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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 31, 2002
CASTLE ENERGY CORPORATION
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(Exact Name of Registrant as Specified in Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation or Organization)
0-10990 76-0035225
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(Commission File Number) (I.R.S. Employer Identification No.)
One Radnor Corporate Center, Suite 250, 100 Matsonford Road, Radnor, PA 19087
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(Address of Principal Executive Offices) (Zip Code)
(610) 995-9400
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(Registrant's telephone number, including area code)
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(Former Name or Former Address, if Changed Since Last Report)
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Castle Energy Corporation ("the Company") submits the following
information:
ITEM 2. Acquisition or Disposition of Assets
On May 31, 2002 the Company consummated the sale of all of its domestic
oil and gas properties to Delta Petroleum Company ("Delta"). The sale was
pursuant to a definitive purchase and sale agreement dated January 15, 2002. At
closing the Company received $18,236,000 cash plus 9,566,000 shares of Delta
common stock. The $18,236,000 cash represents a $20,000,000 purchase price cash
component as of October 1, 2001, the effective date, less $1,764,000 of net cash
flow received by the Company applicable to production from the properties
subsequent to the effective date . It does not include approximately $3,300,000
of estimated net production revenue applicable to production subsequent to
October 1, 2001 that the Company had not received but will be received by Delta.
Pursuant to the governing purchase and sale agreement, the Company granted Delta
an option to repurchase up to 3,188,667 of Delta's shares at $4.50/share for a
period of one year after closing. The Delta stock received by the Company was
valued at $26,952,000 by an independent appraiser excluding the value of the
option granted to Delta to reacquire up to 3,188,667 of the Delta shares within
a year of closing. As a result of the sale, the Company will own approximately
44% of Delta.
ITEM 7. Financial Statements and Exhibits
a. Historical Financial Statements of Assets Acquired:
Not applicable
b. Pro forma Financial Information
1. Explanation of Pro forma Financial Statements
2. Pro forma Consolidated Balance Sheet - March 31, 2002
3. Pro forma Consolidated Statement of Operations for the Year
Ending September 30, 2001
4. Pro forma Consolidated Statement of Operations for the Period
October 1, 2001 to March 31, 2002
c. Exhibits
1. Purchase and Sale Agreement between Castle Energy Corporation
and Delta Petroleum Company, executed January 15, 2002 *.
* See Form 10-Q, December 31, 2001.
Page -1-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CASTLE ENERGY CORPORATION
Date: June 14, 2002 By:____________________________
------------------------ Richard E. Staedtler
Chief Financial Officer
Page -2-
VIIb (1)
EXPLANATION OF UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
("$000's" Omitted)
On May 31, 2002 the Company consummated the sale of all of its domestic
oil and gas properties to Delta Petroleum Company ("Delta"). The sale was
pursuant to a definitive purchase and sale agreement dated January 15, 2002. At
closing the Company received $18,236 cash plus 9,566,000 shares of Delta common
stock. The $18,236 cash represents a $20,000 purchase price cash component as of
October 1, 2001, the effective date, less $1,764 of net cash flow received by
the Company applicable to production from the properties subsequent to the
effective date . It does not include approximately $3,300 of estimated net
production revenue applicable to production subsequent to October 1, 2001 that
the Company had not received but will be received by Delta. Pursuant to the
governing purchase and sale agreement, the Company granted Delta an option to
repurchase up to 3,188,667 of Delta's shares at $4.50/share for a period of one
year after closing. The Delta stock received by the Company was valued at
$26,952 by an independent broker excluding the value of the option granted to
Delta to reacquire up to 3,188,667 of the Delta shares within a year of closing.
As a result of the sale, the Company will own approximately 44% of Delta.
