policies
These financial statements are prepared in accordance with Canadian
generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries.
(a) Revenue Recognition
Revenues associated with sales of natural gas, natural gas liquids and
crude oil owned by the Company are recognized when title passes from the
Company to its customer.
(b) Property, Plant and Equipment
(i) Capitalized Costs
The full cost method of accounting for petroleum and natural gas properties
and related expenditures is followed. Under this method, all costs related
to the exploration for and the development of petroleum and natural gas
reserves are capitalized. Capitalized costs include those related to lease
acquisitions, geological and geophysical activities, lease rentals on non-
producing properties, and drilling of productive and non-productive wells.
General and administrative expenses are not capitalized other than to the
extent of the Company's working interest in Company-operated capital
expenditure programs to which operator fees have been charged equivalent to
standard industry operating agreements. Interest expense is not
capitalized.
Proceeds from the disposition of petroleum and natural gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition would alter the depletion and
depreciation rate by 20 percent or more.
-9-
(ii) Depletion and Depreciation
Depletion of petroleum and natural gas properties and depreciation of
production equipment and facilities are calculated on the unit-of-
production method based upon:
. Total estimated proven developed and undeveloped reserves before
royalties;
. Total capitalized costs less the costs of undeveloped properties,
plus estimated future development costs of proven undeveloped
reserves; and
. Relative volumes of petroleum and natural gas reserves and
production converted at the energy equivalent conversion ratio of
six thousand cubic feet of natural gas to one barrel of crude
oil.
Depreciation of corporate assets is provided on a declining balance basis
at rates of 20 to 30 percent per annum.
(iii) Ceiling Test
The carrying amount of property, plant and equipment, net of recorded
future income taxes and future site restoration costs, is limited to the
sum of:
. estimated future revenues from proven reserves, less estimated
future development costs of proven undeveloped reserves; and
. the cost of undeveloped properties less estimates of impairment.
Less estimates of future:
. site restoration costs;
. production-related general and administrative expenses;
. interest expenses; and
. applicable income and capital taxes.
The calculations and estimates in (ii) and (iii) above have been prepared
by management and are based upon sales prices, costs and regulations in
effect at the end of the year.
(c) Future Site Restoration Costs
The Company provides for the total future liability for site restoration
costs on wells and facilities using the unit-of-production method over
the estimated useful life of the proven oil and gas reserves. The
liability is based on estimates of the anticipated method and extent of
site restoration, using current costs and in accordance with existing
legislation and industry practice. The current charge is grouped with
depletion and depreciation expense, with the accumulated provision being
shown as a deferred liability. Actual site restoration costs are deducted
from the liability in the year incurred.
-10-
(d) Measurement Uncertainty
Amounts recorded for depletion, depreciation and future site restoration
costs and amounts used for ceiling test calculations, are based on
estimates of oil and natural gas reserves and future costs required to
develop those reserves. By their nature, these estimates of reserves and
the related future cash flows are subject to measurement uncertainty, and
the impact on the financial statements of future periods could be material.
(e) Joint Ventures
Certain of the Company's exploration, development and production activities
are conducted jointly with others and, accordingly the accounts reflect
only the Company's proportionate interest in such activities.
(f) Hedging
The Company utilizes certain derivative financial instruments to hedge
exposures related to oil and natural gas prices. They are not used for
speculative trading purposes. Gains and losses on commodity price
instruments are recognized concurrently in income with the hedged
transaction.
(g) Future Income Taxes
Income taxes are calculated using the liability method of tax accounting.
Temporary differences arising from the difference between the tax basis of
an asset or liability and its carrying amount on the balance sheet are used
to calculate future income tax liabilities or assets. Future income tax
liabilities or assets are calculated using tax rates anticipated to apply
in the periods that the temporary differences are expected to reverse.
Temporary differences arising on acquisitions result in future income tax
liabilities or assets.
(h) Stock-Based Compensation Plan
The Company has a stock-based compensation plan, which is described in Note
6. No compensation expense is recognized for this plan when options are
granted to employees. Any consideration paid by employees on exercise of
options is credited to share capital.
-11-
2. CHANGE IN ACCOUNTING POLICY
Effective January 1, 2000, the Company adopted section 3465 of the Canadian
Institute of Chartered Accountants handbook with respect to accounting for
income taxes. Under the new recommendations, the liability method of tax
allocation is used, based on differences between financial reporting and tax
bases of assets and liabilities. Previously, the deferral method was used, based
on differences in the timing of reporting income and expenses in financial
statements and tax returns. The new method was applied retroactively with
restatement of 1999 financial statements.
(C$ thousands, except per share amounts) 1999
---------------------------------
As As
Reported Adjustments Restated
-------- ----------- --------
As of December 31:
Property, plant and equipment........... $310,517 $ 23,247 $333,764
Future income taxes..................... 19,675 32,079 51,754
Share capital........................... 137,509 (9,553) 127,956
Retained earnings....................... 26,308 721 27,029
Year Ended December 31:
Future income tax expense............... $ 13,746 $ (2,281) $ 11,465
Net earnings............................ 14,427 232 14,659
Retained earnings, beginning of year.... 11,881 489 12,370
Retained earnings, end of year.......... 26,308 721 27,029
Earnings per share - basic.............. 0.39 0.01 0.40
Earnings per share - fully diluted...... 0.38 - 0.38
3. PROPERTY, PLANT AND EQUIPMENT
(C$ thousands) 2000 1999
-------- -------------
(as restated)
Property, plant and equipment, at cost...... $538,707 $ 359,932
Gross-up for acquisition with no tax basis.. 25,930 25,930
-------- -------------
564,637 385,862
Accumulated depletion and depreciation...... (90,819) (52,098)
-------- -------------
$473,818 $ 333,764
======== =============
The cost of undeveloped property excluded from the depletion base as at
December 31, 2000 was C$44 million (1999 - C$23 million).
