SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934(NO FEE REQUIRED)
For the transition period from _______________to ______________
COMMISSION FILE NUMBER 1-9933
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AMERAC ENERGY CORPORATION
(FORMERLY WOLVERINE EXPLORATION COMPANY)
(Exact name of Registrant as specified in its charter)
STATE OF DELAWARE 75-2181442
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
700 LOUISIANA, SUITE 3330
HOUSTON, TEXAS
(Address of principal 77002
executive offices) (Zip Code)
Registrant's telephone number, including area code: 713/223-1833
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------------------------------------------
Common Stock (Par Value $.05 per share) Boston Stock Exchange
$4.00 Senior Preferred Stock
(Par Value $1.00 per share) Boston Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
As of March 20, 1996, the aggregate market value of the registrant's Common
Stock and $4.00 Senior Preferred Stock held by non-affiliates was approximately
$5,859,000 and $2,233,000 respectively.
The number of shares outstanding of the registrant's Common Stock as of March
22, 1996, was 24,047,663.
ITEM 1. BUSINESS
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THE COMPANY
Amerac Energy Corporation (the "Company" or "Amerac") is engaged in the
acquisition, development and enhancement of and exploration for oil and gas in
the United States. While the Company was formed in 1969, it is only since mid
1994 that the Company has been focused on growth through acquisitions and
exploitation. Since that time, the Company has grown its asset base
substantially. Total proved reserves from December 31, 1994 to December 31,
1995, including the Fremont Energy Corporation ("Fremont") acquisition increased
from 9.2 billion cubic feet equivalent ("Bcfe") at December 31, 1994 to 26.2
Bcfe at December 31, 1995 and increase of 184.8%. Since the beginning of 1995,
including the Fremont acquisition which was closed in January 1996, the Company
has increased its estimated undiscounted future net cash flows assuming
unescalated prices prevailing at the time from $11.0 million at December 31,
1994, to $36.9 million, a 235% increase. The Company's finding and development
costs for 1995 including the Fremont acquisition was $0.56 per million cubic
feet equivalent ("Mcfe"). The Company also completed an exchange offer in 1995
which reduced its obligations to its preferred stockholders by $53.4 million.
With the approval by the stockholders of an amendment to the Certificate of
Incorporation, as disclosed in the Company's 1996 proxy statement, the Company
will completely eliminate its preferred stock and expects to be in a stronger
position to raise additional capital in the future to fund its plan of growth.
The Company is headquartered in Houston, Texas. At December 31, 1995,
Amerac had four employees.
RECENT DEVELOPMENTS
On March 19, 1996, the Company filed its 1996 proxy statement which
includes two significant issues to be voted on by the stockholders. The first
item is an amendment to the Certificate of Designations of the Company's
outstanding preferred stock. This amendment provides for the conversion of each
outstanding share of the $4.00 Senior Preferred Stock ("Senior Preferred") into
nine (9) shares of Common Stock. The Board of Directors has determined that it
would be in the Company's best interest to eliminate the Senior Preferred for
the following reasons: (i) commencing in 1997 the Company will have to start
paying dividends on the Senior Preferred in cash, except in certain
circumstances, which would diminish its cash available for acquisitions, (ii) if
the Company misses a dividend payment, the holders of the Senior Preferred will
have the right to elect 80% of the Company's Board of Directors, (iii) the terms
of the Senior Preferred prohibit the Company from issuing any new preferred
stock that is either pari-passu or senior to it, (iv) conversion of the Senior
Preferred increases the Common Stock float in the market and (v) eliminates the
liquidating value of the Preferred Stock.
The second item included in the proxy statement is a proposal to increase
the number of authorized shares of the Company's Common Stock from 50 million to
100 million. As the Company continues its acquisition efforts, shares of the
Company's Common Stock may be used to enhance the Company's ability to make
acquisitions and reduce risk from over leveraging with debt. The Company, for
example, successfully used equity in the Fremont acquisition. Assuming the
successful conversion of the Senior Preferred into 16.1 million shares of Common
Stock, the Company will have, issued and outstanding, 40.5 million shares of
Common Stock.
In January 1996, the Company acquired the Common Stock of Fremont, an
Oklahoma based oil and gas company, for $7 million paid in cash and 3.3 million
shares of Common Stock of the Company. Fremont has 131 wells located
predominately in central Oklahoma and Kansas concentrated in three major
fields. Fremont's estimated net proved reserves at December 31, 1995, totaled
approximately 13.4 Bcfe.
In conjunction with the Fremont acquisitions, the Bank Credit Agreement was
amended on January 16, 1996, to among other things, increase the Borrowing Base
to $10.6 million with a mandatory reduction of $185,000 each month commencing
February 1, 1996. At March 26, 1996, the Company had $9.7 million outstanding
and had borrowing capacity of $300,000 under the Bank Credit Agreement.
Also in January 1996, the Company announced the execution of an agreement
with American Trading and Production Corporation ("Atapco") for the evaluation
and development of the Company's 22,000 acre Sacatosa project. Over 35 million
barrels of oil has been produced from the adjacent Sacatosa field, a shallow
waterflood project. Atapco has acquired 50% of Amerac's interest in the acreage
and has assumed operations.
1
During the third quarter of 1995, the Company participated in the
recompletion of the South Timbailer 198 A-3 well in the Buliminella I-A zone.
This recompletion was performed after the Buliminella I-C zone ceased to be
productive, as expected. The Company has a 23.1% net working interest (19.3 %
net revenue interest) in this property. The recompletion converted 2.6 Bcf of
gas reserves from proved non-producing to proved developed producing. This zone,
as of March 15, 1996, was producing, net to the Company, approximately 4.0
million cubic feet of gas ("Mmcf") per day and approximately 97 barrels of
oil/condensate per day.
In October 1995, the Company acquired a portion of the Truby field located
in Jones County, Texas for $650,000. This acquisition included a 320-acre lease
with two producing wells and a 200-acre undeveloped lease. The additional
acreage will provide the Company with both proved and probable drilling
locations. Total estimated net proved reserves acquired are 119,500 barrels of
oil equivalent ("BOE"). The Company acquired a 100% working interest and a 77%
net revenue interest in these wells.
In July 1995, the Company filed a registration statement with the
Securities and Exchange Commission for the purpose of registering the 3,651,195
shares of Common Stock held by Investment Limited Partnership ("ILP") who in
turn sold the shares to certain individuals. Three of these individuals are
directors of the Company. Messrs. Jeffrey B. Robinson, President and Chief
Executive Officer, Kenneth R. Peak and William P. Nicoletti are Directors of the
Company and acquired from ILP 800,000, 200,000 and 200,000 shares respectively.
In May 1995, the Company acquired the Myrtle B field in Loving County,
Texas for $725,000. This acquisition included four producing wells and four
proved undeveloped locations with total estimated proved reserves of 359,600
BOE. The Company has a 100% working interest and a 75% revenue interest in this
property.
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement with Bank One, Texas National Association ("Bank Credit
Agreement"). The Bank Credit Agreement is a two-year facility with interest due
monthly and principal due at May 31, 1997. The Bank Credit Agreement is secured
by all of the Company's properties, and contains various restrictive covenants
which may, if not met, cause the Company to be in default or reduce its access
to additional borrowing. The borrowing base at December 31, 1995 was $4,000,000.
At December 31, 1995, $3,547,000 was outstanding under the Bank Credit
Agreement, accruing interest at the Bank One Texas Base Rate plus three-quarter
percent equaling 9.25% at December 31, 1995. In conjunction with the Fremont
acquisitions, the Bank Credit Agreement was amended on January 16, 1996, to
among other things, increase the Borrowing Base to $10.6 million with a
mandatory reduction of $185,000 each month commencing February 1, 1996.
In April 1995, the Company acquired the Cosden Field in Bee County, Texas
for $2.9 million. This field produces from three wells and the net proved
reserves were 4.6 Bcfe. The Company has a 68% working interest and a 52%
revenue interest in the property.
In December 1995, the Company sold its interest in the Northwest Arapahoe
field in Colorado for $1.0 million to the operator. This was a waterflood
project that, in the Company's view, had no future development potential. This
property was sold for substantially more than its book value resulting in a $0.7
million gain on sale.
In March 1995, the Company offered to exchange, one share of its Senior
Preferred, with a stated value of $4.00 per share, par value $1.00 per share and
an initial dividend rate of $.36 per share, and 2.5 shares of Common Stock (the
"Exchange Offer") for each outstanding share of the Company's $2.25 Convertible
Exchangeable Preferred Stock ("Old Preferred "), which carried a stated value of
$25.00 per share and a dividend rate of $2.25 per share. At the time of the
Exchange Offer, the Company had dividends in arrears on the Old Preferred of
approximately $14.4 million and the Old Preferred carried a liquidation
preference of approximately $45.6 million. The Exchange Offer was approved by
the holders of a majority of the Common Stock and by approximately 90 % of the
holders of Old Preferred. As a result, 1,634,305 shares of Old Preferred were
exchanged for 1,634,305 shares of Senior Preferred and 4,079,049 shares of
Common Stock. Holders
2
of Old Preferred that did not exchange received 2.5 shares of Common Stock for
each share of Old Preferred not exchanged, resulting in the issuance of 470,677
shares of Common Stock. This Exchange Offer eliminated all Old Preferred and
related dividend arrearages.
At the date of the Exchange Offer, the Company discounted the Senior
Preferred by an amount which would yield an effective dividend rate of 15%
during the initial years while the stated dividend rate is 9.0%. Accordingly,
the Company credited retained earnings and debited additional paid in capital
for approximately $1.4 million representing the discount amount. The discounted
amount is being amortized over a five year period and does not effect current
period income or loss, except for net income (loss) applicable per common share.
The Senior Preferred provides, among other things, the Company the option
to pay the quarterly dividends, which commenced January 1, 1995, for the first
two years in either cash or additional shares of Senior Preferred. The Company
currently plans to pay these dividends in shares of Senior Preferred. The
Company issued 152,042 shares of Senior Preferred for 1995 dividends.
Beginning January 1, 1997, the Company has, under certain conditions, the option
to pay the dividends in cash or Common Stock. The annual dividend rate
increases from $.36 per share to $.60 at January 1, 2000. The Company has the
option of redeeming the Senior Preferred at face value at anytime. If the
Company fails to pay a quarterly dividend on the Senior Preferred, then the
holders of the Senior Preferred have the right to elect 80 % of the Board of
Directors.
At the 1996 annual meeting of stockholders, the Company will be submitting
to its stockholders a proposal to amend its Certificate of Designations of the
Senior Preferred, to provide for the conversion of each outstanding share of the
Senior Preferred into nine (9) shares of Common Stock.
SIGNIFICANT OIL AND GAS PURCHASERS
Oil sales are made on a day-to-day basis or under a short-term contract at
approximately the current area posted price. The loss of any oil purchaser would
not be expected to have an adverse effect upon the Company's operations.
Following is a listing of significant oil purchasers during the three-year
period ended December 31, 1995, and the approximate percentage of oil revenue
derived from each:
PURCHASERS PERCENT
- ---------- -------------------------
1993 1994 1995
---- ---- ----
Essex Refining Company 33 - -
Marathon 32 55 34
TEMCO Liquids Company 19 16 11
Union Pacific Fuels, Inc. 9 10 15
Sun Refining & Marketing Company - 13 31
A majority of the Company's natural gas is sold pursuant to short-term
contracts at prices which fluctuate at a premium to the spot market. Under the
term of the contract, the gas purchasers may elect to purchase less gas than the
wells are able to produce, and the Company may be unable to sell the excess
production to other purchasers. Following is a listing of the significant
natural gas purchasers during the three-year period ended December 31, 1995, and
the approximate percentage of natural gas revenues derived from each:
PERCENT
-------
PURCHASERS 1993 1994 1995
- ---------- ---- ---- ----
TEMCO Liquids Company 83 77 39
MG Natural Gas Corporation - - 18
There are no other customers of the Company which individually accounted
for more than 10% of the Company's revenues during the three years ended
December 31, 1995.
3
OIL AND GAS OPERATIONS
The following tables set forth information with respect to Amerac's
properties and drilling and production activities.
As used in these tables, "Gross" refers to the total acres or wells in
which Amerac has an interest; "Net" as it applies to acres or wells refers to
gross acres or wells multiplied by the percentage interest owned by Amerac;
"producing wells" include all wells estimated by independent petroleum engineers
to be wells capable of economic production, including shut-in wells; "Mcf"
refers to one thousand cubic feet of natural gas; "MMcf" refers to one million
cubic feet of natural gas; "Bbl" refers to one barrel of crude oil or other
liquid hydrocarbons; "BOE" refers to one barrel of crude oil on an equivalent
basis using a 6 Mcf to 1 Bbl gas to oil conversion ratio; and "Mbbl" refers to
one thousand barrels of crude oil or other liquid hydrocarbons.
Oil and Gas Acreage. The following table sets forth Amerac's acreage
-------------------
position at December 31, 1995:
DEVELOPED UNDEVELOPED
--------- -----------
GROSS NET GROSS NET
--------- ------- ------ ------
Colorado 2,310 709 3,463 973
Kansas 640 224 - -
Texas 3,680 1,901 2,205 1,227
Utah 2,160 191 18,084 4,586
Wyoming 2,473 1,041 14,079 3,522
Offshore Louisiana 6,328 1,463 - -
------ ----- ------ ------
Totals 17,591 5,529 37,831 10,308
====== ===== ====== ======
Productive Wells. This table sets forth both the gross and net productive
----------------
wells at December 31, 1995.
GROSS NET
----------------------- -------------------------
SHUT-IN SHUT-IN
OIL GAS GAS OIL GAS GAS
--- --- ------- --- --- -------
Colorado 3 2 - 1.1 0.6 -
Kansas - 1 - - 0.3 -
Wyoming 1 - - 0.1 - -
Utah 3 - - 0.1 - -
Texas 12 13 2 8.7 5.2 1.0
Offshore-
Louisiana - 3 3 - 0.6 0.6
-- -- - ---- --- ---
Totals 19 19 5 10.0 6.7 1.6
== == = ==== === ===
Drilling Activity. The following table sets forth the results of drilling
-----------------
activities for the year ended December 31, 1993, 1994 and 1995.