The following unaudited pro forma consolidated balance sheet and
statements of operations of the Company reflect the pro forma effects of the
sale of the domestic oil and gas properties of Castle Energy Corporation to
Delta ("Sale") as if the Sale had occurred on (i) March 31, 2002 for balance
sheet purposes, (ii) October 1, 2000 for purposes of the statement of operations
for the year ended September 30, 2001 and (iii) October 1, 2000 for purposes of
the statement of operations for the six months ended March 31, 2002. The pro
forma adjustments to the aforementioned statements of operations include
adjustments to reflect the Company's share of Delta's earnings and losses. Such
adjustments, in turn, are based upon Delta's pro forma statements of operations
for Delta's fiscal year ended June 30, 2001 and for the six month period ended
December 31, 2001, which are included in Delta's Proxy Statement to its
shareholders dated May 2, 2002. Rules promulgated by the Securities and Exchange
Commission allow the Company to utilize or combine Delta's financial data with
that of the Company as long as Delta's fiscal periods do not differ from the
Company's fiscal periods by more than 93 days. The Company's fiscal year end is
September 30 while Delta's fiscal year end is June 30 hence the Company utilized
Delta's fiscal data for the periods ended June 30, 2001 and December 31, 2001
for the Company's pro forma statements of operations for the periods ended
September 30, 2001 and March 31, 2002. The Company's 44% equity interest in
Delta is accounted for under the equity method of accounting.
The pro forma consolidated financial statements assume that Delta records
the 9,566,000 shares of its common stock issued to the Company at $37,977 as set
forth in Delta's pro forma financial statements included in its proxy to
shareholders. The Company, in turn, has computed its proportionate share of
Delta's equity at March 31, 2002 based upon Delta's aforementioned valuation of
the shares issued to the Company. The Company understands that Delta's valuation
of the shares was based upon preliminary estimates and may change in future
filings by Delta. Based upon Delta's valuation of the Delta shares issued to the
Company and the Company's appraisal of the Delta shares it received by an
independent appraiser, the Company estimates that its resulting investment in
Delta exceeds its proportional share of Delta's equity by approximately $1,454
at March 31, 2002. The Company currently believes that the excess should be
allocated to Delta's potential legal recovery from its offshore California oil
and gas leases but the Company is still awaiting additional information,
primarily evaluations of Delta's oil and gas properties, and Delta's final
determination of the valuation of its shares issued to the Company, in order to
finalize the allocation of such excess. Delta and eight other energy companies
which own interests in oil and gas leases off the California coast have sued the
United States Government for $1,200,000 for reimbursement damages for
Page -3-
stalling their plans to develop these offshore oil and gas fields. The lawsuit
was filed January 9, 2002 in the U.S. Court of Federal Claims in Washington,
D.C. Delta's claim is for in excess of $152,000 plus exploration costs and
related expenses. The Company expects to finalize the allocation of its excess
investment in Delta within a year.
The Pro Forma Consolidated Statements of the Company do not purport to
represent what the Company's financial position or results of operations would
actually have been if the purchase in fact had occurred on such dates or to
project the Company's financial condition or results of operations as of any
future date or for any future period. The pro forma adjustments are based upon
available information and upon certain assumptions that the Company believes are
reasonable under the circumstances. Such assumption and estimates include but
are not limited to the estimates of cash flow earned from October 1, 2001 to
March 31, 2002, the excess of the Company's investment in Delta's stock over the
Company's proportional share of Delta's equity at March 31, 2002 and of other
items. The pro forma consolidated financial statements and accompanying notes
should be read in conjunction with the historical consolidated financial
statements of the Company and Delta and notes thereto and the other financial
information regarding the Company and Delta included in filings with the
Securities and Exchange Commission made by the Company and Delta.