4. LONG-TERM DEBT
(C$ thousands) 2000 1999
--------- --------
Prime rate advances................... $ - $ 2,192
Bankers' acceptances.................. 144,574 113,670
--------- --------
$144,574 $115,862
========= ========
-12-
The Company's bank loan agreements provide for a C$165 million demand
revolving term facility. The credit facility may be drawn down or repaid at any
time but has no scheduled repayment terms. The facility is based on the value
of the Company's reserves and is subject to an annual review. No principal
repayments are expected to be required, accordingly the entire balance
outstanding is classified as long-term.
The credit facility is secured by a charge on certain oil and natural gas
properties and a C$250 million fixed and floating charge debenture against the
assets of the Company. The facility bears interest at the banks' prime rate or
at money market rates plus a 1.0 percent stamping fee (6.81 percent at December
31, 2000).
5. FUTURE SITE RESTORATION COSTS
(C$ thousands) 2000 1999
------ -----
Balance, January 1............................ $ 932 $ 528
Current site restoration provision............ 569 531
Current year expenditures..................... (232) (127)
------ -----
Balance, December 31.......................... $1,269 $ 932
====== =====
As at December 31, 2000, the estimated future site restoration costs net of
salvage values to be accrued over the life of the remaining proven reserves were
C$5.4 million.
6. SHARE CAPITAL
(a) Authorized
The authorized share capital consists of an unlimited number of common
shares and an unlimited number of preferred shares issuable in series.
(b) Common Shares Issued
Number Consideration
---------- --------------
(as restated)
(C$ thousands)
Balance, December 31, 1999........... 37,240,174 $ 127,956
Employee stock option plan........... 1,054,278 6,124
---------- --------------
Balance, December 31, 2000........... 38,294,452 $ 134,080
========== ==============
(c) Common Shares Reserved for Issue
Stock options to acquire common shares are granted to employees and
directors from time to time at exercise prices equal to the market value of
the shares at the date of the grant.
-13-
Options granted under the current plan have a term of five years to expiry
and vest over periods up to three years from the date of grant.
2000 1999
-------------------------- ------------------------
Weighted Weighted
Average Average
Options Price (C$) Options Price (C$)
---------- ---------- ---------- ----------
Balance, January 1........................ 3,564,500 $ 6.93 3,255,000 $ 5.89
Granted................................. 1,487,947 9.76 1,285,966 8.17
Exercised............................... (1,054,278) 5.81 (824,466) 4.47
Cancelled............................... (211,334) 8.65 (152,000) 6.06
---------- ---------
Balance, December 31...................... 3,786,835 8.33 3,564,500 6.93
========== =========
Number of employees and directors
holding stock options at December 31... 85 66
Additional details on the Company's stock options at December 31, 2000 are
as follows:
Outstanding Options Exercisable Options
------------------------------------------- ------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Price Number Life Exercise Number Exercise
Ranges (C$) Outstanding (Years) Price (C$) Exercisable Price (C$)
-------------- ----------- ----------- ---------- ----------- ----------
$4.45 to $6.45 781,423 2.35 $ 5.91 454,745 $6.03
$6.50 to $9.75 2,031,465 3.22 8.25 698,299 7.59
$9.80 to $11.40 973,947 4.43 10.43 35,000 9.86
--------------- ----------- -----------
$4.45 to $11.40 3,786,835 3.35 8.33 1,188,044 7.06
=========== ===========
(d) Weighted Average
Earnings and cash flow from operations per share have been calculated based
on the weighted average number of shares.
2000 1999
---------- ----------
Basic......................................... 37,873,877 36,788,734
Fully diluted................................. 41,660,712 40,353,234
-14-
7. FINANCIAL INSTRUMENTS
The Company's financial instruments recognized in the balance sheet consist
of accounts receivable, accounts payable and long-term debt. The fair value of
these financial instruments approximate their carrying amounts.
(a) Commodity Derivative Instruments
The Company has purchased a put option establishing a floor price of
US$26.00 on 2,000 barrels of oil per day for 2001 at a cost of US$1.285 per
barrel.
(b) Credit Risk
The Company is exposed to credit risk from financial instruments to the
extent of non-performance by third parties. A substantial portion of the
Company's accounts receivables are with customers and joint venture
partners in the petroleum and natural gas industry and are subject to
normal credit risks. The Company is also exposed to credit risk associated
with possible non-performance by counter parties to derivative instruments.
The Company minimizes credit risk associated with derivative instruments by
entering into contracts with only highly rated financial institutions, and
controls other third party credit risk with credit approvals, limits on
exposures to any one counterparty, and monitoring procedures.