GROSS WELLS NET WELLS
---------------------- ----------------------
TOTAL PRODUCTIVE DRY TOTAL PRODUCTIVE DRY
----- ---------- --- ----- ---------- ---
1993 Exploratory 1 1 - 0.3 0.3 -
Development - - - - - -
1994 Exploratory 4 4 - 1.6 1.6 -
Development - - - - - -
1995 Exploratory - - - - - -
Development 1 1 - 0.8 0.8 -
4
TITLE TO PROPERTIES
- -------------------
Customarily in the oil and gas industry, only a perfunctory title
examination is conducted at the time properties believed to be suitable for
drilling operations are first acquired. Prior to commencement of drilling
operations, a thorough drill site title examination is normally conducted, and
curative work is performed with respect to significant defects.
PRODUCTION
- ----------
The following table shows, for the periods indicated, net production and
revenues and average prices received by the Company per Bbl of crude oil and per
equivalent Mcf.
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Net Production
Crude oil and condensate (Mbbls) 127 95 112 233 393
Natural gas (Mmcf) 1,349 1,332 1,467 5,425 9,125
Equivalent MMcfe 2,111 1,902 2,139 6,823 11,483
Equivalent MBOE 352 317 357 1,137 1,914
Revenues (thousands)
Crude oil and condensate $2,146 $1,449 $1,626 $ 4,345 $ 7,655
Natural gas 2,182 2,676 2,753 8,810 14,080
------ ------ ------ ------- -------
Total $4,328 $4,125 $4,379 $13,155 $21,735
====== ====== ====== ======= =======
Average price
Crude oil and condensate ($/Bbl) $16.53 $15.25 $14.52 $ 18.64 $ 19.48
Natural gas ($/Mcf) 1.62 2.01 1.88 1.62 1.54
Per equivalent Mcfe 2.05 2.17 2.05 1.93 1.89
Per equivalent BOE 12.29 13.01 12.27 11.57 11.36
Average production costs
Per equivalent Mcfe $ .53 $ .47 $ .48 $ .44 $ .44
Per equivalent BOE 3.15 2.82 2.87 2.61 2.63
COMPETITION
The oil and gas acquisition market is highly competitive and, thus,
the opportunities for high rates of return on investment are limited. The price
paid for in-place oil and gas reserves is highly dependent on the forecasted oil
and gas price, which historically has been very volatile (see Price Volatility).
Many companies, with which the Company competes, possess resources far greater
than those of the Company.
The marketing of oil and gas is affected by a number of factors which
are beyond the control of the operators of the properties, the effect of which
cannot be accurately predicted. These factors include crude oil imports, the
availability of adequate pipeline and other transportation facilities, the
marketing of competitive fuels, and other matters affecting the availability of
a ready market, such as fluctuating supply and demand.
PRICE VOLATILITY
The revenues generated by the Company are highly dependent upon the
prices of oil and natural gas. Approximately
5
60% of the Company's future gross revenues attributable to its proved reserves
as of December 31, 1995, is from natural gas based on an average price of
approximately $2.14 per Mcf, and the balance of such revenues is from oil based
on an average price of approximately $17.98 per barrel. In the past five years
the Company's annual average sales price for natural gas has ranged from $1.62
per Mcf in 1995 to a low of $1.54 in 1991, and its annual average sales price
for oil has ranged from a low of $14.52 in 1993 to a high of $19.48 per barrel
for 1991. Various factors beyond the control of the Company will continue to
affect oil and gas prices. (See Management's Discussion and Analysis for other
disclosures regarding oil and gas prices.)
REGULATION
The Company's operations are affected in various degrees by political
developments, federal and state laws and regulations. In particular, oil and
gas production operations and economics are affected by price controls, tax and
other laws relating to the petroleum industry, by changes in such laws and by
constantly changing administrative regulations and the interpretation and
application of such rules and regulations.
Environmental Laws. The Company's activities are subject to existing
------------------
federal and state laws and regulations governing environmental quality and
pollution control. Such laws and regulations may substantially increase the
costs of exploring for, developing or producing oil and gas and may prevent or
delay the commencement or continuation of a given operation. In the opinion of
the Company's management, its operations comply with all applicable
environmental laws and regulations; the laws and regulations have had no
material effect on the Company's operations; and the cost of such compliance has
not been material. Since most of the Company's properties are operated by other
companies, the Company relies on the operator to comply with environmental laws.
General. In most, if not all, areas where the Company conducts
-------
activities, there are statutory provisions regulating oil and gas drilling and
production. Such statutes and regulations promulgated thereunder require
permits for drilling operations, drilling bonds and reports to be filed
concerning operations and production from oil and gas wells. Many jurisdictions
restrict production to the market demand for oil and gas. Such statutes and
regulations may limit the rate at which oil and gas could otherwise be produced
from the Company's properties. Some jurisdictions have enacted statutes
prescribing ceiling prices for gas sold therein.
TAXATION
The Company's oil and gas operations are affected by certain
provisions of the Internal Revenue Code of 1986, as amended, applicable to the
petroleum industry. Current law permits the Company to deduct currently, rather
than capitalize, intangible drilling and development costs ("IDC") incurred or
borne by it. The Company, as an independent producer, is also entitled to a
deduction for percentage depletion with respect to the first 1,000 barrels per
day of domestic crude oil (and/or equivalent units of domestic natural gas)
produced by it (if such percentage depletion exceeds cost depletion).
Generally, this deduction is 15% of gross income from an oil or gas property,
without reference to the taxpayer's basis in the property. Beginning in 1991,
percentage depletion may not exceed 100% of the taxable income from any property
(computed without allowance for depletion), and is limited in the aggregate to
65% of the Company's taxable income. Any depletion disallowed under the 65%
limitation, however, may be carried forward indefinitely.
The Company has accumulated a substantial net operating loss ("NOL")
carryforward. In determining the amount of NOL available after an "ownership
change," the use of a loss corporation's carry forwards is limited annually to a
prescribed rate times the value of the loss corporation's stock immediately
before the ownership change. In general, an ownership change occurs if
ownership of more than 50% in value of the stock of the loss corporation changes
during the three-year period preceding the test date. Under federal tax law,
the amount and availability of loss carryforwards are subject to a variety of
interpretations and restrictive tests applicable to the Company. Under the
Code, the utilization of such loss carryforwards could be limited or effectively
lost upon certain changes in ownership. Application of these and other tests
requires certain factual determinations and legal interpretations as to which
there is little or no guidance. The Company believes it is presently limited to
$11.0 million per taxable year of NOL utilization relating to losses incurred
prior to the ownership change in December, 1989 (see Note 5 to the Consolidated
Financial Statements). Any unused NOL utilizations accumulate for use in
subsequent taxable years, subject to the 15-year limitation on NOLs. In
addition, any losses occurring in years after the ownership change are added
(without limitation) to arrive at the amount of NOL available for use in any
6
post change year. Subsequent additional ownership changes could result in
adjustments to the annual limitation amount. The Company at December 31, 1995,
had a total NOL carryforward of approximately $201 million for regular tax
purposes and approximately $174 million for alternative minimum tax purposes.
The amount available for use for 1996 is approximately $115 million ($105
million for alternative minimum tax purposes). See Note 5 to the Consolidated
Financial Statements for additional tax disclosures.
ESTIMATED NET QUANTITIES OF PROVED OIL AND GAS RESERVES AND PRESENT VALUE OF
ESTIMATED FUTURE NET REVENUES
The Company's domestic net proved oil and gas reserves have been
prepared by the Company and audited by Ryder Scott Company as of December 31,
1994 and 1995 and prepared by Netherland, Sewell and Associates, Inc. as of
December 31, 1993. See Note 10 to the Consolidated Financial Statements for
disclosure of reserve amounts.
ITEM 2. PROPERTIES
- ------------------
The Company is committed to various lease contracts for office space
and miscellaneous office equipment expiring at various intervals through 1997
with total minimum payments aggregating $114,000 at December 31, 1995. The
minimum annual rental commitments are $72,000 for 1996 and $42,000 for 1997. A
portion of this obligation is offset by a sublease with aggregate future
receipts of $76,000 over the term of the sublease.
See Item 1. Business - Oil and Gas Acreage, Productive Wells and
Estimated Net Quantities of Proved Oil and Gas Reserves and Present Value of
Estimated Future Net Revenues for other properties.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
In February 1995, Geodyne Resources, Inc. ("Geodyne") filed an
Original Third-Party Petition naming the Company as a third-party defendant.
The claim arose out of a settlement of a 1986 accident by Union Pacific
Resources Company ("UPRC"), operator of a property in Summit County, Utah. UPRC
subsequently sued Geodyne for a proportionate share of the lawsuit settlement
involving the 1986 well accident. Geodyne purchased the property from the
Company in 1988 and is claiming that the Company is liable under the indemnity
provisions of the 1988 Purchase and Sale Agreement between the Company and
Geodyne. The amount of the claim against the Company is approximately $176,000.
The Company has filed a general denial and is reviewing this matter with its
insurance carriers and counsel. The Company has been indemnified for any
shortfall in the insurer's payment on the claim.
The Company is not currently a party to any other litigation which
would have a material impact on its financial statements. However, due to the
nature of its business, certain legal or administrative proceedings arise in the
ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
The Company had no matters submitted to security holders for vote in
the fourth quarter of 1995.
7
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED MATTERS
- -------------------------------------------------------
PRICE RANGE OF COMMON STOCK
The Company's securities currently are traded on the "Pink Sheets" on
the over-the-counter market and the Boston Stock Exchange. At March 1, 1996,
there were approximately 6,000 holders of record of the Common Stock.
During the past three years, trading of the Common Stock has been
extremely limited. The following table sets forth the reported high and low
sales prices on the Boston Stock Exchange for 1993 and 1994 and the reported
high bid and low offer prices quoted by National Quotations Bureau, Inc. for
1995.
PRICES
------
HIGH LOW
------ -----
1993
First Quarter $.06 $.02
Second Quarter .06 .01
Third Quarter .06 .02
Fourth Quarter .06 .03
1994
First Quarter .13 .02
Second Quarter .13 .06
Third Quarter .11 .06
Fourth Quarter .16 .06
1995
First Quarter .20 .03
Second Quarter .35 .08
Third Quarter .22 .08
Fourth Quarter .22 .08
COMMON STOCK DIVIDENDS
The Company has not paid any Common Stock dividends since its
organization, and it is not contemplated that it will pay such dividends in the
foreseeable future. The Company's ability to declare and pay dividends on
Common Stock is restricted under certain conditions under the Certificate of
Designations defining the provisions of the Senior Preferred and its bank loan
agreement.
8
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following table sets forth five year selected financial data:
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Income statement data:
Total operating revenues
(excluding interest income) $ 4,328 $ 4,128 $ 4,555 $13,263 $ 21,769
Exploration expenses, including
dry hole costs and impairment
of unproved properties 246 345 851 3,911 3,527
Gain (loss) on sale of properties 850 (102) 2,322 1,691 23
Income (loss) before
extraordinary items 208 272 862 (4,550) (9,630)
Extraordinary items - - 3,731 - -
Net income (loss) 208 272 4,593 (4,550) (9,630)
Net income (loss) applicable to
common stockholders (599) (3,828) 493 (8,670) (13,750)
Net income (loss) per common share
Loss before extraordinary items $(.03) $(.24) $ (.20) $(.55) $(.88)
Extraordinary items - - .23 - -
------- ------- ------- ------- --------
Net income (loss) per common share $(.03) $(.24) $ .03 $(.55) $(.88)
======= ======= ======= ======= ========
Average share outstanding: 19,594 15,884 15,877 15,757 15,670
Net cash flow provided by operations $ 643 $ 1,059 $ 784 $ 8,963 $ 15,553
Balance sheet data:
Oil and gas properties, net of
accumulated depreciation,
depletion and amortization $ 8,594 $ 5,059 $ 4,494 $10,081 $ 23,790
Total assets 11,194 9,162 10,763 16,137 35,816
Long-term obligations 4,594 542 4,027 3,997 12,896
Preferred dividends 807 - - - 1,030
Stockholders' equity 5,994 5,754 5,482 888 5,400
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
With the exception of historical information, the matters discussed
herein are forward-looking statements that involve risk and uncertainties
including, but not limited to, oil and gas price fluctuations, economic
conditions, interest rate fluctuations, the regulatory and political
environments and other risk indicated in filings with the Securities and
Exchange Commission.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
HISTORICAL OVERVIEW
LIQUIDITY ISSUES
The Company has improved its overall financial condition in the last three
years through restructuring its equity and its financing capabilities with its
bank. The Company however, must continually seek additional sources of financing
in order to support its acquisition activities. The Company as a result of its
1995 acquisition activities has improved the overall reserve to production ratio
of its properties from 5.7 years to 6.7 years. The Company financed these
acquisitions, including the Fremont acquisition, through the use of working
capital, bank borrowings and equity. The Company intends to continue this
process to add stockholder value. The Company's planned capital expenditure for
development and exploration in 1996 is approximately $5.5 million. The Company
currently plans to utilize internally generated cash flows and bank financing to
support this activity together with other types of financing, which may be more
expensive, such as mezzanine, production payments and additional equity
financing. However, there is no assurance that the Company will be successful in
obtaining such additional financing. At this date, the Company has essentially
fully utilized its bank financing capabilities and therefore future bank
borrowings will be limited by its additions to its borrowing base. Management
believes the cash flow from opertions, cash on hand and bank borrowings will be
sufficient to fund its planned capital expenditures and bank repayments during
1996.
To provide additional capital for the Company to utilize in its acquisition
and exploitation program, the Company may seek to sell additional equity. The
market for the Company's equity is competitive and, due to the size of the
Company, the results of any such offering may not be successful. Without such
additional capital, the growth rate of the Company may be restricted. Also, the
sale of additional equity and the utilization of equity in acquisitions may
further limit the Company's utilization of its tax net operating loss carry
forward.
RECENT DEVELOPMENTS
On March 19, 1996, the Company filed its 1996 proxy statement which
includes two significant issues to be voted on by the stockholders. The first
item is an amendment to the Certificate of Designations of the Company's
outstanding preferred stock. This amendment provides for the conversion of each
outstanding share of the Senior Preferred into nine (9) shares of Common Stock.
The Board of Directors determined that it would be in the Company's best
interest to eliminate the Senior Preferred for the following reasons: (i)
commencing in 1997 the Company will have to start paying dividends on the Senior
Preferred in cash except in certain circumstances, which diminishes cash
available for acquisitions, (ii) if the Company misses a dividend payment, the
holders of the Senior Preferred will have the right to elect 80% of the
Company's Board of Directors, (iii) the terms of the Senior Preferred prohibit
the Company from issuing any new preferred stock that is either pari-passu or
senior to it, (iv) conversion of the Senior Preferred into Common Stock will
increase the Common Stock float in the market and (v) eliminate the liquidating
value of the Senior Preferred.