Page -4-
VII b (2)
(1 of 2)
Castle Energy Corporation and Subsidiaries
Pro Forma Consolidated Balance Sheet
March 31, 2002
("$000's" Omitted Except Share Amounts)
(Unaudited)
Pro Forma Adjustments
-----------------------------------------
Reclassification
of Original
Historical Asset Delta Tax
(Unaudited) Sale (a) Shares (b) Effects (d) Pro Forma
----------- -------- -------------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,254 $ 16,975 $ 21,229
Restricted cash 210 210
Accounts receivable 2,247 2,247
Marketable securities 6,836 $ (1,733) 5,103
Prepaid expenses and other current assets 288 288
Deferred income taxes 2,276 $ (578) 1,698
----------- -------- -------------- ----------- ---------
Total current assets 16,111 16,975 (1,733) (578) 30,775
Investment in Delta Petroleum Company (equity method) (1,264) 1,733 27,421(c)
26,952
Property, plant and equipment, net:
Oil and gas properties - subject to a plan of sale 37,986 (37,986)
Natural gas transmission 49 (49)
Furniture, fixtures and equipment 171 171
Oil and gas properties, net (full cost method):
Unproved properties not being amortized 314 314
Estimated realizable value of discontinued net refining assets 612 612
Investment in Networked Energy LLC 469 469
----------- -------- -------------- ----------- ---------
Total assets $ 55,712 $ 4,628 $ (578) $ 59,762
=========== ======== ============== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,379 $ 1,379
Accrued expenses 149 149
Accrued taxes on appreciation of marketable securities 1,014 1,014
Imputed liability related to the value of Delta option $ 3,020 3,020
----------- -------- ---------
Total current liabilities 2,542 3,020 5,562
Net refining liabilities retained 3,016 3,016
Long-term liabilities 10 10
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Total liabilities 5,568 3,020 8,588
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Commitments and contingencies
Stockholders' equity:
Series B participating preferred stock; par value
- $1.00; 10,000,000 shares authorized; no shares
issued
Common stock; par value - $0.50; 25,000,000 shares
authorized; 11,503,904 shares issued at March 31,
2002 and September 30, 2001 5,752 5,752
Additional paid-in capital 67,365 67,365
Accumulated other comprehensive income - unrealized
gains on marketable securities, net of taxes 1,804 1,804
Retained earnings 41,729 1,608 $ (578) 42,759
----------- -------- ----------- ---------
116,650 1,608 (578) 117,680
Treasury stock at cost - 4,871,020 shares at March 31,
2002 and September 30, 2001 (66,506) (66,506)
----------- -------- ----------- ---------
Total stockholders' equity 50,144 1,608 (578) 51,174
----------- -------- ----------- ---------
Total liabilities and stockholders' equity $ 55,712 $ 4,628 $ (578) $ 59,762
=========== ======== =========== =========
See Accompanying Notes to the Pro Forma Balance Sheet
VII b (2)
(2 of 2)
Castle Energy Corporation
Notes to the Pro Forma Consolidated Balance Sheet
March 31, 2002
Unaudited
("$000's" Omitted)
(a) Reflects estimated adjusted proceeds received for domestic oil and gas
properties of the Company and resulting book gain.
Estimated Proceeds Received:
Cash price at effective date, 10/1/01 $ 20,000
Estimated net cash flow earned, 10/1/01-3/31/02 (3,025)
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16,975
Value of Delta stock per appraisal 26,952
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43,927
Net book value of oil/gas and natural gas transmission properties at 3/31/02 (38,035)
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Gross gain on sale 5,892
Estimated value of Delta option to recognize 3,188,667 shares - Black Scholes
method (3,020)
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Net gain on sale 2,872
Portion of gain deferred (44%) (1,264)
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Portion of gain recognized $ 1,608
========
Pursuant to EITF Issue No 01-2 Interpretation of Accounting Principles Board
No. 29, the Company will be required to defer any gain on the sale to Delta
against the Company's investment in Delta to the extent of the Company's
ownership of Delta.
(b) Reflects the reclassification of the Company's existing investment in Delta
(382,000 shares) from marketable securities to the "Investment in Delta
Petroleum" account (equity method).
(c) The Company estimates the excess of the Company's investment in Delta over
its proportional share of Delta's equity as follows:
Delta equity - 3/31/02 $ 21,039
Value of Delta shares issued in Sale expected to be
recorded by Delta 37,977
---------
Delta equity after sale 59,016
Castle ownership of Delta x 44%
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Castle share of Delta equity 25,967
Castle investment in Delta 27,421
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(Excess) $ (1,454)
=========
(d) Reflects the tax effect of the Sale (pro forma adjustments) at a blended tax
rate of 36%.