8. FUTURE INCOME TAXES
The provision for deferred income taxes differs from the result which would
be obtained by applying the combined Canadian Federal and Provincial statutory
income tax rates to income before income taxes. This difference results from the
following:
(C$ thousands) 2000 1999
-------- -------------
(as restated)
Earnings before taxes.......................... $100,502 $ 26,946
Corporate income tax rate...................... 44.6% 44.6%
-------- ------------
Expected future income tax..................... 44,824 12,018
Effect on income taxes of:
Non-deductible Crown royalties............... 21,841 8,911
Resource allowance........................... (20,915) (9,025)
Other........................................ 1,403 (439)
-------- ------------
Future income taxes............................ $ 47,153 $ 11,465
======== ============
-15-
The components of the future income tax liability at December 31 are as
follows:
(C$ thousands) 2000 1999
-------- -------
Future income tax liabilities:
Property, plant and equipment................... $ 99,982 $53,422
Future income tax assets:
Site restoration................................ (424) (416)
Share issue costs............................... (651) (1,252)
-------- -------
(1,075) (1,668)
-------- -------
Net future income tax liability................... $ 98,907 $51,754
======== =======
As at December 31, 2000, the following deductions were available to claim
against future taxable income:
Maximum
Annual
Rate
(C$ thousands) of Claim
--------
Canadian exploration expense......................... $ 15,705 100%
Canadian development expense......................... 72,958 30%
Canadian oil and gas property expense................ 72,059 10%
Undepreciated capital cost........................... 84,159 25%
--------
$244,881
========
9. COMMITMENTS
The Company has commitments with respect to leases for certain oil and gas
equipment and office premises over the next five years as follows:
(C$ thousands)
2001............................................................. $1,876
2002............................................................. 889
2003............................................................. 395
2004............................................................. 164
2005............................................................. -
------
$3,324
======
The Company also has a commitment to supply an Alliance Pipeline shipper
with 20 million cubic feet of gas per day to October 31, 2001 on a net back
pricing arrangement. Thereafter the commitment diminishes annually until it
expires October 31, 2009.
-16-
10. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. None of the differences between Canada
and United States generally accepted accounting principles ("GAAP") would result
in significant adjustments to net income for the years ended December 31, 2000
and 1999, or to shareholders' equity as of December 31, 2000 and 1999.
Full Cost Accounting
Under Canadian GAAP, a ceiling test is applied to ensure that capitalized
costs do not exceed the sum of estimated undiscounted, unescalated future net
revenues from proved reserves less the cost incurred or estimated to develop
those reserves, related production, interest and general administrative costs,
and an estimate for restoration costs and applicable taxes. Under the full cost
method of accounting in the United States, a ceiling test is applied to ensure
that the capitalized costs accumulated in each cost center are limited to an
amount equal to the present value, discounted at 10 percent of the unescalated
estimated future net operating revenues from proved reserves, net of restoration
costs and income taxes.
Income Taxes
Effective January 1, 2000, the Company retroactively adopted, with restatement
of prior years, the liability method of accounting for income taxes as
recommended by the Canadian Institute of Chartered Accountants. In prior years,
the Company provided for potential future taxes using the deferred credit method
under which tax provisions were established using tax rates and regulations
applicable in the year the provision was recorded. Balances remained unchanged
despite subsequent changes in rates and regulations.
The new Canadian accounting standard is similar to the United States Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income
Taxes, which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, both the new Canadian standard and SFAS 109 generally consider all
expected events, including enacted changes in laws or rates. In adopting the
new Canadian standard, the increase in pre-tax values assigned to assets and
liabilities of acquired entities has been restated and is not different than the
value determined using SFAS 109.
Earnings Per Share
Under Canadian GAAP, the fully diluted earnings related to the numbers of
shares issued under employee option plans is determined using the average
exercise price for all options outstanding. Under U.S. GAAP, the treasury
method is used in the determination of the fully diluted earnings per share,
whereby the market price of the Company's shares is used to determine the
proceeds that would be received and used to repurchase outstanding shares.
-17-
Stock-Based Compensation
The Company accounts for its stock-based compensation plans using the
intrinsic value method under APB Opinion No. 25 and related interpretations,
under which no compensation costs have been recognized in the financial
statements for share options granted to employees and directors.
New Statements of Financial Accounting Standards
In June 1998, Statement of Financial Accounting Standards ("SFAS No. 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued,
amended by SFAS 137 (June 1999) and SFAS 138 (June 2000). Adoption of this
standard is required in the first quarter of 2001. SFAS 133 requires that all
derivatives (as defined in the statement) be recognized as either assets or
liabilities and measured at their fair values. If certain conditions are met, a
derivative may be specifically designated and accounted for as a hedge or risk
exposure. Certain contracts containing forward pricing provisions are excluded
from the scope of this statement because they are sales in the normal course of
business. As the volume of sales subject to such contracts is not significant
at December 31, 2000, the fair value of the put option was immaterial.
-18-
GENESIS EXPLORATION LTD.