The second item included in the proxy statement is a proposal to increase
the number of authorized shares from 50 million to 100 million. As the Company
continues its acquisition efforts, shares of the Company's Common Stock may be
used to enhance the Company's ability to make acquisitions and reduce risk from
over leveraging with debt. The Company, for example, successfully
used equity in the Fremont acquisition. Assuming the successful conversion of
the Senior Preferred, the Company will have, issued and outstanding 40.5
million shares of Common Stock.
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement with BankOne, Texas National Association ("Bank Credit
Agreement"). The Bank Credit Agreement is a two-year facility with interest due
10
monthly and matures at May 31, 1997. The Bank Credit Agreement is
secured by all of the Company's properties, and contains various restrictive
covenants which may, if not met, cause the Company to be in default or reduce
its access to additional borrowing. The borrowing base at December 31, 1995 was
$4,000,000. At December 31, 1995, $3,547,000 was outstanding under the Bank
Credit Agreement, accruing interest at the BankOne Texas Base Rate plus three-
quarter percent equaling 9.25% at December 31, 1995. In conjunction with the
Fremont acquisition, the BankOne Credit Agreement was amended on January 16,
1996, to among other things, increase the Borrowing Base to $10.6 million with a
mandatory reduction of $185,000 each month commencing February 1, 1996. See Note
3.
FUTURE STRATEGY
With consummation of the Exchange Offer and the conversion of the Senior
Preferred takes place, the Company expects to be in a better position to raise
new capital. The Company plans to concentrate initially on acquisitions where a
substantial portion of the value is in proved developed producing reserves which
are currently generating cash flow. Management is relatively impartial as to the
acquisition of gas versus oil. Although management would prefer operatorship of
the properties, they do not intend to pass up any opportunities for that reason.
At this point, the Company has not restricted itself to seeking acquisitions in
specific geographical regions.
Along with the acquisition of properties, the Company will look for ways to
exploit existing and acquired reserves by increasing production rates,
accelerating reserve recoveries and improving and extending the economic
viability of the properties. Exploitation activities may include workovers,
recompletions, new stimulation technology, development drilling, horizontal
drilling, pressure maintenance projects, and other methods of enhanced recovery.
While the Company is actively pursuing these avenues, there can be no
assurance that it will have successful results in its acquisition, exploitation
and exploration efforts. There is a tremendous amount of competition in the
industry and the prices paid for in-place reserves make it difficult to achieve
attractive rates of return.
ACQUISITIONS OF ASSETS
In January 1996, the Company acquired Fremont, an Oklahoma based oil and
gas company for $7 million paid in cash and 3.3 million shares of the Company's
Common Stock. Fremont has 131 wells located predominately in central Oklahoma
and Kansas concentrated in three major fields. Fremont's estimated net proved
reserves at December 31, 1995 totaled approximately 13.4 Bcfe.
Also in January 1996, the Company announced the execution of an agreement
with Atapco for the evaluation and development of the Company's 22,000 acre
Sacatosa project. Over 35 million barrels of oil has been produced from the
Sacatosa field, a shallow waterflood project. Atapco has acquired 50% of
Amerac's interest in the acreage and has assumed operations.
In October 1995, the Company acquired a portion of the Truby field located
in Jones County, Texas for $650,000. This acquisition included a 320-acre lease
with two producing wells and a 200-acre undeveloped lease. The additional
acreage will provide the Company with both proved and probable drilling
locations. Total estimated net proved reserves acquired are 119,500 BOE. The
Company acquired a 100% working interest and a 77% net revenue interest in these
wells.
In May 1995, the Company acquired the Myrtle B field in Loving County,
Texas for $725,000. This acquisition included four producing wells and four
proved undeveloped locations with total estimated proved reserves of 359,600
BOE. The Company has a 100% working interest and a 75% revenue interest in the
property
In April 1995, the Company acquired the Cosden field in Bee County, Texas
for $2.9 million. This field produces from three wells and the net proved
reserves were 4.6 Bcfe. The Company has a 68% working interest and a 52% net
revenue interest in the property.
For pro forma effect of these acquisitions see Note 9.
11
SALE OF OIL AND GAS PROPERTIES
In December 1995, the Company agreed to sell its interest in the Northwest
Arapahoe field in Colorado for $1.0 million to the operator. This was a
waterflood project that had no future development potential. This property was
sold for substantially more than its book value resulting in a $0.7 million gain
on sale.
1995 SOURCES AND USES OF CASH
During 1995, the Company received $643,000 from operations, $140,000 from
the sale of producing properties and borrowed $3.5 million. The Company's
primary uses of cash were $5.5 million for the acquisition of oil and gas
properties, $1.9 million to repay subordinated debt and $94,000 for other
property leaving a net use of cash for the year of $3.3 million and a cash
balance at December 31, 1995 of $144,000.
1996 CAPITAL REQUIREMENTS
During 1996, the Company will require funds for continuing the Company's
acquisition and development program. The Company's planned capital expenditures
for development and exploration in 1996, is approximately $5.5 million. The
Company plans to fund acquisition and development with existing cash, cash flow
from operations and bank debt, using any acquired properties, as well as
existing properties as collateral. At March 26, 1996, the Company had $9.7
million outstanding under its Bank Credit Agreement and has borrowing capacity
of $300,000 thereunder. The Company may also issue equity as either part of an
acquisition or in order to raise additional capital. The Company may also raise
additional capital from other forms of financing such as bank, mezzanine,
production payments and equity financing. However, there is no assurance that
the Company will be successful in obtaining such additional financing. The
Company plans to continue paying the dividends during 1996 on the Senior
Preferred in kind.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Operations for 1995 resulted in net income of $208,000 (a loss of $.03
applicable per common share) as compared to net income of $272,000 (a loss of
$.24 applicable per common share) for the comparable period in 1994. The
increase in net income resulted principally from a net gain on sales of various
producing properties and other assets totaling $850,000 as opposed to a
$102,000 loss on sales in 1994. This increase in revenues in 1995 versus 1994
was affected by the recognition of a gain in 1994 related to the settlement of
contractual obligations (see Note 6 to the consolidated Financial Statements)
in the amount of $474,000, reduction of interest income and increases in
expenses, except exploration expenses and administrative expenses which were
constant.
Oil and gas revenues increased from $4.1 million in 1994 to $4.3 million in
1995 as a result of increases in both oil and gas production. Average price for
the year increased for oil from $15.25 per barrel in 1994 to $16.53 per barrel
for 1995 and the average price for natural gas decreased from $2.01 per Mcf for
1994 to $1.62 per Mcf for 1995. Oil production increased to 348 barrels per
day in 1995 from approximately 260 barrels per day in 1994 and gas production
increased from approximately 3.6 million cubic feet of gas per day in 1994 to
3.7 million cubic feet of gas per day for the comparable period in 1995.
The most significant increase in total revenue related to the gain or loss
on sale of properties. During 1994, the Company recorded a loss of $102,000 from
the sale of property, primarily warehouse inventories and other small items.
During 1995, the Company recognized a $850,000 gain on sales of properties,
$736,000 related to Northwest Arapahoe and a $106,000 gain on the sale of Riley
Ridge Properties.
Lease operating expenses increased from $894,000 during 1994 to $1.1
million during 1995 as a result of acquisition activity and workover expense.
Exploration expenses decreased from $345,000 during 1994 to $246,000 for 1995 as
the Company discontinued substantially all of its exploration activities. The
1995 expenses are related to 3D seismic for field
12
extension for the North Blackwell Field.
Depreciation, depletion and amortization also increased from $1.2 million
during 1994 to $1.7 million during 1995 due to both an increase in overall
production and investment in oil and gas properties and the downward revisions
to reserves, primarily at South Timbalier 198, offshore Louisiana (see Note 10
to the Consolidated Financial Statements for a reconciliation of the reserves
from year to year). Administrative expenses remained relatively constant.
Interest expense increased from $229,000 in 1994 to $237,000 in 1995 as the
Company's debt increased due to acquisitions made using the Bank Credit
Agreement, which had an outstanding balance of $3.5 million at year end 1995.
1994 COMPARED WITH 1993
Operations for 1994 resulted in net income of $272,000 (a loss of $.24
applicable per common share) as compared to net income of $4.6 million ($.03
applicable per common share) for the comparable period in 1993. The decrease in
net income resulted from a $3.7 million extraordinary gain in 1993 and a decline
in total revenues (total decrease of $2.3 million), partially offset by a
decrease in total expenses (total decrease of $1.7 million). Additionally, the
Company recognized a $474,000 gain in 1994 relating to the settlement of
contractual obligations (see Note 6 to the Consolidated Financial Statements).
Oil and gas revenues decreased slightly from $4.4 million in 1993 to
$4.1 million in 1994 as a result of declines of both oil and gas production.
Average prices for the year increased for both products with oil increasing from
$14.52 per barrel in 1993 to $15.25 per barrel for 1994 and the average price
for natural gas increased from $1.88 per Mcf for 1993 to $2.01 per Mcf for 1994.
The gas price increased due to the recovery of $289,000 by El Paso Natural Gas
Company of gas at $3.25 per Mcf relating to a gas contract settlement made in
1988. Without these gas sales, the price would have remained relatively constant
from year to year. However, even with the increase in the sales price, the total
revenue declined as oil production declined from over 300 barrels per day in
1993 to approximately 260 barrels per day in 1994 and gas production declined
from approximately 4 million cubic feet of gas per day in 1993 to 3.6 million
cubic feet of gas per day for the comparable period in 1994.
The most significant decline in total revenue related to the gain or
loss on sale of properties. During 1993, the Company recognized $2.3 million on
the sale of properties relating to the sale of Colorado properties and the
settlement of the offshore facility financing with Union Pacific Resources.
During 1994, the Company recorded a loss of $102,000 from the sale of property,
primarily warehouse inventories and other small items.
The Company realized savings in all categories of expenses. Lease
operating expenses declined from $1.0 million during 1993 to $894,000 for 1994,
primarily as a result of the exchange of three offshore blocks for the offshore
facility financing obligation during 1993. Exploration expenses decreased from
$851,000 during 1993 to $345,000 for 1994 as the Company disposed of its
exploration subsidiary, Lance Exploration, in July, 1994 and discontinued
substantially all of its exploration activities.
Depreciation, depletion and amortization also declined from $1.6
million during 1993 to $1.2 million during 1994 due to both a decrease in
overall production and the upward revisions to reserves, primarily at South
Timbalier 198, offshore Louisiana (see Note 10 to the Consolidated Financial
Statements for a reconciliation of the reserves from year to year).
Administrative expenses also decreased from $2.1 million in 1993 to less than
$1.8 million during 1994 relating to further cost reductions and the
discontinuation of the exploration program and the sale of Lance Exploration.
Interest expense also declined from $581,000 to $229,000 as the
Company continued to pay down its debt obligations by retiring additional
subordinated debt and the settlement and elimination of the offshore facility
financing during 1993. Total interest bearing debt at December 31, 1994 included
only the $50,000 of bank debt and $1.9 million of subordinated debt due in May,
1995.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), which is effective for fiscal years beginning after December 15,
1995. Effective January 1, 1996, the Company will adopt SFAS 121 which requires
that long-lived assets (i.e., property, plant and equipment) held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the net book value of the asset may not be recoverable. An
impairment loss will be recognized if the sum of the expected future cash flows
(undiscounted and before interest) from the use of the asset is less than the
net book value of the asset. The amount of the impairment loss will be measured
as the difference between the net book value of the assets and the estimated
fair value of the related assets. SFAS 121 requires that assets be grouped at
the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other group of assets. The Company does not
expect any material impact upon adoption of SFAS 121 in the first quarter of
1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which is effective for fiscal years
beginning after December 15, 1995. Effective January 1, 1996, the Company will
adopt SFAS 123 which establishes financial accounting and reporting standards
for stock based employee compensation plans. The pronouncement defines a
fair-value based method of accounting for an employee stock option or similar
equity instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value based method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to
remain with the accounting as prescribed by APB 25 must make proforma
disclosures of net income and earnings per share as if the fair-value based
method of accounting defined in SFAS 123 had been applied. The Company will
continue to account for stock-based employee compensation plans under the
intrinsic method pursuant to APB 25 and will make the disclosures in its
footnotes as required by SFAS 123.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The information required by Item 8 is set forth in the Report of
Independent Accountants and Consolidated Financial Statements included herein
following the signature page hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- --------------------------------------------------------
The executive officers of the Company are elected annually by the
Board of Directors at its first meeting held following the annual meeting of
stockholders, or as soon thereafter as necessary and convenient in order to fill
vacancies or newly created offices. Each executive officer holds office until
his death, resignation or removal or until his successor is duly elected and
qualified. Any executive officer elected or appointed by the Board of Directors
may be removed by the Board of Directors whenever in its judgment the best
interests of the Company will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
The names of the members of the Board of Directors and Executive
Officers of the Company, their ages and the dates of their employment or the
dates they became Directors are set forth below.
EMPLOYED DIRECTOR
NAME AGE POSITION HELD WITH THE COMPANY SINCE SINCE
---- --- ----------------------------- -------- --------
/1/Thomas J. Edelman 45 Chairman of the Board - 1992
Jeffrey B. Robinson 51 Director, President and Chief Executive Officer 1994 1994
Jeffrey L. Stevens 47 Director, Senior Vice President-
Chief Financial Officer and Secretary 1974 1992
Michael L. Harvey 48 Director - 1995
William P. Nicoletti 50 Director - 1995
Kenneth R. Peak 50 Director - 1995
Richard J. Savoie 49 Vice President - Engineering 1994 -
/1/ Mr. Edelman has informed the Board of directors he will not stand for re-
election at the next annual meeting due to time constraints of his other
business activities.
Thomas J. Edelman has been a director since December 1992. In 1981,
Mr. Edelman founded a predecessor of Snyder Oil Corporation ("SOCO") where he is
currently a director and President . Prior to 1981, he was a Vice President of
the First Boston Corporation. From 1975 through 1980, Mr. Edelman was with
Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman received his Bachelor of
Arts Degree from Princeton University and his Masters Degree in Finance from the
Harvard University Graduate School of Business Administration. Mr. Edelman
serves as Chairman of the Board, President and Chief Executive Officer of Patina
Oil and Gas Corporation, a company being formed to consolidate SOCO's Wattenberg
assets with Gerrity Oil & Gas Corporation, and is a director of Command
Petroleum Limited. In addition, Mr. Edelman serves as a director of Petroleum
Heat & Power Co., Inc., a Connecticut-based fuel oil distributor, and its
affiliate Star Gas Corporation. Mr. Edelman is also Chairman of Lomak Petroleum,
Inc.