VII (b) 3
(1 of 2)
Castle Energy Corporation and Subsidiaries
Pro Forma Consolidated Statement of Operations
Year Ended September 30, 2001
("$000's" Omitted)
(Unaudited)
Pro Forma Adjustments
------------------------------------------
Loss of
Operations Share of Tax
Historical Sold (a) Delta (b) Effects (c) Pro forma
---------- ---------- --------- ----------- ----------
Revenues:
Oil and gas sales $ 21,144 $ (21,144)
--------- ----------
21,144 (21,144)
--------- ----------
Expenses:
Oil and gas production 7,399 (7,399)
Exploration and production - general and administrative 1,828 (1,828)
Depreciation, depletion and amortization 3,470 (3,470)
Impairment of foreign unproved properties 2,765 $ 2,765
--------- ---------- --------
15,462 (12,697) 2,765
--------- ---------- --------
Corporate general and administrative 4,169 4,169
--------- ---------- --------
19,631 (12,697) 6,934
--------- ---------- --------
Operating income 1,513 (8,447) (6,934)
--------- ---------- --------
Other income (expense):
Interest income 641 641
Other income 42 42
Equity in income of Delta $ 1,471 1,471
Equity in loss of Networked Energy LLC (99) (99)
--------- ---------- ---------- ---------- ----------
584 - 1,471 2,055
--------- ---------- ---------- ---------- ----------
Income before provision for (benefit of) income taxes 2,097 (8,447) 1,471 (4,879)
--------- ---------- ---------- ---------- ----------
(Provision for) benefit of income taxes:
State (11) (11)
Federal (370) (370)
--------- ---------- ---------- ---------- ----------
(381) - - - (381)
--------- ---------- ---------- ---------- ----------
Net income $ 1,716 $ (8,447) $ 1,471 $ - $ (5,260)
========= ========== ========== ========== ==========
Net income (loss) per share:
Basic $ 0.26 $ (1.27) $ 0.22 $ - $ (0.79)
========= ========== ========== ========== ==========
Diluted $ 0.25 $ (1.24) $ 0.22 $ - $ (0.79)
========= ========== ========== ========== ==========
Weighted average number of common and potential dilutive
common shares outstanding:
Basic 6,643,724 6,643,724 6,643,724 6,643,724 6,643,724
========= ========== ========== ========== ==========
Diluted 6,818,855 6,818,855 6,818,855 6,818,855 6,818,855
========= ========== ========== ========== ==========
See Accompanying Notes to the Pro Forma Consolidated Statement of Operations -
Year Ended September 30, 2001
VII b (3)
(2 of 2)
Castle Energy Corporation
Notes to the Pro Forma Consolidated Statements of Operations
Year Ended September 30, 2001
Unaudited
("$000's" Omitted)
a. Reflects the operating results from the domestic oil and gas properties sold
to Delta. Although the Company expects to reduce its corporate general and
administrative expenses as a result of the Sale, no reduction of corporate
general and administrative expenses has been reflected in the Pro Forma
Consolidated Statement of Operations because the intended reductions have
not yet been achieved. The Company has eliminated all exploration and
production general and administrative expenses because Delta has assumed
these operations, including hiring the related employees and assuming the
related field office leases and other expenses.
b. Reflects the Company's share of Delta's pro forma net income based upon the
equity method of accounting as follows:
Delta net income (loss) for fiscal year ended June 30, 2001 $ 345
Pro forma adjustments per Delta proxy dated May 2, 2002:
Sale of other oil and gas properties to Sovereign
Holdings LLC (1,588)
Acquisition of Castle properties 8,447
Sale of portion of Castle properties to BWAB (477)
Depletion (1,974)
Interest expense related to acquisition debt (1,410)
-------
Delta loss adjusted 3,343
Castle share ownership of Delta - % x 44%
-------
$ 1,471
=======
The pro forma results do not reflect the gain of $1,608 directly related
to the Sale
c. Income tax benefits have been eliminated as a result of income tax valuation
allowances for tax benefits otherwise arising from pro forma losses.