HISTORICAL CONSOLIDATED BALANCE SHEETS
As of March 31, 2001, and December 31, 2000
(Canadian $, in thousands)
March 31, December 31,
2001 2000
---------- -----------
(Unaudited)
ASSETS:
Current assets:
Accounts receivable................................. $ 36,088 $ 44,038
Property, plant and equipment, full cost method, net.. 525,441 473,818
-------- --------
$561,529 $517,856
======== ========
LIABILITIES:
Current liabilities:
Accounts payable.................................... $ 69,098 $ 60,167
Long-term debt........................................ 133,649 144,574
Future site restoration costs......................... 1,354 1,269
Future income taxes................................... 117,900 98,907
-------- --------
322,001 304,917
======== ========
SHAREHOLDERS' EQUITY:
Share capital......................................... 136,179 134,080
Retained earnings..................................... 103,349 78,859
-------- --------
239,528 212,939
-------- --------
$561,529 $517,856
======== ========
The accompanying notes are an integral part of these statements.
-19-
GENESIS EXPLORATION LTD.
HISTORICAL CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
For the Three Months Ended March 31, 2001 and 2000
(Canadian $, in thousands, except per share amounts)
Three Months Ended
-------------------------
March 31, March 31,
2001 2000
-------- --------
(Unaudited) (Unaudited)
OPERATING INCOME:
Petroleum and natural gas revenues............ $ 94,952 $41,006
Hedging costs................................. (356) -
Royalties..................................... (21,450) (8,506)
Production expenses........................... (12,376) (6,652)
-------- --------
60,770 25,848
-------- --------
EXPENSES:
General and administrative.................... 2,458 1,109
Financing charges............................. 2,397 1,814
Depletion, depreciation and site restoration.. 11,932 8,548
-------- --------
16,787 11,471
-------- --------
Earnings before taxes........................... 43,983 14,377
TAXES:
Future income taxes........................... 18,993 6,656
Capital taxes................................. 500 270
-------- --------
19,493 6,926
-------- --------
Net earnings, for the period.................... 24,490 7,451
Retained earnings, beginning of period.......... 78,859 27,029
-------- --------
Retained earnings, end of period................ $103,349 $ 34,480
======== ========
Earnings per share:
Basic......................................... $ 0.64 $ 0.20
======== ========
Fully diluted................................. $ 0.59 $ 0.19
======== ========
Weighted average shares outstanding:
Basic......................................... 38,461 37,409
======== ========
Fully diluted................................. 42,032 40,724
======== ========
The accompanying notes are an integral part of these statements.
-20-
GENESIS EXPLORATION LTD.
HISTORICAL CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended March 31, 2001 and 2000
(Canadian $, in thousands)
2001 2000
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net earnings...................................... $ 24,490 $ 7,451
Add charges not affecting cash:
Depletion, depreciation and site restoration.. 11,932 8,548
Future income taxes........................... 18,993 6,656
-------- --------
Cash flow from operations......................... 55,415 22,655
Decrease (increase) in accounts receivable........ 9,086 (5,232)
Increase in accounts payable...................... 1,620 830
-------- --------
66,121 18,253
-------- --------
FINANCING ACTIVITIES:
Increase (decrease) in long-term debt............. (10,925) 9,658
Issue of shares................................... 2,099 1,375
-------- --------
(8,826) 11,033
-------- --------
Cash available for investing activities........... (57,295) 29,286
-------- --------
INVESTING ACTIVITIES:
Property, plant and equipment expenditures........ (63,416) (37,581)
Site restoration expenditures..................... (54) (58)
Decrease (increase) in capital:
Accounts receivable............................. (1,136) 6,934
Increase in capital accounts payable.............. 7,311 1,419
-------- --------
(57,295) (29,286)
-------- --------
Change in cash.................................... $ - $ -
======== ========
Other Supplemental Information:
Cash interest paid.............................. $ 2,397 $ 1,814
Cash taxes paid................................. $ 826 $ 130
The accompanying notes are an integral part of these statements.
-21-
GENESIS EXPLORATION LTD.
NOTES TO HISTORICAL UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of Genesis Exploration Ltd. and its
wholly-owned subsidiaries (collectively, the "Company"). Management believes
that all material adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation have been made. These financial statements
should be read in conjunction with the Company's 2000 audited financial
statements and the related notes thereto.
(2) United States Generally Accepted Accounting Principles
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. None of the differences between Canada
and United States generally accepted accounting principles would result in
significant adjustments to net income for the three months ended March 31, 2001
and 2000, or to shareholders' equity as of March 31, 2001 and December 31, 2000.
Full Cost Accounting
Under Canadian GAAP, a ceiling test is applied to ensure that capitalized
costs do not exceed the sum of estimated undiscounted, unescalated future net
revenues from proved reserves less the cost incurred or estimated to develop
those reserves, related production, interest and general administrative costs,
and an estimate for restoration costs and applicable taxes. Under the full cost
method of accounting in the United States, a ceiling test is applied to ensure
that the capitalized costs accumulated in each cost center are limited to an
amount equal to the present value, discounted at 10 percent of the unescalated
estimated future net operating revenues from proved reserves, net of restoration
costs and income taxes.
Income taxes
Effective January 1, 2000, the Company retroactively adopted, with
restatement of prior years, the liability method of accounting for income taxes
as recommended by the Canadian Institute of Chartered Accountants. In prior
years, the Company provided for potential future taxes using the deferred credit
method under which tax provisions were established using tax rates and
regulations applicable in the year the provision was recorded. Balances remained
unchanged despite subsequent changes in rates and regulations.
The new Canadian accounting standard is similar to the United States
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for
Income Taxes, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, both the new Canadian standard and SFAS 109 generally
consider all expected events, including enacted changes in laws or rates. In
adopting the new Canadian standard, the increase in pre-tax values assigned to
assets and liabilities of acquired entities has been restated and is not
different than the value determined using SFAS 109.