Jeffrey B. Robinson was appointed in July 1994 as President and Chief
Executive Officer and was elected to the Board of Directors at that time. Prior
to joining the Company, Mr. Robinson was Vice President of Engineering and
Operations with Amax Oil & Gas, Inc. from 1982 to 1994.
14
Jeffrey L. Stevens, has been a director since January 7, 1992 and is
Senior Vice President-Chief Financial Officer and Secretary. Since May, 1991,
Mr. Stevens has also been President and Chief Executive Officer of Petroleum
Financial, Inc. ("PFI"). Mr. Stevens joined the Company in 1974.
Michael L. Harvey has been a director since March 1995. Since 1987,
Mr. Harvey has also been Chairman and Chief Executive Officer of the Gulfstar
Companies. The Gulfstar Companies explore for and develop oil and gas
exclusively in the Gulf of Mexico. Mr. Harvey is also a director of Black
Diamond Exploration Corporation, a privately-owned onshore exploration company
focused upon exploration and development in South Texas. Mr. Harvey also serves
on the advisory board of Texas A&M University College of Business.
William P. Nicoletti has been a director since March 1995. Mr.
Nicoletti is Managing Director of Nicoletti & Company, Inc., a private New York-
based investment banking firm he founded in 1991. Previously, Mr. Nicoletti was
a Managing Director and head of the Energy and Natural Resources Group of Paine
Webber Incorporated. He is a director of Star Gas Corporation, a Stamford,
Connecticut-based propane gas distributor and StatesRail L.L.C., a Dallas,
Texas-based short line railroad holding company.
Kenneth R. Peak has been a director since March 1995. Since 1990, Mr.
Peak has also been the President of Peak Enernomics, Incorporated, a company
engaged in consulting activities in the oil and gas industry. Mr. Peak is a
Director of NL Industries, Inc., a leading manufacturer of titanium dioxide,
Hogan Energy LLC, a privately held oil and gas company and Fibrebond
Corporation, a private company engaged in the manufacturing of telecommunication
shelters and prison systems. Mr. Peak also serves on the management committee of
the College of Arts and Sciences at Ohio University.
Richard J. Savoie joined the Company in August 1994, as Vice President
of Engineering. Prior to joining the Company, Mr. Savoie was Director of
Engineering from 1988 to 1994 with Amax Oil & Gas, Inc. The principal business
address of Mr. Savoie is at the Company's Executive Offices.
The entire Board of Directors serves on a year-to-year basis, and the
Executive Officers serve at the discretion of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held six (6) meetings during the year ended
December 31, 1995. All directors attended all such Board of Directors meetings,
with the exception of Mr. Harvey, who attended all but two meetings in 1995.
The Audit Committee of the Board of Directors is responsible for,
among other things, recommending the appointment of the independent public
accountants and reviewing their compensation; assuring that proper guidelines
are established for the dissemination of financial information; meeting
periodically with the independent accountants, the Board of Directors and
certain officers of the Company and its subsidiaries to assure the adequacy of
internal controls and reporting; reviewing consolidated financial statements
and performing any other duties or functions deemed appropriate by the Board of
Directors. During 1995, this committee met twice. Messrs. Peak, Nicoletti and
Harvey are members of the Audit Committee.
The Compensation Committee of the Board of Directors is responsible
for recommending compensation policies with respect to the directors, management
and employees of the Company. During 1995, this committee met twice. Messrs.
Peak, Nicoletti and Harvey are members of the Compensation Committee. The
Technical Committee of the Board is responsible for reviewing all property
acquisitions and the capital expenditure budget. The Technical Committee,
comprised of Messrs. Harvey and Peak, met four times in 1995.
REPORTS UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's executive officers and directors, and persons
who own more than ten percent (10%) of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish
15
the Company with copies.
Based solely on its review of the copies of such forms received by it,
or written representations from such persons, the Company is not aware of any
person who failed to file any reports required by Section 16(a) to be filed for
fiscal 1995 or prior years not previously disclosed.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
Pursuant to General Instruction G(3), the additional information
required by Item 11. Executive Compensation was included in the Company's proxy
statement which has been filed with the SEC, and which involves, among other
things, the election of Directors, is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The following table sets forth, as of March 1, 1996, beneficial
ownership by each Director and information regarding each person known by the
Company to own of record or beneficially more than five percent of the Common
Stock or Preferred Stock of the Company:
AMOUNT
BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- -------------- ------------------- -----------------
William T. Smith Common Stock 1,310,679 5.5%
777 Taylor Street, Ste P-11G
Fort Worth, Texas 76102
Powell Resources, Inc. Common Stock 2,017,152 8.4%
3030 N.W. Expressway, Ste 1602
Oklahoma City, OK 73112
Thomas J. Edelman Common Stock 1,024,031 /1/ 4.3%
777 Main Street, Ste 2500 Preferred Stock 359,623 /1/ 19.7%
Fort Worth, TX 76102
Michael L. Harvey Common Stock 78,039 /2/ Less than 1%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
William P. Nicoletti Common Stock 278,039 /2/ 1.2%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
Kenneth R. Peak Common Stock 278,039 /2/ 1.2%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
Jeffrey B. Robinson Common Stock 1,390,000 /3/ 5.8%
c/o Amerac Energy Corporation
700 Louisiana, Ste 3330
Houston, Texas 77002
Jeffrey L. Stevens Common Stock 400,338 /4/ 1.7%
306 West Seventh St, Ste. 1025
Fort Worth, Texas 76102
All directors and executive Common Stock 3,548,486 14.8%
officers as a group (7 persons) /5/ Preferred Stock 359,623 19.7%
- -----------
16
/1 /Mr. Edelman is currently a director and is not standing for re-election.
Includes unvested options to purchase 40,000 shares of Common Stock. Also,
includes 984,031 shares of Common Stock and 359,623 shares of Preferred Stock
held by Snyder Oil Company ("SOCO") of which Mr. Edelman is a director and
President. The 359,623 shares of Preferred Stock held by SOCO were sold on
March 19, 1996.
/2 /Includes unvested options to purchase 40,000 shares of Common Stock.
/3 /Includes unvested options to purchase 540,000 shares of Common Stock.
/4 /Mr. Stevens' ownership includes 197,000 shares of Common Stock which Mr.
Stevens has the right to acquire pursuant to vested stock options and 140,000 of
unvested options. In addition, his ownership includes 63,338 shares of Common
Stock owned by PFI of which Mr. Stevens is President and 74% stockholder.
/5 /The group's (7 persons) ownership includes vested options to purchase
197,000 shares of Common Stock and 940,000 unvested options.
17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
In 1991, as an investment and a cost reduction measure, the Company
entered into a service contract with Petroleum Financial, Inc. ("PFI") to
perform all of the Company's accounting, marketing, tax, administrative,
financial and treasury services. The contract also encompasses all computer
operations for the Company as well as maintaining stockholder relations, SEC
reporting and banking relations. PFI is owned by the Company (26%) and Mr.
Jeffrey Stevens, Senior Vice President-Chief Financial Officer, Secretary, and
Director of the Company (74%) and provides accounting services to several oil
and gas entities. PFI employs five other former employees of the Company. The
aggregate service fees for the years ended December 31, 1995, 1994, and 1993
were $300,000, $408,000, and $500,000, respectively. For 1996, PFI has agreed to
perform its services for the Company at a monthly fee of $20,000, with possible
upward or downward adjustments dependent on the workload. Mr. Jeffrey Stevens
has agreed to retain his officer position as Senior Vice President and Chief
Financial Officer, but he is not compensated by the Company other than through a
contractual arrangement between the Company and PFI, and stock options.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------
(a) FINANCIAL STATEMENTS. Financial statements filed as a part of this
report are listed in the Index to Financial Statements appearing
herein following the signature page.
EXHIBITS. The following exhibits are filed as a part of this report
(each compensatory plan required to be filed as an exhibit pursuant to
Item 14c is identified by an asterisk):
3-(1) Certificate of Incorporation of Wolverine Exploration Company
(incorporated by reference as Exhibit 3-( 1 ) to the Company's
Registration Statement No. 33-21824 filed May 13, 1988).
3-(1)(a) Amendment to Certificate of Incorporation of Wolverine Exploration
Company dated September 12, 1988 (incorporated by reference as Exhibit
3-(1)(a) to the Company's Registration Statement No. 33-24429 filed
September 28, 1988).
3-(1)(b) Amendment to Certificate of Incorporation of Wolverine Exploration
Company dated March 17, 1995 (Incorporated by reference to Annex IV to
Exhibit (a)(1) to Schedule 13e-4, dated November 15, 1994)
3-(1)(c) Corporate Bylaws (incorporated by reference to Exhibit 3C to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, File No. 0-5003).
4-(1) Indenture dated as of January 15, 1985, between BancTEXAS Dallas,
National Association, Trustee, and the Company regarding the 4-1/2%
Senior Subordinated Notes, Series A, due May 15, 1995 and 4-1/2%
Senior Subordinated Notes, Series B, due May 15, 1995 (incorporated by
reference to Exhibit T3C to the Company's Application for
Qualification of Indentures on Form T-3, relating to the 4-1/2% Senior
Subordinated Notes, Series A and Series B, due May 15, 1995, filed
with the Securities and Exchange Commission on June 20, 1985).
4-(2) First Supplemental Indenture to Indenture of January 15, 1985 dated
March 31, 1987 between the Company and BancTEXAS Dallas, National
Association, Trustee, regarding 4-1/2% Senior Subordinated Notes,
Series A and Series B, due May 15, 1995 (incorporated by reference to
Exhibit 4C 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, File No. 0-5003).
4-(3) Indenture dated as of January 15, 1985, between BancTEXAS Dallas,
National Association, Trustee, and the Company regarding the 12%
Convertible Senior Subordinated Notes, Series A, due May 15, 1995 and
12% Convertible Senior Subordinated Notes, Series B, due May 15, 1995
(incorporated by reference to Exhibit T3C to the Company's application
for Qualification of Indentures on Form T-3, relating to the 12%
Convertible
18
Senior Subordinated Notes, Series A and Series B, due May 15, 1995,
filed with the Securities and Exchange Commission on June 20, 1985).
4-(4) First Supplemental. Indenture of January 15, 1985 dated March 31, 1987
between the Company and BancTEXAS Dallas, National Association,
Trustee, regarding 12% Convertible Senior Subordinated Notes, Series A
and Series B, due May 15, 1995 (incorporated by reference to Exhibit
4El to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, File No. 0-5003).
4-(5) Certificate of Designations of the Convertible Preferred Stock
(incorporated by reference to Exhibit 4-(17) to Form S-2, Registration
Statement No. 33-33174 dated March 29, 1990).
4-(6) Indenture to be executed between First City, Texas--Dallas and the
Company upon exchange of the Convertible Preferred Stock (incorporated
by reference to Exhibit 4-(18) to Form S-2, Registration Statement No.
33-33174 dated March 29, 1990).
4-(7) Form of Amended and Restated Credit Agreement between the Company and
Christiania Bank, dated as of March 26, 1993 (incorporated by
reference as Exhibit 19-(4) to the Company's Annual Report on form 10-
K for the fiscal year extended December 31, 1992, File No. 0-5003).
4-(8) Certificate of Designations of the $4.00 Senior Preferred Stock
(incorporated by reference to Annex IV to Exhibit (a)(1) to Schedule
13 E-4 dated November 15, 1994).
4-(9) Amended and Restated Credit Agreement with Bank, Texas, National
Association dated May 12, 1995. (Incorporated by reference as Exhibit
19-(3) to the Company's Quarterly Report on Form 10-Q for the
quarterly periods ending June 30, 1995.)
4-(10) Promissory Note to Bank, Texas, National Association for fifteen
million and no/100 dollars ($15,000,000) pursuant to line of credit
(incorporated by reference as Exhibit 19-(4) to the Company's
Quarterly Report on Form 10-Q for the quarterly periods ending
June 30, 1995).
10-(1) Wolverine Exploration Company Stock Option Plan (incorporated by
reference to Exhibit 10M to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987, File No. 0-5003).
10-(3) Amended and Restated Agreement for financial and accounting services
between the Company and Petroleum Financial, Inc. dated October 13,
1994 for 1995 (incorporated by reference as Exhibit 19-(1) to the
Company's Quarterly Report on Form 10-Q for the quarterly periods
ended September 30, 1994).
10-(4) Wolverine Exploration Company Incentive Bonus Rights Plan, October 14,
1992 (incorporated by reference as Exhibit 19-(1) to the Company's
Annual Report on form 10-K for the fiscal year ended December 31,
1992, File No. 0-5003).
10-(5) Lease Agreement for Continental Plaza Office Building entered into
August 1, 1992 between the Company and 777 Main Operating, Ltd.
(incorporated by reference as Exhibit 19-(2) to the Company's Annual
Report on form 10-K for the fiscal year ended December 31, 1992, File
No. 0-5003).
10-(8) Restated Agreement for financial and accounting services between the
Company and Petroleum Financial, Inc., dated October 26, 1995 for
1996.
10-(9) Acquisition Agreement including amendment number 1 to said agreement
among Amerac Energy Corporation, as Buyer, Powell Resources, Inc., and
The Other Stockholders named herein as Seller and Ridgepointe
Resources, Inc., Fremont Energy Corporation and Fremont Petroleum
Corporation Dated January 5, 1996.
10-(10) Registration Rights Agreement, dated January 16, 1996 among Amerac
Energy Corporation, Powell Resources, Inc., The Longstroth Family
Limited I, Thomas O. Goldsworthy and James B. Tollerton. Related to
19
acquisition of Fremont Energy Corporation Properties.
10-(11) Assignment, conveyance and Bill of Sale, Northwest Arapahoe
Properties, Cheyenne County, Colorado.
19-(1) Form of Indemnification Agreement between the Company and its officers
and directors (incorporated by reference as Exhibit 19-(1) to the
Company's Annual Report on Form 10-K for the fiscal year ending
December 31, 1995).
_______________________
(b) 8-K'S FILED DURING THE FOURTH QUARTER OF 1995
None.