VII (b) 4
(1 of 2)
Castle Energy Corporation and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Period October 1, 2001 to March 31, 2002
("$000's" Omitted)
(Unaudited)
Pro Forma Adjustments
------------------------------------------
Loss of
Operations Share of Tax
Historical Sold (a) Delta (b) Effects (c) Pro forma
---------- ---------- --------- ----------- ----------
Revenues:
Oil and gas sales $ 6,699 $ (6,699)
--------- ----------
6,699 (6,699)
--------- ----------
Expenses:
Oil and gas production 2,613 (2,613)
Exploration and production general and administrative 642 (642)
Depreciation, depletion and amortization 2,414 (2,414)
--------- ----------
5,669 (5,669)
--------- ----------
Corporate general and administrative 1,956 $ 1,956
--------- ---------- ---------
Operating income (926) (1,030) (1,956)
--------- ---------- ---------
Other income (expense):
Interest income 43 43
Other income 1 1
Equity in loss of Delta $ (1,096) (1,096)
Equity in loss of Networked Energy LLC (82) (82)
Impairment provision - marketable securities (204) (204)
--------- ---------- ---------- ---------
(242) - (1,096) (1,338)
--------- ---------- ---------- ---------
Income before provision for income taxes (1,168) (1,030) (1,096) (3,294)
--------- ---------- ---------- ---------
(Provision for) benefit of income taxes:
State 12 12
Federal 409 409
--------- ---------- ---------- ---------- ---------
421 - - - 421
--------- ---------- ---------- ---------- ---------
Net income (loss) $ (747) $ (1,030) $ (1,096) $ - $ (2,873)
========= ========== ========== ========== =========
Net income (loss) per share:
Basic $ (0.11) $ (0.16) $ (0.16) $ - $ (0.43)
========= ========== ========== ========== =========
Diluted $ (0.11) $ (0.15) $ (0.16) $ - $ (0.43)
========= ========== ========== ========== =========
Weighted average number of common and potential dilutive
common shares outstanding:
Basic 6,632,884 6,632,884 6,632,884 6,632,884 6,632,884
========= ========== ========== ========== =========
Diluted 6,756,927 6,756,927 6,756,927 6,756,927 6,756,927
========= ========== ========== ========== =========
See Accompanying Notes to the Pro Forma Consolidated Statement of Operations -
Six Months Ended March 31, 2002
VII b (4)
(2 of 2)
Castle Energy Corporation
Notes to the Pro Forma Consolidated Statements of Operations
Six Months Ended March 31, 2002
Unaudited
("$000's" Omitted)
a. Reflects the operating results from the domestic oil and gas properties sold
to Delta. Although the Company expects to reduce its corporate general and
administrative expenses as a result of the Sale, no reduction of corporate
general and administrative expenses has been reflected in the Pro Forma
Consolidated Statement of Operations because the intended reductions have
not yet been achieved. The Company has eliminated all exploration and
production general and administrative expenses because Delta has assumed
these operations, including hiring the related employees and assuming the
related field office leases and other expenses.
b. Reflects the Company's share of Delta's pro forma net loss based upon the
equity method of accounting as follows:
Delta net (loss) for six months ended December 31, 2001 $ (1,906)
Pro Forma adjustments per Delta's proxy dated May 2, 2002:
Sale of other oil and gas properties to Sovereign
Holdings LLC (331)
Acquisition of Castle properties 1,030
Sale of portion of Castle properties to BWAB (141)
Depletion (441)
Interest expense related to acquisition debt (704)
--------
Delta pre-tax loss adjusted (2,493)
Castle share ownership of Delta - % x 44%
--------
$ (1,096)
========
c. Income tax benefits have been eliminated as a result of income tax valuation
allowances for tax benefits otherwise arising from pro forma losses.