-22-
Earnings Per Share
Under Canadian GAAP, the fully diluted earnings related to the numbers of
shares issued under employee option plans is determined using the average
exercise price for all options outstanding. Under U.S. GAAP, the treasury
method is used in the determination of the fully diluted earnings per share,
whereby the market price of the Company's shares is used to determine the
proceeds that would be received and used to repurchase outstanding shares.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans using the
intrinsic value method under APB Opinion No. 25 and related interpretations,
under which no compensation costs have been recognized in the financial
statements for share options granted to employees and directors.
New Statements of Financial Accounting Standards
In June 1998, Statement of Financial Accounting Standards ("SFAS No. 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued,
amended by SFAS 137 (June 1999) and SFAS 138 (June 2000). Adoption of this
standard is required in the first quarter of 2001. SFAS 133 requires that all
derivatives (as defined in the statement) be recognized as either assets or
liabilities and measured at their fair values. If certain conditions are met, a
derivative may be specifically designated and accounted for as a hedge or risk
exposure. Certain contracts containing forward pricing provisions are excluded
from the scope of this statement because they are sales in the normal course of
business. As the volume of sales subject to such contracts is not significant
at March 31, 2001, the fair value of the put option was immaterial.
-23-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
Pro Forma Financial Information
On May 2, 2001, Vintage Petroleum, Inc., through a wholly-owned subsidiary
(collectively, the "Company"), acquired 100 percent of the outstanding common
stock of Genesis Exploration Ltd. ("Genesis") for approximately C$912 million
(approximately US$596 million based on the exchange rate at closing of
US$1/C$1.5310) in cash and assumption of net liabilities. The funds used for
this acquisition were obtained through advances under the Company's revolving
credit facility and available cash on hand. The historical results of operations
of Genesis for the year ended December 31, 2000, are based on its audited
consolidated statement of earnings and retained earnings applying United States
generally accepted accounting principles under the full cost method of
accounting. The historical results of operations of Genesis for the three months
ended March 31, 2001, are based on its unaudited consolidated statement of
earnings and retained earnings applying United States generally accepted
accounting principles under the full cost method of accounting.
The pro forma combined statements of income for the year ended December 31,
2000, and the three months ended March 31, 2001, have been prepared assuming the
Company consummated the acquisition of Genesis on January 1, 2000, with funds
provided by advances under the Company's revolving credit facility and available
cash on hand. The pro forma combined balance sheet of the Company at March 31,
2001, has been prepared assuming the Company consummated the acquisition of
Genesis on March 31, 2001, with funds provided by advances under the Company's
revolving credit facility and available cash on hand.
The Historical Company Consolidated results of operations for the year
ended December 31, 2000, are derived from the Company's 2000 audited
consolidated financial statements. The Historical Company Consolidated results
of operations for the three months ended March 31, 2001, are derived from the
unaudited consolidated financial statements of the Company.
The Company reports foreign currency transactions and financial statement
translations in accordance with Statement of Financial Accounting Standards No.
52, Foreign Currency Translations. Genesis' functional currency is the Canadian
dollar. The Genesis Historical statements of earnings were translated into
U.S. dollars in the accompanying pro forma combined statements using the average
conversion rate for the period reported (1.4855 for the year ended December 31,
2000, and 1.5280 for the first quarter of 2001). The Genesis Historical Balance
Sheet as of March 31, 2001, was translated into U.S. dollars in the accompanying
pro forma combined statements using the conversion rate for the balance sheet
date (1.5784). Certain 2001 and 2000 Genesis Historical amounts have been
reclassified to conform with the Company's U.S. reporting format. These
reclassifications have no impact on net income.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma combined financial statements do not purport to represent what the
Company's financial position or results of operations actually would have been
had such transactions in fact occurred on the dates indicated or to project the
Company's financial position or results of operations for any future date or
period.
-24-
[Letterhead of Arthur Andersen LLP Appears Here]
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Vintage Petroleum, Inc.:
We have examined the pro forma adjustments reflecting the transaction described
in Notes 1 and 2 and the application of those adjustments to the historical
amounts in the accompanying pro forma combined statement of income of Vintage
Petroleum, Inc. for the year ended December 31, 2000. The historical
consolidated income statements are derived from the historical consolidated
financial statements of Vintage Petroleum, Inc., which were audited by us, and
included in the Company's Form 10-K filed with the SEC on March 12, 2001, and
the historical consolidated financial statements of Genesis Exploration Ltd.,
which were audited by other accountants, for the year ended December 31, 2000,
appearing elsewhere herein. Such pro forma adjustments are based upon
management's assumptions described in Note 3. We have not performed any
examination or review of the pro forma adjustments related to the pro forma
combined balance sheet as of March 31, 2001, or the pro forma combined statement
of income for the three months then ended and, accordingly, do not express any
opinion on those adjustments. Our examination was made in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transaction occurred at an earlier date. However, the pro forma combined
statement of income is not necessarily indicative of the results of operations
that would have been attained had the above-mentioned transaction actually
occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above mentioned
transaction described in Notes 1 and 2, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma column reflects the
proper application of those adjustments to the historical consolidated financial
statement amounts in the pro forma combined statement of income for the year
ended December 31, 2000.