(d) On January 25, 1996 the Company filed a report on Form 8K related to
the acquisition of Fremont Energy Corporation. The audited statements of
revenues and direct expenses of the oil and gas properties acquired and the Pro
Forma Financial Information of Amerac are included as Exhibits to this filing.
20
AMERAC ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
Page
------------
Report of Independent Accountants F-2
Consolidated Balance Sheets F-3 and F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Cash Flows F-6 and F-7
Consolidated Statements of Changes in
Stockholders' Equity F-8
Notes to Consolidated Financial Statements F-9 thru F-25
FINANCIAL STATEMENTS SCHEDULES
All financial statements schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Amerac Energy Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Amerac
Energy Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Worth, Texas
March 26, 1996
F-2
AMERAC ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
Assets
DECEMBER 31, DECEMBER 31,
1995 1994
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 144,000 $ 3,437,000
Receivables
Receivable from Property Sale 1,005,000 -
Trade and other, net of allowance
for bad debts of $41,000 and $41,000,
respectively 111,000 142,000
Oil & Gas Receivable 993,000 356,000
------------ ------------
Total current assets 2,253,000 3,935,000
------------ ------------
PROPERTY AND EQUIPMENT (USING SUCCESSFUL
EFFORTS ACCOUNTING)
Oil and gas properties at cost 20,614,000 16,797,000
Less accumulated depreciation, depletion
and amortization (12,020,000) (11,738,000
------------ ------------
Net property and equipment 8,594,000 5,059,000
------------ ------------
OTHER ASSETS 347,000 168,000
------------ ------------
TOTAL ASSETS $ 11,194,000 $ 9,162,000
============ ============
(The accompanying notes are an integral part of these financial statements)
F-3
AMERAC ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
CURRENT LIABILITIES
Trade payables $ 234,000 $ 47,000
Accrued liabilities 372,000 139,000
Notes payable, banks - 50,000
Current portion of subordinated debt - 1,873,000
Obligation under gas contract - 757,000
------------- -------------
Total current liabilities 606,000 2,866,000
------------- -------------
LONG-TERM LIABILITIES
Notes Payable Banks 3,547,000 -
Other long-term liabilities 406,000 542,000
Obligation under gas contract 641,000 -
------------- -------------
Total long-term liabilities 4,594,000 542,000
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value
10,000,000 shares authorized;
$2.25 Convertible Exchangeable Preferred,
outstanding - 1,822,592 at December 31, 1994 - 1,823,000
$4.00 Senior Preferred,
outstanding 1,786,347 at December 31, 1995 1,786,000 -
Common stock, $.05 par value;
50,000,000 shares authorized; outstanding 20,629,416
shares at December 31, 1995 and 15,883,772
at December 31, 1994 1,031,000 794,000
Additional paid-in capital 142,211,000 142,936,000
Accumulated deficit (139,034,000) (139,799,000)
------------- -------------
Total stockholders' equity 5,994,000 5,754,000
------------- -------------
Commitments and contingencies (Note 6)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,194,000 $ 9,162,000
============= =============
(The accompanying notes are an integral part of these financial statements)
F-4
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
REVENUES
Oil, gas and related product sales $ 4,328,000 $ 4,125,000 $ 4,379,000
Gain (loss) on sale of oil and gas properties 850,000 (102,000) 2,322,000
Gain on contractual settlements - 474,000 -
Other operating income - 3,000 176,000
Interest income 74,000 237,000 184,000
----------- ----------- -----------
Total revenues 5,252,000 4,737,000 7,061,000
----------- ----------- -----------
EXPENSES
Lease operations 1,108,000 894,000 1,026,000
Exploration expenses, including dry
hole costs and impairments 246,000 345,000 851,000
Depreciation, depletion and amortization 1,686,000 1,222,000 1,625,000
Administrative 1,767,000 1,775,000 2,116,000
Interest 237,000 229,000 581,000
----------- ----------- -----------
Total expenses 5,044,000 4,465,000 6,199,000
----------- ----------- -----------
Income before tax and extraordinary items 208,000 272,000 862,000
Provision for federal income tax - - -
----------- ----------- -----------
Income before extraordinary items 208,000 272,000 862,000
Extraordinary item - gain on the early
extinguishment of debt - - 3,731,000
----------- ----------- -----------
NET INCOME $ 208,000 $ 272,000 $ 4,593,000
=========== =========== ===========
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $ (599,000) $(3,828,000) $ 493,000
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Loss before extraordinary item $ (0.03) $ (0.24) $ (0.20)
Extraordinary item - - 0.23
----------- ----------- -----------
Net income (loss) per common share $ (0.03) $ (0.24) $ $0.03
=========== =========== ===========
Average common stock outstanding 19,594,000 15,884,000 15,877,000
=========== =========== ===========
(The accompanying notes are an integral part of these financial statements)
F-5
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---- ---- ----
CASH FLOW FROM OPERATING
ACTIVITIES:
Net income $ 208,000 $ 272,000 $ 4,593,000
Extraordinary item - - (3,731,000)
---------- ---------- -----------
Net income before extraordinary item 208,000 272,000 862,000
Adjustments needed to reconcile
to net cash flow provided by(used for)
operating activities:
Depreciation, depletion and amortization 1,686,000 1,222,000 1,625,000
Amortization of discount 7,000 24,000 34,000
Exploration expenses,
including dry holes and impairments - 345,000 851,000
(Gain) loss on sale of properties (850,000) 102,000 (2,322,000)
Recognition of deferred revenue (116,000) (289,000) -
Gain on contractual settlements - (474,000) -
Other 30,000 - (173,000)
Changes in current items
relating to operations:
Trade receivables 31,000 81,000 15,000
Oil and Gas receivables (637,000) 105,000 16,000
Trade payables 187,000 (117,000) 2,000
Accrued and other
long-term liabilities 97,000 (212,000) (126,000)
---------- ---------- -----------
NET CASH FLOW PROVIDED BY OPERATIONS 643,000 1,059,000 784,000
---------- ---------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets 140,000 102,000 1,994,000
Oil and gas expenditures and acquisitions (5,477,000) (2,379,000) (526,000)
Net purchases of other assets (94,000) (14,000) (19,000)
---------- ---------- -----------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (5,431,000) (2,291,000) 1,449,000
---------- ---------- -----------
(The accompanying notes are an integral part of these financial statements)
F-6
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---- ---- ----
CASH FLOW FROM FINANCING ACTIVITIES:
Subordinated debt repayment $(1,879,000) $ (574,000) $ (657,000)
Bank borrowings 3,547,000 - -
Bank repayments (50,000) - (950,000)
Facility financing repayments - - (9,000)
Restricted cash deposits - - 2,073,000
Other (123,000) (102,000) (10,000)
----------- ----------- ----------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 1,495,000 (676,000) 447,000
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,293,000) (1,908,000) 2,680,000
Cash and cash equivalents at beginning of period 3,437,000 5,345,000 2,665,000
----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 144,000 $ 3,437,000 $5,345,000
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for Interest $ 276,000 $ 315,000 $ 490,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Exchange of properties for facility financing
debt and accrued interest $ - $ - $8,111,000
Exchanged $2.25 Convertible Exchangeable Preferred
for Senior Preferred Stock (See Note 4) $ - $ - $ -
Paid dividends in kind
on the Senior Preferred Stock (See Note 4) $ 807,000 $ - $ -
Paid certain compensation in Common Stock (See Note 4) $ 30,000 $ - $ -
(The accompanying notes are an integral part of these financial statements)
F-7
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
JANUARY 1, 1993 TO DECEMBER 31, 1995
$2.25 Convertible
$4.00 Senior Exchangeable
Preferred Stock Preferred Shares
---------------------- -----------------------
Shares Amount Shares Amount
---------------------- -----------------------
BALANCE- January 1, 1993 - - 1,830,000 $ 1,830,000
--------- ----------- ---------- -----------
Conversion of preferred to
common - - (7,408) (7,000)
Other - - - -
Net income - - - -
--------- ----------- ---------- -----------
BALANCE - December 31, 1993 - - 1,822,592 1,823,000
--------- ----------- ---------- -----------
Exercise of warrants - - - -
Net income - - - -
--------- ----------- ---------- -----------
BALANCE - December 31, 1994 - - 1,822,592 1,823,000
--------- ----------- ---------- -----------
Preferred Exchange 1,634,305 $1,634,000 (1,822,592) (1,823,000)
Stock Issued for
Director's fees - - - -
Option Exercised - - - -
Preferred Stock Dividend 152,042 152,000 - -
Net income - - - -
--------- ----------- ---------- -----------
BALANCE - December 31, 1995 1,786,347 $1,786,000 0 $ 0
========= =========== ========== ===========
Common Shares
($.05 par value) Additional
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ----------- ------------- ----------
BALANCE- January 1, 1993 15,871,120 $ 793,000 $142,929,000 $(144,664,000) $ 888,000
---------- ---------- ------------ ------------- ----------
Conversion of preferred to
common 15,038 1,000 7,000 - 1,000
Other (2,436) - - - -
Net income - - - 4,593,000 4,593,000
---------- ---------- ------------ ------------- ----------
BALANCE - December 31, 1993 15,883,722 794,000 142,936,000 (140,071,000) 5,482,000
---------- ---------- ------------ ------------- ----------
Exercise of warrants 50 - - - -
Net income - - - 272,000 272,000
---------- ---------- ------------ ------------- ----------
BALANCE - December 31, 1994 15,883,772 794,000 142,936,000 (139,799,000) 5,754,000
---------- ---------- ------------ ------------- ----------
Preferred Exchange 4,549,726 228,000 (1,403,000) 1,364,000 0
Stock Issued for
Director's fees 155,918 7,000 23,000 - 30,000
Option Exercised 40,000 2,000 - - 2,000
Preferred Stock Dividend - - 655,000 (807,000) 0
Net income - - - 208,000 208,000
---------- ---------- ------------ ------------- ----------
BALANCE - December 31, 1995 20,629,416 $1,031,000 $142,211,000 $(139,034,000) $5,994,000
========== ========== ============ ============= ==========
(The accompanying notes are an integral part of these financial statements.)
F-8
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
Amerac Energy Corporation, formerly Wolverine Exploration Company ("Amerac"
or the "Company") was formed in 1969. The Company reincorporated in the state of
Delaware as Wolverine Exploration Company in 1987 and changed its name to Amerac
in March 1995. Since 1969, the Company has engaged in exploration, development
and operating of oil and gas properties in the United States and Canada. In
July, 1993, the Company formed a wholly owned subsidiary, Lance Exploration
Company ("Lance Exploration" or "Lance"), for the purpose of prospect
generation. This subsidiary was sold in July, 1994 and the Company changed its
primary focus from oil and gas exploration to acquisitions and development of
proved oil and gas properties.
The consolidated financial statements include the accounts of Amerac and
its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS
The Company follows the successful efforts method of accounting for its oil
and gas operations as prescribed in Statement of Financial Accounting Standards
("SFAS") No. 19 issued by the Financial Accounting Standards Board.
Under the successful efforts method, costs of productive wells, development
dry holes and productive leases are capitalized and amortized on a unit-of-
production basis over the life of remaining proved reserves. Cost centers for
amortization purposes are determined on a field-by-field basis. Capitalized
costs of proved properties are subject to a "ceiling test" which limits, on a
country-by-country basis, capitalized costs to estimated undiscounted future net
revenues from these properties assuming current prices and costs.
Oil and gas leasehold costs are capitalized when incurred. The acquisition
costs of all unproved properties that are not individually significant are
aggregated, and the portion of such costs estimated to be non-productive, based
on historical experience, is amortized on an average holding period basis. Any
individually significant unproved properties are assessed periodically, and any
impairments in value are charged to expense. Costs of such properties
surrendered are charged against the valuation allowance.
Exploratory expenses, including geological and geophysical expenses and
delay rentals for oil and gas leases, are charged to expense as incurred.
Exploratory drilling costs, including stratigraphic test wells, are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful.
Future obligations for site restoration costs, including dismantling and
abandoning properties, are accrued using the unit of production method and
expensed as depletion.
Sales of oil and gas properties result in adjustments to the cost and
accumulated depreciation, depletion and amortization as provided under the
successful efforts method of accounting. Gain or loss is recognized if the
entire amortization base is sold and represents the difference between the
proceeds and book basis of the properties sold. See Note 2 regarding significant
sales of oil and gas properties.
F-9
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
FOURTH QUARTER ADJUSTMENTS
As a result of revised reserve estimates and other factors, the Company
revised its property amortization and impairment estimates and recorded an
adjustment in the fourth quarter of 1994 increasing income by approximately
$300,000. The Company also recorded a gain of $450,000 in the fourth quarter of
1994 in connection with the gas contracts (see Note 6).
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, cash equivalents include time
deposits, certificates of deposit and all liquid debt instruments with original
maturities of three months or less.
REVENUE RECOGNITION
The Company follows the "sales method" of accounting for its oil and gas
revenue whereby the Company recognizes sales revenue on all oil or gas sold to
its purchasers, regardless of whether the sales are proportionate to the
Company's ownership in the property. A receivable or liability is recognized
only to the extent that the Company has an imbalance on a specific property
greater than the expected remaining life of the reservoir. As of December 31,
1995, the Company's aggregate oil and gas imbalances were not material to the
Company's financial statements.
NET LOSS PER COMMON SHARE
Net income or loss per common share is computed by dividing the net income
or loss applicable to common stockholders by the weighted average number of
shares of common stock outstanding. In computing income or loss per common share
for 1994 and 1993, the Convertible Preferred dividends, either declared or in
arrearage for the period, decreases the income or increases the loss applicable
to common stockholders. For computation of the 1995 income (loss) per common
share, the Senior Preferred dividends also decreases the income and increase the
loss applicable to common stockholders. The stock options and convertible debt
are anti-dilutive and were not included in the calculation of income or losses
per common share.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT
RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents, short-term investments and
trade, and oil and gas receivables.
The Company's cash equivalents and short-term investments represent high-
quality securities placed with various investment grade institutions. This
investment practice limits the Company's exposure to concentrations of credit
risk.
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade and oil and gas receivables. The Company's trade and oil and gas
receivables are dispersed among various domestic customers and purchasers;
therefore, concentrations of credit risk are limited. If customers are
considered a credit risk, letters of credit are the primary security obtained to
support lines of credit.
F-10
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
ACCOUNTING FOR INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of tax credits and other carryforwards, as well as
temporary differences between the book and tax basis of assets and liabilities.
A valuation allowance for deferred tax asset is recorded when it is more likely
than not that the benefit from the deferred tax asset will not be realized.
The Company files a consolidated tax return and the consolidated group
follows a policy of allocating consolidated income tax charges and credits, and
providing charges in lieu of taxes, based on each member's contribution to
consolidated income or loss.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities, and
related revenues and expenses, and disclosure of gain and loss contingencies at
the date of the financial statements. Actual results could differ from estimated
amounts.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of the estimated fair value of financial instruments.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. At
December 31, 1995, the estimated fair values of the Company's financial
instruments, primarily receivables and debt, approximate their carrying value
because either the receivables are short term in nature or debt instruments have
variable interest rates.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") ,
which is effective for fiscal years beginning after December 15, 1995. Effective
January 1, 1996, the Company will adopt SFAS 121 which requires that long-lived
assets (i.e., property, plant and equipment) held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. An impairment loss
will be recognized if the sum of the expected future cash flows (undiscounted
and before interest) from the use of the asset is less than the net book value
of the asset. The amount of the impairment loss will be measured as the
difference between the net book value of the assets and the estimated fair value
of the related assets. SFAS 121 requires that assets be grouped at the lowest
level for which there are identifiable cash flows that are largely independent
of the cash flows of other groups of assets. The Company does not expect any
material impact upon adoption of SFAS 121 in the first quarter of 1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which is effective for fiscal years beginning after
December 15, 1995. Effective January 1, 1996, the Company will adopt SFAS 123
which establishes financial accounting and reporting standards for stock based
employee compensation plans. The pronouncement defines a fair-value based method
of accounting for an employee stock option or similar equity instrument.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic-value based method of accounting as prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Entities electing to remain with the accounting as
prescribed by APB 25 must make proforma disclosures of net income and earnings
per share as if the fair-value based method of accounting defined in SFAS
F-11
123 had been applied. The Company will continue to account for stock-based
employee compensation plans under the intrinsic method pursuant to APB 25 and
will make the disclosures in its footnotes as required by SFAS 123.
2. PROPERTY ACQUISITIONS AND DISPOSITIONS
PROPERTY ACQUISITIONS
In October 1995, the Company acquired a portion of the Truby field located
in Jones County, Texas for $650,000. This acquisition included a 320-acre lease
with two producing wells and a 200-acre undeveloped lease. The additional
acreage will provide the Company with both proved and probable drilling
locations.
In May 1995, the Company acquired the Myrtle B field in Loving County,
Texas for $725,000. This acquisition included four producing wells and four
proved undeveloped locations. The Company has a 100% working interest and a 75%
net revenue interest in this property.
In April 1995, the Company announced the acquisition of the Cosden field in
Bee County, Texas for $2.9 million. This field produces from three wells. The
Company has a 68% net working interest and a 52% net revenue interest in this
property.
The unaudited pro forma data is presented in Note 9.
SALE OF OIL AND GAS PROPERTIES
In December 1995, the Company agreed to sell its interest in the Northwest
Arapahoe field, in Colorado, for $1.0 million to the operator. This was a
waterflood project that had no future development potential. This property was
sold for substantially more than its book value resulting in a $.07 million gain
on sale.
In February 1993, the Company sold certain producing properties located in
the Southeast Morrow Trend for net proceeds of approximately $1.8 million. The
Company recognized a book gain on this sale during 1993 of approximately $1.5
million.
On July 14, 1993, the Company and UPRC closed a transaction exchanging
certain obligations for three offshore leases, High Island 178, High Island A-
71/72 and Galveston 333, and the Company's interest in HITECO (see Note 3 -
Offshore Facility Financing).
3. NOTES PAYABLE, LONG-TERM INDEBTEDNESS, AND PLEDGED ASSETS
BANKS
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement with BankOne, Texas National Association ("Bank Credit
Agreement"). The Bank Credit Agreement is a two-year facility with interest due
monthly and principal due at May 31, 1997. The Bank Credit Agreement is secured
by all of the Company's oil and gas properties, and contains various restrictive
covenants which may, if not met, cause the Company to be in default or reduce
its access to additional borrowings. The borrowing base at December 31, 1995 was
$4,000,000. At December 31, 1995, $3,547,000 was outstanding under the Bank
Credit Agreement, accruing interest at the BankOne Texas Base Rate plus three
quarter percent (9.25% at December 31, 1995).
In conjunction with a January 1996 acquisition (see Note 9) the BankOne
Credit Agreement was amended on January 16, 1996, to among other things,
increase the borrowing base to $10.6 million and a mandatory reduction of
$185,000 each month, commencing February 1, 1996. At March 26, 1996, the Company
had $9.7 million outstanding and has borrowing capacity of $300,000 under the
Bank Credit Agreement.
At December 31, 1995, the Company had a $125,000 letter of credit issued on
its behalf collateralized by a $125,000 certificate of deposit, which is
reflected in other assets.
F-12
PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
OTHER INDEBTEDNESS
In July 1993, the Company and Union Pacific Resources Company ("UPRC")
settled all remaining obligations, aggregating approximately $8 million, which
were related to their partnership interest in the High Island Texas Equipment
Company Ltd. ("HITECO") and to the operating agreements covering the High Island
178 and A71/72 offshore leases. In the transaction, the Company assigned all its
interests in HITECO and in certain Gulf of Mexico oil and gas properties (High
Island 178, High Island A71/72 and Galveston 333), effective May 1, 1993, and
made certain other minor modifications to the operating agreements with regard
to future development at South Timbalier 198. The Company recognized a book gain
in 1993 on this transaction of approximately $4.4 million. Approximately
$700,000 of this gain was recognized as a gain on sale of properties and
approximately $3.7 million as extraordinary gain on the early extinguishment of
debt.
During May 1995, the Company extinguished its subordinated indebtness of
$1,879,000.
4. STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any right or
other similar right to purchase or subscribe to any additional securities issued
by the Company, and no stockholder has any right to convert common stock into
other securities. The holders of shares of common stock are entitled to
dividends when and if declared by the Board of Directors from funds legally
available therefor and, upon liquidation, to a pro rata share in any
distribution to stockholders, subject to prior rights of the holders of the
preferred stock. The Company is restricted under certain conditions from
declaring or paying any cash dividend on the Common Stock by its loan agreement
and the certificate of designations defining the provisions of the Senior
Preferred, as defined below.
In July 1995, the Company filed a registration statement with the
Securities and Exchange Commission for the purpose of registering the 3,651,195
shares of Common Stock held by Investment Limited Partnership ("ILP") who in
turn sold the shares to certain individuals. Three of these individuals are
directors of the Company. Messrs. Jeffrey Robinson, President and Chief
Executive Officer, Kenneth R. Peak and William P. Nicoletti are Directors of the
Company and acquired from ILP 800,000, 200,000 and 200,000 shares, respectively.
PREFERRED STOCK
In March 1995, the Company exchanged, with holders who accepted the
exchange, one share of its Senior Preferred, with a stated value and liquidation
value of $4.00 per share, par value $1.00 per share and an initial dividend rate
of $.36 per share, and 2.5 shares of Common Stock (the "Exchange Offer") for
each outstanding share of $2.25 Convertible Exchangeable Preferred Stock ("Old
Preferred"), which carried a stated value of $25.00 per share and a dividend
rate of $2.25 per share. At the time of the Exchange Offer, the Company had
dividends in arrears on the Old Preferred of approximately $14.4 million and a
liquidation preference of approximately $45.6 million. The Exchange Offer was
approved by the holders of the majority of the Common Stock and by approximately
90% of the holders of Old Preferred. As a result, 1,634,305 shares of Old
Preferred were exchanged for 1,634,305 shares of Senior Preferred and 4,079,049
shares of Common Stock. Holders of Old Preferred that did not exchange received
2.5 shares of Common Stock for each share of Old Preferred not exchanged,
resulting in the issuance of 470,677 shares of Common Stock. This Exchange Offer
eliminated all Old Preferred and related dividend arrearages.
This Exchange Offer did not have any material impact on the pro forma
supplemental earnings per share.
F-13
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
At the date of the Exchange Offer, the Company discounted the Senior
Preferred by an amount which would yield its perpetual rate of 15% during the
initial years while the stated dividend rate is 9.0%. Accordingly, the Company
credited retained earnings and debited additional paid in capital for
approximately $1.4 million representing the discount amount. These amounts are
being amortized over a five year period and do not effect current period income
or loss, except for net income (loss) applicable to common stockholders.
The Senior Preferred provides, among other things, that the Company has the
option to pay the quarterly dividends, which commenced January 1, 1995, for the
first two years in either cash or additional shares of Senior Preferred. The
Company currently plans to pay these dividends in shares of Senior Preferred.
The Company issued 152,042 shares of Senior Preferred for 1995 dividends.
Beginning January 1, 1997, the Company has, under certain conditions, the option
to pay the dividends in cash or Common Stock. The annual dividend rate
increases from $.36 per share to $.60 at January 1, 2000. The Company has the
option of redeeming the Senior Preferred at face value at anytime. If the
Company fails to pay a quarterly dividend on the Senior Preferred, then the
holders of the Senior Preferred have the right to elect 80 % of the Board of
Directors. See Note 9.
STOCK OPTION PLANS
The Company may grant key employees, directors and independent contractors
options to purchase Common Stock under the Company stock option plan (the
"Plan"). The Plan allows the granting of either non-qualified stock options or
incentive stock options. The Plan also provides that options are not exercisable
in the first year and thereafter become fully exercisable.
As of December 31, 1995, options granted at market value at date of grant
pursuant to the Plan were incentive stock options covering 1,222,000 shares held
by four directors, two officers/directors, one officer and two other
individuals. These options were outstanding at exercise prices ranging from $.06
to $7.875 per share. Of that total, 247,000 options are currently exercisable at
year end. The Company pays a portion of its non-employee directors fees in
Common Stock.
Stock option transactions, in the period from December 1993 to December 31,
1995 are summarized below:
Number of Option Price
Shares Per Share
-------------------------- --------------
December 31, 1992 1,225,960
Issued 100,000 $.06
Exercised 0
Expired (252,980)
---------
December 31, 1993 1,072,980
---------
Issued 40,000 $.06
Exercised 0
Expired (648,980)
---------
December 31, 1994 464,000
---------
Issued 940,000 $.156 to $ .172
Exercised (40,000) $.06
Expired (142,000)
---------
December 31, 1995 1,222,000
=========
F-14
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
5. UNITED STATES INCOME TAXES
The provision for income taxes differs from the amount of income
taxes, computed by applying the U.S. statutory federal tax rate to pretax income
before extraordinary items, as a result of the following differences:
1995 1994 1993
-------- -------- ---------
Provision based on statutory rate $ 71,000 $ 95,000 $ 302,000
Effect of statutory rate change on
deferred tax balances - - (724,000)
Limitation on recognition of deferred
benefits - - 422,000
Change in valuation allowance related
to net operating losses (71,000) (95,000) -
-------- -------- ---------
Provision for income taxes $ - $ - $ -
======== ======== =========
Deferred tax assets (liabilities) are comprised of the following at
December 31:
1995 1994
------------- -------------
Net operating loss carryforwards $ 70,200,000 $ 70,000,000
Oil and gas properties (259,000) (488,000)
Small producers' depletion carryforward 4,324,000 4,057,000
ITC carryforward 2,792,000 2,988,000
Asset valuation allowance (77,057,000) (76,557,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
Based on management's analysis of future taxable income and current
potential future annual limitations of the utilizations of net operating loss
carryforwards ("NOL"), the Company does not believe it is likely that it will
realize the benefits of its net deferred tax assets; as a result, a valuation
allowance has been provided for the entire balance.
Under federal tax law, the amount and availability of tax benefit
carryforwards are subject to a variety of interpretations and restrictive tests.
The utilization of such carryforwards could be limited or effectively lost upon
certain changes of ownership. After an "ownership change," the pre-change tax
benefit loss carryforwards available to offset taxable income are limited to a
prescribed annual amount. In general, an ownership change occurs if a loss
corporation has more than a 50% ownership change (based on the value of stock)
during a three-year period. The annual limitation is calculated by applying a
prescribed rate times the value of the loss corporation's stock immediately
before the ownership change.
F-15
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The Company believes an ownership change occurred at the time of the
sale of 2.3 million shares of common stock in December, 1989, resulting in an
annual limitation of the Company's utilization of NOLs of approximately $11.0
million. The amount of NOL available in any future year is the sum of that
year's annual limitation, any previously unused annual limitation and any post
ownership change losses. As a result, the NOL available for use in 1996 is
approximately $115 million ($105 million for alternative minimum tax purposes).
Management believes that an ownership change may occur in 1996 resulting in
another annual limitation of the utilization of the NOL upon the completion the
offer to convert Senior Preferred for Common Stock during 1996 (See Note 9) when
combined with other recent equity transactions.
The Company at December 31, 1995, had a regular NOL of approximately
$201 million and approximately $173 million for alternative minimum tax
purposes. The net operating losses are scheduled to expire as follows:
ALTERNATIVE
INCOME MINIMUM
YEAR TAX TAX
- ----------- ----------- -----------
1998 $16,161,000 $15,861,000
1999 47,624,000 47,624,000
2000 33,818,000 33,818,000
2001 6,403,000 6,403,000
2002 16,452,000 11,528,000
2004 33,063,000 19,106,000
2005 11,379,000 7,144,000
2006 6,783,000 4,816,000
2007 19,600,000 18,084,000
2008 4,784,000 4,091,000
2009 4,545,000 4,269,000
Additionally, the Company has approximately $2,792,000 of unused investment
tax credits expiring through the year 2000, with the majority expiring in the
years 1996 through 1997.
The Company also has small producers' depletion carry forwards of
approximately $12,355,000 which may be carried forward indefinitely to offset
the Company's future taxable income.
F-16
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
6. COMMITMENTS AND CONTINGENCIES
In February 1995, Geodyne Resources, Inc. ("Geodyne") filed an Original
Third-Party Petition naming the Company as third-party defendant. The claim
arose out of the settlement of a 1986 accident by UPRC, operator of a property
in Summit County, Utah. UPRC subsequently sued Geodyne for a proportionate
share of the lawsuit settlement involving the 1986 well accident. Geodyne
purchased the property from the Company in 1988 and is claiming that the Company
is liable under the indemnity provisions of the 1988 Purchase and Sale Agreement
between the Company and Geodyne. The amount of the claim against the Company is
approximately $176,000. The Company has filed a general denial and is reviewing
this matter with its insurance carriers and counsel. The Company has been
indemnified for any shortfall in the insurer's payment on the claim.