Arthur Andersen LLP
Tulsa, Oklahoma
May 18, 2001
-25-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2000
(US$, in thousands, except per share amounts)
(Unaudited)
Historical Company
--------------------------
Company Pro Forma Pro Forma
Consolidated Genesis Adjustments Combined
------------ -------- ----------- ---------
(Note 1) (Note 2) (Note 3)
Revenues:
Oil and gas sales............................. $680,350 $129,752 $ - $810,102
Gas marketing................................. 128,836 - - 128,836
Oil and gas gathering......................... 19,998 - - 19,998
Other income (expense)........................ (23,003) - - (23,003)
-------- -------- -------- --------
806,181 129,752 - 935,933
-------- -------- -------- --------
Costs and expenses:
Lease operating, including production taxes... 159,638 25,368 - 185,006
Exploration costs............................. 25,242 - 7,981 (a) 33,223
Impairment of oil and gas properties.......... 225 - - 225
Gas marketing................................. 123,787 - - 123,787
Oil and gas gathering......................... 17,052 - - 17,052
General and administrative.................... 41,416 3,571 1,079 (b) 46,066
Depreciation, depletion and amortization...... 100,109 26,449 23,990 (c) 150,548
Amortization of goodwill...................... - - 14,757 (d) 14,757
Interest...................................... 48,437 6,709 44,634 (e) 99,780
-------- -------- -------- --------
515,906 62,097 92,441 670,444
-------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting principle.. 290,275 67,655 (92,441) 265,489
Provision for income taxes...................... 92,960 32,765 (34,663) (f) 91,062
-------- -------- -------- --------
Income before cumulative effect................. $197,315 $ 34,890 $(57,778) $174,427
======== ======== ======== ========
Earnings per share - basic...................... $ 3.15 $ 2.78
======== ========
Earnings per share - diluted.................... $ 3.08 $ 2.73
======== ========
Weighted average common
shares outstanding - basic.................... 62,644 62,644
======== ========
Weighted average common
shares outstanding - diluted.................. 63,963 63,963
======== ========
See notes to pro forma combined financial statements
-26-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
For the Three Months Ended March 31, 2001
(US$, in thousands, except per share amounts)
(Unaudited)
Historical Company
--------------------------
Company Pro Forma Pro Forma
Consolidated Genesis Adjustments Combined
------------- -------- ----------- ---------
(Note 1) (Note 2) (Note 3)
Revenues:
Oil and gas sales............................ $206,879 $47,869 $ - $254,748
Gas marketing................................ 59,323 - - 59,323
Oil and gas gathering........................ 8,109 - - 8,109
Other income................................. 1,179 - - 1,179
-------- ------- -------- --------
275,490 47,869 - 323,359
-------- ------- -------- --------
Costs and expenses:
Lease operating, including production taxes.. 47,856 8,099 - 55,955
Exploration costs............................ 2,203 - 3,724 (a) 5,927
Gas marketing................................ 57,326 - - 57,326
Oil and gas gathering........................ 8,355 - - 8,355
General and administrative................... 11,979 1,609 320 (b) 13,908
Depreciation, depletion and amortization..... 27,591 7,808 6,029 (c) 41,428
Amortization of goodwill..................... - - 4,046 (d) 4,046
Interest..................................... 10,917 1,569 9,923 (e) 22,409
-------- ------- -------- --------
166,227 19,085 24,042 209,354
-------- ------- -------- --------
Income before income taxes................. 109,263 28,784 (24,042) 114,005
Provision for income taxes..................... 38,565 12,757 (8,522)(f) 42,800
-------- ------- -------- --------
Net income..................................... $ 70,698 $16,027 $(15,520) $ 71,205
======== ======= ======== ========
Earnings per share - basic..................... $ 1.12 $ 1.13
======== ========
Earnings per share - diluted................... $ 1.10 $ 1.11
======== ========
Weighted average common
shares outstanding - basic................... 62,898 62,898
======== ========
Weighted average common
shares outstanding - diluted................. 64,055 64,055
======== ========
See notes to pro forma combined financial statements
-27-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
March 31, 2001
(US$, in thousands)
(Unaudited)
ASSETS
Historical
------------------------- Company
Company Pro Forma Pro Forma
Consolidated Genesis Adjustment Combined
------------ -------- ----------- ----------
(Note 1) (Note 2) (Note 4)
CURRENT ASSETS:
Cash and cash equivalents................... $ 61,717 $ - $ (26,000)(a) $ 35,717
Accounts receivable -
Oil and gas sales......................... 110,756 21,249 - 132,005
Joint operations.......................... 7,802 1,615 - 9,417
Derivative financial statements............. 4,644 - - 4,644
Other current assets........................ 16,794 - - 16,794
---------- -------- --------- ----------
Total current assets.................... 201,713 22,864 (26,000) 198,577
---------- -------- --------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, successful efforts.. 1,759,632 397,911 184,629 (a) 2,342,172
Oil and gas gathering systems............... 19,644 - - 19,644
Other....................................... 20,989 - - 20,989
---------- -------- --------- ----------
1,800,265 397,911 184,629 2,382,805
Less - accumulated depreciation,
depletion and amortization................ 695,682 65,012 (65,012)(a) 695,682
---------- -------- --------- ----------
1,104,583 332,899 249,641 1,687,123
---------- -------- --------- ----------
Goodwill...................................... - - 183,773 (a) 183,773
---------- -------- --------- ----------
OTHER ASSETS, net............................. 48,381 - - 48,381
---------- -------- --------- ----------