In 1988, the Company settled a gas contract dispute with El Paso Natural
Gas Company ("El Paso") relating to the Shurley Ranch properties in Sutton
County, Texas. These properties had been the subject of litigation until late
1993, at which time El Paso began purchasing gas on these properties. Pursuant
to the terms of the gas contract settlement, El Paso is applying 65% of the
current production to a prepayment received by the Company in 1988. The
Company's 1995 revenue of $116,000 from this portion of the production has been
applied against this prepayment at an imputed price of $3.25 per Mcf. The gas
contract expires in February 1997, and at that time, as provided in the
contract, the Company is obligated to pay El Paso the lesser of the remaining
prepayment balance or $360,000. During the fourth quarter of 1994, the Company
concluded that it was relatively certain that the Shurley Ranch properties could
not produce sufficient gas to recover El Paso's prepayment and the Company
released a portion of the delivered balance to income of $450,000 representing
the excess of the remaining prepayment balance over the sum of the expected
production from January 1995 through February 1997 and the expected $360,000
minimum payment. As of December 31, 1995, the remaining prepayment balance was
$641,000 after considering the recognition of the gain discussed above.
The Company is subject to various possible contingencies which arise
primarily from interpretation of federal and state laws and regulations
affecting the oil and gas industry. Such contingencies include differing
interpretations as to the prices at which oil and gas sales may be made, the
prices at which royalty owners may be paid for production from their leases and
other matters. Although management believes it has complied with the various
laws and regulations, administrative rulings and interpretations thereof,
adjustment could be required as new interpretations and regulations are issued.
In addition, production rates, marketing and environmental matters are subject
to regulation by various federal and state agencies.
The Company is not currently a party to any litigation which would have a
material impact on its financial statements. However, due to the nature of its
business, certain legal or administrative proceedings may arise in the ordinary
course of its business.
The Company is committed to various lease contracts for office space
and miscellaneous office equipment expiring at various intervals through 1997,
with total minimum payments aggregating $114,000 at December 31, 1995. The
minimum annual rental commitments are $72,000 for 1996 and $42,000 for 1997. A
portion of this obligation is offset by a sublease with aggregate future
receipts of $76,000 over the term of the sublease.
F-17
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In 1991, as an investment and a cost reduction measure, the Company entered
into a service contract with Petroleum Financial, Inc. ("PFI") to perform all of
the Company's accounting, marketing, tax, administrative, financial and treasury
services. The contract also encompasses all computer operations for the Company
as well as maintaining stockholder relations, SEC reporting and banking
relations. PFI is owned by the Company (26%) and Mr. Jeffrey Stevens, Senior
Vice President-Chief Financial Officer and Director of the Company (74%) and
provides accounting services to several oil and gas entities. The aggregate
service fees for the years ended December 31, 1995, 1994, and 1993 were
$300,000, $408,000, and $500,000, respectively. For 1996, PFI has agreed to
perform its services for the Company at a monthly fee of $20,000, with possible
upward or downward adjustments dependent on the workload and achievement of
certain goals. Mr. Jeffrey Stevens has agreed to retain his officer position as
Senior Vice President and Chief Financial Officer, but he is not compensated by
the Company other than through a contractual arrangement between the Company and
PFI, stock options and Director's fees.
8. ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION
SIGNIFICANT OIL AND GAS PURCHASERS
Oil sales are made on a day-to-day basis or under a short-term contract at
approximately the current area posted price. The loss of any oil purchaser would
not be expected to have a material adverse effect upon operations. Following is
a listing of significant oil purchasers during the three-year period ended
December 31, 1995, and the approximate percentage of oil revenues derived from
each:
OIL REVENUES:
PERCENT
----------------
1995 1994 1993
---- ---- ----
PURCHASERS
- ----------
Essex Refining Company - - 33
Marathon 34 55 32
TEMCO Liquids Company 11 16 19
Union Pacific Fuels, Inc. 15 10 9
Sun Refining and Marketing Company 31 13 -
A majority of the Company's natural gas is sold pursuant to short-term
contracts at prices which fluctuate at a premium to the spot market. Under the
terms of the contracts, the gas purchasers may elect to purchase less gas than
the wells are able to produce, and the Company may be unable to sell the excess
production to other purchasers. Following is a listing of significant natural
gas purchasers during the three-year period ended December 31, 1995, and the
approximate percentage of natural gas revenues derived from each:
NATURAL GAS REVENUES:
PERCENT
-------
1995 1994 1993
---- ---- ----
PURCHASERS
----------
TEMCO Liquids Company 39 77 83
MG Natural Gas Corporation 18 - -
F-18
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
There are no other customers of the Company which individually
accounted for more than 10% of the Company's revenues during the three years
ended December 31, 1995.
ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1995 and 1994 consists of the
following:
1995 1994
-------- --------
Operating expenses $ 97,000 $ 55,000
Interest - 39,000
Accrued salaries and other 275,000 45,000
-------- --------
Total $372,000 $139,000
======== ========
9. SUBSEQUENT EVENTS
In January 1996, the Company acquired Fremont Energy Corporation
("Fremont"), an Oklahoma-based oil and gas company for $7 million paid in cash
and 3.3 million shares of the Company's Common Stock. Fremont has 131 wells
located predominately in central Oklahoma and Kansas and are concentrated in
three major fields. Fremont's unaudited estimated net proved reserves at
December 31, 1995 totaled approximately 13.4 billion cubic feet equivalent
("Bcfe"). With this acquisition and the acquisitions in 1995, the Company
increased its unaudited estimated undiscounted future net cash flow by 235%
compared to 1994.
The 1994 and 1995 acquisitions discussed in Note 2 and the Fremont
acquisition were accounted for under purchase accounting and the results of
operations were consolidated beginning with the closing date. Unaudited pro
forma results of operations are presented below as if the acquisitions had
occurred January 1, 1994:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
---- ----
(In thousands except per share amounts)
Revenues $7,832 $7,655
Net Income 511 575
Net Income (loss) per common share (.01) (.18)
F-19
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
UNAUDITED PROFORMA OIL AND GAS RESERVES AND FUTURE CASH FLOW INFORMATION
The tables below present on a pro-forma basis estimated reserves and future
cash flows of Amerac's properties combined with Fremont as December 31, 1995.
1995
------------------
OIL GAS
(MBBL) (MMCF)
-------- --------
PROVED RESERVES
Developed 999.2 16,223
Undeveloped 375.2 1,772
------- -------
Total 1,374.4 17,995
======= ======
DECEMBER 31, 1995
-----------------
(In thousands except per share amounts)
Future cash inflows (1) $60,150
Future production an development
costs 23,294
Future income tax expenses -
-------
Future net cash flows 36,856
10% annual discount for estimated
timing of cash flows (13,763)
-------
Standardized measure of discounted
future net cash flows $23,093
=======
(1) Calculated using future cash inflows which were estimated by applying year-
end prices, adjusted for fixed and determinable escalations, to the estimated
future production of year-end proved reserves. Future cash inflows were reduced
by estimated future production and development costs based on year-end costs to
determine future inflows. Future net cash inflows were discounted using a 10%
annual discount rate.
OTHER MATTERS
- -------------
At the 1996 annual meeting of stockholders, the Company will be submitting
to its stockholders a proposal to amend its Certificate of Designations of the
Senior Preferred, to provide for the conversion of each outstanding share of the
Senior Preferred into nine (9) shares of Common Stock.
F-20
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
10. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED)
The following table summarizes costs incurred in oil and gas property
acquisition, exploration and development activities. Property acquisition costs
are those costs incurred to purchase, lease, or otherwise acquire property,
including both undeveloped leasehold and the purchase of reserves in place.
Exploration costs include costs of identifying areas that may warrant
examination and in examining specific areas that are considered to have
prospects containing oil and gas reserves, including costs of drilling
exploratory wells, geological and geophysical costs and carrying costs of
undeveloped properties. Development costs are incurred to obtain access to
proved reserves, including the cost of drilling development wells and to provide
facilities for extracting, treating, gathering, and storing the oil and gas.
Costs incurred in oil and gas activities for the three years ended December
31, 1995 are as follows:
1995 1994 1993
------ ------ -----
(amounts in thousands)
Property acquisition $4,605 $1,933 $ 83
Exploration 246 449 478
Development 872 - -
------ ------ -----
$5,723 $2,382 $ 561
====== ====== =====
F-21
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
Selected data for the three years ended December 31, 1995 follows:
1995 1994 1993
---- ---- ----
Net oil and gas revenues
(amounts in thousands) $3,220 $3,231 $3,353
------ ------ ------
Amortization per equivalent Mcf $ .80 $ .60 $ .75
------ ------ ------
Average sales price per barrel of oil $16.53 $15.25 $14.52
------ ------ ------
Average sales price per Mcf of gas $ 1.62 $ 2.01 $ 1.88
------ ------ ------
Production cost per equivalent Mcf $ .53 $ .47 $ .48
------ ------ ------
Net proved oil and gas reserves as of December 31, 1995 and 1994, have
been prepared by the Company and audited by Ryder Scott Company and the net oil
and gas reserves as of December 31, 1993 were prepared by Netherland, Sewell
and Associates. The reserves were prepared in accordance with guidelines
established by the Securities and Exchange Commission and accordingly, were
based on existing economic and operating conditions. Oil and gas prices in
effect at December 31 of each year were used except in those instances where the
sale is covered by contract, in which case the applicable contract prices
including fixed and determinable escalations were used for the duration of the
contract, and thereafter the last contract price was used. Operating costs,
production and ad valorem taxes and future development costs were based on
current costs with no escalation.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact. Moreover, the present values should
not be construed as the current market value of the Company's oil and gas
reserves or the costs that would be incurred to obtain equivalent reserves.
F-22
ESTIMATED QUANTITIES OF RESERVES
Oil quantities are expressed in thousands of barrels and gas volumes
in millions of cubic feet. Natural gas liquids are combined with oil quantities.
1995 1994 1993
---- ---- ----
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
------- --------- ------ --------- ------- ---------
PROVED RESERVES
Balance beginning of year 544.6 5,961.2 329.0 5,078.8 473.6 8,598.4
Revisions of previous estimates (11.7) (1,009.3) 55.1 1,879.0 (1.2) 945.2
Extensions, discoveries and
other additions - - 4.6 174.2 0 277.6
Production (127.1) (1,348.6) (94.6) (1,332.3) (112.0) (1,466.9)
Acquisition of minerals in place 397.0 5,101.0 250.5 161.5 - -
Sale of minerals in place (113.3) - - - (31.4) (3,275.5)
------ -------- ----- -------- ------ --------
Balance end of year 689.5 8,704.3 544.6 5,961.2 329.0 5,078.8
====== ======== ===== ======== ====== ========
1995 1994 1993
---- ---- ----
OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
------ ------ ------ ------ ------ ------
PROVED DEVELOPED RESERVES
Balance beginning of year 544.6 5,961.2 329.0 5,078.8 473.6 8,598.4
Balance end of year 492.7 6,932.4 544.6 5,961.2 329.0 5,078.8
F-23
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves ("Standardized Measure") does
not purport to present the fair market value of a company's oil and gas
properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and gas, the probability of recoveries in
excess of existing proved reserves, the value of probable reserves and acreage
prospects, and perhaps different discount rates. It should be noted that
estimates of reserve quantities, especially from new discoveries, are inherently
imprecise and subject to substantial revision.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash inflows
were reduced by estimated future production and development costs based on year-
end costs to determine pre-tax cash inflows. Future income taxes were computed
by applying the statutory tax rate to the excess of pre-tax cash inflows over
the Company's tax basis in the associated proved oil and gas properties. Tax
credits and net operating loss carryforwards were also considered in the future
income tax calculation. Future net cash inflows after income taxes were
discounted using a 10% annual discount rate to arrive at the Standardized
Measure.
DECEMBER 31,
-----------------------------
1995 1994 1993
--------- -------- --------
(amounts in thousands)
Future cash inflows $ 31,175 $17,826 $15,808
Future production and development costs (11,894) (6,811) (4,241)
Future income tax expenses - - -
-------- ------- -------
Future net cash flows 19,281 11,015 11,567
10% annual discount for estimated
timing of cash flows (5,230) (2,625) (1,884)
-------- ------- -------
Standardized measure of discounted
future net cash flows $ 14,051 $ 8,390 $ 9,683
======== ======= =======
F-24
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The following table sets forth an analysis of changes in the Standardized
Measure of Discounted Future Net Cash Flows from Proved Oil and Gas Reserves:
1995 1994 1993
-------- -------- --------
(amounts in thousands)
Beginning of year $ 8,390 $ 9,683 $15,401
Sales of oil and gas produced, net of
production costs (3,220) (3,231) (3,353)
Net changes in sales prices and production
costs (2) 3,792 (1,907) (950)
Extensions and discoveries, less applicable
future development and production costs - 163 325
Previously estimated development costs
incurred during the period 230 12 -
Revisions of previous estimates, including
revised estimates of development costs,
reserves and rates of production (1,406) 1,138 1,070
Accretion of discount 839 968 1,540
Purchase of reserves 6,062 1,698 -
Sale of reserves (763) - (3,654)
Other (2) 127 (134) (696)
------- ------- -------
End of year (1) $14,051 $ 8,390 $ 9,683
======= ======= =======
_________________________
(1) The revenues generated by the Company are highly dependent upon the prices
of oil and gas. In accordance with the guidelines established by the Securities
and Exchange Commission, the year-end reserves are valued at prices in effect at
December 31 of each year, even though these prices may differ significantly from
prices actually received during the year. Prices used to value reserves were
approximately $ 17.98 , $14.61, and $12.02 per barrel of oil and $2.14 , $1.65,
and $2.34 per Mcf of gas as of December 31, 1995, 1994 and 1993, respectively.
(2) During 1995, 1994 and 1993, the prices the Company received from its sales
of oil and gas averaged $16.53 , $15.25, and $14.52 per barrel of oil and $1.62,
$2.01, and $1.88 per Mcf of gas, respectively. The amount designated as "Other"
in the analysis of changes primarily represents the difference between the
amount actually received from 1995, 1994 and 1993 production and the value
attributed to those reserves at December 31, 1994, 1993 and 1992 (using the
year-end prices).
F-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERAC ENERGY CORPORATION
Company
March 28, 1996 /s/Jeffery L. Stevens
-------------------------------------
Jeffrey L. Stevens
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the company
and in the capacities and on the dates indicated.