$1,354,677 $355,763 $ 407,414 $2,117,854
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revenue payable............................. $ 57,427 $ 3,289 $ - $ 60,716
Accounts payable............................ 30,858 40,488 - 71,346
Current income taxes payable................ 62,745 - - 62,745
Short-term debt............................. 5,629 - - 5,629
Accrued liabilities......................... 48,348 858 (858)(a) 48,348
---------- -------- --------- ----------
Total current liabilities............... 205,007 44,635 (858) 248,784
---------- -------- --------- ----------
LONG-TERM DEBT................................ 399,257 84,676 450,949 (a) 934,882
---------- -------- --------- ----------
DEFERRED INCOME TAXES......................... 51,443 74,698 109,077 (a) 235,218
---------- -------- --------- ----------
OTHER LONG-TERM LIABILITIES................... 3,731 - - 3,731
---------- -------- --------- ----------
STOCKHOLDERS' EQUITY:
Common stock................................ 315 - - 315
Capital in excess of par value.............. 321,018 86,277 (86,277)(a) 321,018
Retained earnings........................... 372,258 65,477 (65,477)(a) 372,258
Accumulated other comprehensive income...... 1,648 - - 1,648
---------- -------- --------- ----------
695,239 151,754 (151,754) 695,239
---------- -------- --------- ----------
$1,354,677 $355,763 $ 407,414 $2,117,854
========== ======== ========= ==========
See notes to pro forma combined financial statements
-28-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The pro forma combined statements of income for the year ended December 31,
2000, and the three months ended March 31, 2001, have been prepared assuming the
Company consummated the acquisition of Genesis on January 1, 2000, with funds
provided by advances under the Company's revolving credit facility and available
cash on hand. The pro forma combined balance sheet of the Company at March 31,
2001, has been prepared assuming the Company consummated the acquisition of
Genesis on March 31, 2001, with funds provided by advances under the Company's
revolving credit facility and available cash on hand.
The Historical Company Consolidated results of operations for the year
ended December 31, 2000, are derived from the Company's 2000 audited
consolidated financial statements. The Historical Company Consolidated results
of operations for the three months ended March 31, 2001, are derived from the
unaudited consolidated financial statements of the Company.
The Company reports foreign currency transactions and financial statement
translations in accordance with Statement of Financial Accounting Standards No.
52, Foreign Currency Translations. Genesis' functional currency is the Canadian
dollar. The Genesis Historical statements of earnings were translated into
U.S. dollars in the accompanying pro forma combined statements using the average
conversion rate for the period reported (1.4855 for the year ended December 31,
2000, and 1.5280 for the first quarter of 2001). The Genesis Historical Balance
Sheet as of March 31, 2001, was translated into U.S. dollars in the accompanying
pro forma combined statements using the conversion rate for the balance sheet
date (1.5784). Certain 2001 and 2000 Genesis Historical amounts have been
reclassified to conform with the Company's U.S. reporting format. These
reclassifications have no impact on net income.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma combined financial statements do not purport to represent what the
Company's financial position or results of operations actually would have been
had such transactions in fact occurred on the dates indicated or to project the
Company's financial position or results of operations for any future date or
period. These pro forma combined financial statements and the notes thereto
should be read in conjunction with the Company's 2000 audited consolidated
financial statements and the notes thereto included in the Company's Form 10-K
filed with the Securities and Exchange Commission on March 12, 2001.
-29-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)
(2) Acquisition of Genesis Exploration Ltd.
On May 2, 2001, the Company acquired 100 percent of the outstanding common
stock of Genesis for approximately C$912 million (approximately US$596 million
based on the exchange rate at closing of US$1/C$1.5310) in cash and assumption
of net liabilities. The funds used for this acquisition were obtained through
advances under the Company's revolving credit facility and available cash on
hand. The historical results of operations of Genesis for the year ended
December 31, 2000, are based on its audited consolidated statement of earnings
and retained earnings applying United States generally accepted accounting
principles under the full cost method of accounting. The historical results of
operations of Genesis for the three months ended March 31, 2001, are based on
its unaudited consolidated statement of earnings and retained earnings applying
United States generally accepted accounting principles under the full cost
method of accounting.
(3) Pro Forma Adjustments - Statements of Income
The following describe the adjustments made to reflect the foregoing
transaction as of the dates indicated above:
(a) The pro forma exploration expense has been adjusted to reflect exploration
seismic, lease expirations, delay rental and dry hole costs capitalized in
Genesis' historical results utilizing the full cost method of accounting.
As the Company reports results utilizing the successful efforts method of
accounting, these costs are expensed through the pro forma adjustment.
(b) The pro forma general and administrative expense has been adjusted to
expense operating overhead charges capitalized by Genesis as part of
operated capital projects under full cost accounting required to be
expensed under the successful efforts accounting method used by the
Company.