March 28, 1996 /s/Jeffrey B. Robinson
-------------------------------------
Jeffrey B. Robinson
Director and President and Chief
Executive Officer
(Principal Executive Officer)
March 28, 1996 /s/Jeffrey L. Stevens
-------------------------------------
Jeffrey L. Stevens
Senior Vice President and Chief
Financial Office (Principal Financial
Officer)
March 28, 1996 /s/Kenneth R. Peak
-------------------------------------
Kenneth R. Peak
Director
March 28, 1996 /s/Michael L. Harvey
-------------------------------------
Michael L. Harvey
Director
F-26
Exhibit 27
AMERAC ENERGY CORPORATION
Pro Forma Condensed Consolidated Financial Information
(Unaudited)
The following unaudited pro forma condensed consolidated financial
information, combine the historical information of Amerac and the properties
acquired from Fremont Energy Corporation ("Fremont") on January 15, 1996
("Acquired Properties"). The Pro Forma statement of operations for the year
ended December 31, 1995 reflect the consolidated operations of Amerac, Acquired
Properties and other oil and gas properties acquired during 1995 as if the
acquisitions were consummated on January 1, 1995. The unaudited pro forma
balance sheet reflects the acquisition of Fremont as if it had occurred on
December 31, 1995.
The unaudited proforma balance sheet and consolidated statement of
operations are provided for comparative purposes only and should be read in
conjunction with the historical consolidated financial statements of the
Registrant included in the 1995 Annual Report on Form 10-K and the historical
statements of revenues and direct operating expenses of the Acquired Properties
and the related notes thereto included herewith. The pro forma information
presented is not necessarily indicative of the future combined financial results
or as they might have been for the period indicated had the acquisition been
consummated at the beginning the period.
1
AMERAC ENERGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
December 31, 1995
Amerac Adjustments
Historical (Note 2) Pro Forma
-------------- ------------ --------------
Assets
------
Current assets
Cash and equivalents $ 144,000 $ (139,000) $ 5,000
Accounts receivable 2,109,000 16,000 2,125,000
------------- ---------- -------------
Total current assets 2,253,000 (123,000) 2,130,000
Oil and gas properties net
(successful efforts method) 8,594,000 7,761,000 16,355,000
Other assets 347,000 - 347,000
------------- ---------- -------------
$ 11,194,000 $7,638,000 $ 18,832,000
============= ========== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 606,000 $ 130,000 $ 736,000
------------- ---------- -------------
Total current liabilities 606,000 130,000 736,000
Long-term debt, banks 3,547,000 6,868,000 10,415,000
Other long-term liabilities 1,047,000 - 1,047,000
------------- ---------- -------------
Total long-term liabilities 4,594,000 6,868,000 11,462,000
Stockholders' equity
Senior preferred 1,786,000 - 1,786,000
Common stock 1,031,000 165,000 1,196,000
Additional paid-in capital 142,211,000 475,000 142,686,000
Accumulated deficit (139,034,000) - (139,034,000)
------------- ---------- -------------
Total stockholders' equity 5,994,000 640,000 6,634,000
------------- ---------- -------------
$ 11,194,000 $7,638,000 $ 18,832,000
============= ========== =============
(The accompanying notes are an integral part of this unaudited condensed
consolidated pro forma balance sheet.)
2
AMERAC ENERGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
Year Ended December 31, 1995
----------------------------------------------------------------------
Previous
Acquired Adjust-
Amerac Acquired Properties ments
Historical Properties (Note 3) (Note 3) Pro Forma
------------ ----------- ---------- ----------- ------------
REVENUES
Oil, gas and related product sales $4,328,000 $2,034,000 $ 546,000 $ - $6,908,000
Gain on sales of assets 850,000 - - - 850,000
Interest income 74,000 - - - 74,000
---------- ---------- --------- ----------- ----------
Total revenues 5,252,000 2,034,000 546,000 - 7,832,000
---------- ---------- --------- ----------- ----------
EXPENSES
Lease operations 1,108,000 731,000 88,000 - 1,927,000
Explorations expenses, including
dry hole costs and impairments 246,000 - - - 246,000
Depreciation, depletion
and amortization 1,686,000 - 175,000 511,000 2,372,000
Administrative 1,767,000 - - - 1,767,000
Interest 237,000 - 99,000 673,000 1,009,000
---------- ---------- --------- ----------- ----------
Total Expenses 5,044,000 731,000 362,000 1,184,000 7,321,000
---------- ---------- --------- ----------- ----------
Income before tax 208,000 1,303,000 184,000 (1,184,000) 511,000
Provision for federal income tax - - - - -
---------- ---------- --------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ 208,000 $1,303,000 $ 184,000 $(1,184,000) $ 511,000
========== ========== ========= =========== ===========
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM APPLICABLE
TO COMMON SHAREHOLDERS $ (599,000) $1,303,000 $ 184,000 $(1,184,000) $ (296,000)
========== ========== ========= =========== ===========
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE $ (0.03) $ .07 $ .01 $ (.06) $ (.01)
========== ========== ========= =========== ===========
AVERAGE COMMON SHARES
OUTSTANDING 19,594,000 3,300,000 $22,894,000
========== ========== ===========
(The accompanying notes are an integral part of this unaudited condensed
consolidated pro forma statement of operations.)
3
AMERAC ENERGY CORPORATION
Notes to Unaudited Condensed Consolidated Pro Forma Balance Sheet as of
December 31, 1995
and
Unaudited Condensed Consolidated Pro Forma Statement of Operations
for the Year Ended December 31, 1995
1. TRANSACTION
In January 1996, the Company acquired the common stock of Fremont
Energy Corporation ("Fremont"), an Oklahoma-based oil and gas company, for
$7.0 million in cash and 3.3 million shares of the Company's Common Stock.
Prior to the close of the transaction, certain assets and liabilities of
Fremont were transferred to a new corporation not acquired by the Company.
The only remaining assets in Fremont were the oil and gas properties
("Acquired Properties") and certain insignificant receivables and payables
related to the Acquired Properties.
2. PRO FORMA BALANCE SHEET ADJUSTMENTS
The accompanying unaudited condensed consolidated pro forma balance
sheet reflects the Company's balance sheet as if the transaction had been
effective December 31, 1995. The following adjustments are included:
(a) The cash portion of the purchase price is funded through bank borrowing
to the limit of the available credit with the balance paid in current
cash.
(b) The Common Stock portion of the transaction was calculated using a
stock price of $.19/share on 3.3 million shares issued before the
acquisition and split between Common Stock and additional paid in
capital for the excess over par value.
(c) Minor receivables and payables assumed are reflected on the
statements. In addition accrued acquisition costs were included in
accounts payable and accrued liabilities.
(d) Total purchase price of $7.6 million reflects allocation of the
purchase price to the proved producing properties.
3. PRO FORMA STATEMENT OF OPERATION ADJUSTMENTS
The accompanying unaudited condensed consolidated pro forma statements
of operations reflect the following adjustments for the Acquired Properties
and other properties previously acquired in 1995:
(a) Depreciation, depletion and amortization expense has been computed
using the units of production method and reflects the Company's
increased investment in oil and gas properties and increased production
therefrom.
(b) No additional general and administrative expense is expected as
management believes it can absorb these operations without additional
personnel.
(c) As the Company has a large deferred tax benefit (primarily relating to
net operating losses), which is fully reserved, no income tax provision
is necessary.
(d) Interest expense was calculated based upon the interest rate that would
be payable under the BankOne Credit Agreement as if it were used to
finance the acquisitions.
4. EARNINGS PER SHARE
Net income or loss per common share is computed by dividing the net
income or loss applicable to common stockholders by the weighted average
number of shares of common stock outstanding which includes the 3.3 million
shares issued in connection with the Fremont acquisition. The net loss per
share was adjusted for the dividends on the $4.00 Senior Preferred. The
stock options are anti-dilutive and were not included in the calculation of
income or losses per common share.
5. OIL AND GAS RESERVE INFORMATION
The proved reserves relating to the Acquired Properties would have
represented approximately 51% of Amerac's total proved reserves as of
December 31, 1995 which, after including the Acquired Properties, would have
been approximately 4.4 million barrels of oil equivalent ("BOE") in 1995.
The reserve quantities of the Acquired Properties were estimated by an
independent oil and gas reservoir engineering firm. All estimates were
prepared in accordance with guidelines established by the Securities and
Exchange Commission. All of the reserves are located within the United
States.
4
Statement of Revenues and Direct
Operating Expenses of Properties
Acquired by Amerac Energy Corporation
5
Report of Independent Accountants
To the Board of Directors of
Amerac Energy Corporation and Fremont Energy Corporation
We have audited the accompanying statements of revenues and direct operating
expenses attributable to certain oil and gas properties acquired by Amerac
Energy Corporation from Fremont Energy Corporation (the "Statements") for the
nine months ended December 31, 1995, and for the years ended March 31, 1995 and
1994. These Statements are the responsibility of Amerac Energy Corporation and
Fremont Energy Corporation's management. Our responsibility is to express an
opinion on the Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying Statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a report on Form 8-K of Amerac Energy Corporation as described in Note 2 and is
not intended to be a complete presentation of revenues and direct operating
expenses.
In our opinion, the Statements referred to above present fairly, in all material
respects, the revenues and direct operating expenses of the properties acquired
by Amerac Energy Corporation described in Note 2 for the nine months ended
December 31, 1995 and for the years ended March 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
Price Waterhouse LLP
Fort Worth, Texas
March 26, 1996
6
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY AMERAC ENERGY CORPORATION
For the nine For the nine For the year For the year
months ended months ended ended ended
December 31, December 31, March 31, March 31,
1995 1994 1995 1994
---------------- ------------ ------------ ------------
(unaudited)
Revenues:
Oil and Gas sales $1,418,000 $ 1,585,000 $ 2,200,000 $ 2,364,000
Direct operating expenses:
Lease operating expense 423,000 400,000 610,000 645,000
Severance taxes 68,000 83,000 114,000 146,000
------------ ----------- ----------- -----------
491,000 483,000 724,000 791,000
------------ ----------- ----------- -----------
Excess of revenues over direct
operating expenses $ 927,000 $ 1,102,000 $ 1,476,000 $ 1,573,000
============ =========== =========== ===========
(The accompanying notes are an integral part of these Statements.)
7
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY AMERAC ENERGY CORPORATION
- --------------------------------------------------------------------------------
1. THE PROPERTIES
The accompanying Statements represent the revenue and direct operating
expenses attributable to the oil and gas properties acquired by Amerac from
Fremont on January 15, 1996. Amerac acquired the common stock of Fremont
for $7.0 million in cash and 3.3 million shares of Common Stock.
2. BASIS OF PRESENTATION
Historical financial statements reflecting financial position, results
of operations and cash flows required by generally accepted accounting
principles are not presented on Fremont, as such information is not
meaningful for the properties acquired. Prior to the closing of the
acquisition, certain assets and related liabilities of Fremont were
transferred to a new corporation not acquired by Amerac. The remaining
assets of Fremont were the Acquired Properties. Therefore, it is not
possible to allocate certain expenses to the operations transferred.
Accordingly, the Statements are presented in lieu of the financial
statements required under Rule 3-05 of Securities and Exchange Commission
Regulation S-X.
Revenues and direct operating expenses included in the accompanying
Statements represents the net working interests in the properties acquired
and are presented on the accrual basis of accounting. No provision has been
made for depreciation, depletion, and amortization, allocated general and
administrative expenses, or corporate income taxes.
3. OIL AND GAS RESERVES INFORMATION (UNAUDITED)
Unaudited reserve information as of March 31, 1994 and 1995 and
December 31, 1995, related to the Acquired Properties, is presented in the
table below.
Oil Gas
(Bbl) (Mcf)
----- -----
Oil and Gas Reserves Quantities
-------------------------------
PROVED RESERVES:
March 31, 1993 892,000 10,881,000
Production (82,000) (586,000)
------- ----------
March 31, 1994 810,000 10,295,000
Production (75,000) (584,000)
------- ----------
March 31, 1995 735,000 9,711,000
Production (50,000) (420,000)
------- ----------
December 31, 1995 685,000 9,291,000
======= ==========
PROVED DEVELOPED RESERVES:
As of March 31, 1994 632,000 10,295,000
As of March 31, 1995 557,000 9,711,000
As of December 31, 1995 507,000 9,291,000
8
NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY AMERAC ENERGY CORPORATION
The standardized measure of discounted future net cash flows ("standardized
measure") relating to proved oil and gas reserves is calculated in accordance
with Statement of Financial Accounting Standards No. 69. The standardized
measure has been prepared assuming year-end selling prices adjusted for future
fixed and determinable contractual price changes, year-end development and
production costs an a 10% annual discount rate. The reserves and the related
standardized measure at December 31, 1995 as evaluated by Ryder Scott, were
adjusted for production during the periods presented, in addition, the
standardized measure was also adjusted for price changes to derive reserves and
the standardized measure as of March 31, 1995 and 1994. The standardized measure
is not the fair market value of the mineral interest sold and the standardized
measure presented for the proved oil and gas reserves is not representative or
their value.
Nine months Year Ended Year Ended
Ended December March 31, March 31,
1995 1995 1994
--------------- ----------- -----------
Future cash inflows $28,975 $27,836 $30,405
Future production and development costs (11,399) (11,420) (10,913)
Future income tax expense - - -
------- ------- -------
Future net cash flows undiscounted 17,576 16,416 19,492
10% annual discount for estimated timing
of cash flows ( 8,534) (8,051) (10,103)
------- ------- -------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS $ 9,042 $ 8,365 $ 9,389
======= ======= =======
The following are principal sources of
change in the standardized measures of
discounted future net cash flows:
Nine months Year Ended Year Ended
Ended December March 31, March 31,
1995 1995 1994
------------- ---------- ----------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS AT BEGINNING OF
PERIOD $8,365 $9,389 $9,707
Changes resulting from:
Net changes in prices 674 452 -
Sales of oil and gas produced (927) (1,476) (1,289)
Accretion of discounts 930 939 971
------- ------- --------
STANDARDIZED MEASURES OF DISCOUNTED
FUTURES NET CASH FLOWS AT END OF PERIOD $9,042 $9,304 $9,389
======= ======= =======
9
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERAC ENERGY CORPORATION
(Registrant)
By: ____________________________________
Jeffrey L. Stevens
Sr. Vice President and
Chief Financial Officer
Date: March 29, 1995
10