(c) The pro forma depreciation, depletion and amortization expense has been
adjusted by computing the Company's pro forma cost of proved oil and gas
properties subject to amortization and estimated future abandonment costs,
pro forma production and pro forma proved reserves, giving effect to the
purchase of Genesis and comparing such computation with historical amounts
(which was calculated using the full cost method of accounting). The
Company's pro forma depreciation, depletion and amortization per equivalent
barrel of oil is $4.21 for the year ended December 31, 2000, and $4.51 for
the three months ended March 31, 2001.
(d) The pro forma amortization of goodwill expense has been adjusted for the
amortization of goodwill associated with the acquisition of Genesis. The
goodwill is amortized on a units of production basis over the life of the
total proved reserves acquired in the Genesis acquisition using pro forma
production.
(e) The pro forma interest expense has been adjusted to reflect the additional
interest expense resulting from the assumed purchase of Genesis as of
January 1, 2000, with funds provided by advances under the Company's
revolving credit facility with an average interest rate of 8.85 percent for
2000 and 8.15 percent for the first quarter of 2001. A 0.125 percent change
in interest rates would have impacts of approximately $725,000 and $176,000
on interest expense in the year ended December 31, 2000, and the first
quarter of 2001, respectively.
-30-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)
(e) The pro forma income tax expense has been adjusted to give tax effect to
pro forma adjustments to exploration expense, depreciation, depletion and
amortization and interest expense. Goodwill expense has not been tax
effected. The Genesis historical effective tax rates of 46.9 percent and
43.2 percent for 2000 and the first quarter of 2001, respectively, were
used for these adjustments.
(4) Pro Forma Balance Sheet Adjustments
The following purchase price is a preliminary estimate for pro forma
purposes only based on the assumption that the transaction closed on March 31,
2001. The preliminary purchase price based on the Genesis historical balance
sheet as of March 31, 2001, is allocated as follows (in thousands):
C$ US $ (1)
--------- ---------
Total purchase price............................................. $ 911,859 $ 577,712
Long-term debt assumed........................................... (135,000) (85,530)
Negative working capital assumed................................. (24,043) (15,233)
--------- ---------
Amount paid...................................................... 752,816 476,949
Net assets at March 31, 2001..................................... (239,528) (151,754)
--------- ---------
Excess of purchase price over net assets at March 31, 2001....... $ 513,288 $ 325,195
========= =========
Allocation of excess of purchase price over net assets:
Fair market value adjustment to oil and gas properties........... $ 394,034 $ 249,641
SFAS 109 goodwill................................................ 290,067 183,773
Decrease (increase) in deferred income taxes..................... (172,167) (109,077)
Decrease (increase) in accrued liabilities.... .................. 1,354 858
--------- ---------
$ 513,288 $ 325,195
========= =========
(1) Converted at the March 31, 2001, exchange rate of US$1/C$1.5784
(a) This purchase price allocation results in the following pro forma
adjustments to the March 31, 2001, balance sheet captions (US$, in
thousands):
Increase
(decrease)
----------
Cash.................................................. $(26,000)
Oil and gas properties................................ 184,629
Accumulated depletion, depreciation and amortization.. (65,012)
Goodwill.............................................. 183,773
Accrued liabilities (future site restoration costs)... (858)
Long-term debt........................................ 450,949
Deferred income taxes................................. 109,077
Capital in excess of par.............................. (86,277)
Retained earnings..................................... (65,477)
-31-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)
(5) Purchase Price Allocation as of May 2, 2001
On May 2, 2001, the Company acquired 100 percent of the outstanding common
stock of Genesis for approximately C$912 million (approximately US$596 million
based on the exchange rate at closing of US$1/C$1.5310) in cash and assumed net
liabilities. This purchase price is a preliminary estimate as the Genesis
balance sheet as of the May 2, 2001, closing date is not available at the time
of this filing. The Company is also in the process of finalizing the rollforward
of the Genesis tax pools to the closing date and the costs associated with this
transaction. Estimates for these amounts have been included in determining the
preliminary purchase price and its allocation as shown below. The funds used for
this acquisition were obtained through advances under the Company's revolving
credit facility and available cash on hand. The preliminary purchase price is
allocated as follows (in thousands):
C$ US $ (1)
--------- ---------
Total purchase price..................................... $ 911,859 $ 595,597
Long-term debt assumed................................... (135,000) (88,178)
Negative working capital assumed......................... (24,043) (15,704)
--------- ---------
Amount paid.............................................. 752,816 491,715
Net assets at May 2, 2001................................ (247,900) (161,920)
--------- ---------
Excess of purchase price over net assets at May 2, 2001.. $ 504,916 $ 329,795
========= =========
Allocation of excess of purchase price over net assets:
Fair market value adjustment to oil and gas properties... $ 380,460 $ 248,504
SFAS 109 goodwill........................................ 286,792 187,323
Decrease (increase) in deferred income taxes............. (163,740) (106,949)
Decrease (increase) in accrued liabilities............... 1,404 917
--------- ---------
$ 504,916 $ 329,795
========= =========
(1) Converted at the May 2, 2001, exchange rate of US$1/C$1.5310
-32-
Exhibit Index
Exhibit
Number Description
- ------ -----------
2.* Acquisition Agreement dated as of March 27, 2001, among the Registrant
and Genesis Exploration Ltd.
23.1** Consent of PricewaterhouseCoopers LLP
23.2** Consent of Arthur Andersen LLP
________________________________________
* Previously filed with this Form 8-K on May 15, 2001.
** Filed herewith.