1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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Commission File Number 0-14905
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 13-3130236
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, N.Y. 10022
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(Address of principal executive offices) (Zip Code)
(212) 688-3333
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock,
$.08 par value, as of November 13, 1995, the latest practicable date, is
25,121,017 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
-------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 63,420 $ 943,371
Cash - restricted 223,550 214,630
Accounts receivable 1,152,363 1,031,206
Inventory 629,402 951,472
Prepaid expenses 606,001 484,525
------------ -------------
Total current assets 2,674,736 3,625,204
------------ -------------
Property, plant and equipment:
Unevaluated property not subject
to amortization 5,741,186 4,467,147
Oil and gas properties pursuant
to the full cost method 29,627,753 28,903,520
Refinery property and equipment 15,521,995 15,536,279
Other 524,389 540,753
------------ -------------
51,415,323 49,447,699
Less: Accumulated depreciation,
depletion and amortization (22,050,918) (21,167,110)
------------ -------------
Total property, plant and equipment 29,364,405 28,280,589
------------ -------------
Other long-term assets, net 293,029 323,920
------------ -------------
Total Assets $ 32,332,170 $ 32,229,713
============ =============
See notes to consolidated financial statements
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 82,237 $ --
Current installments of long-term debt 701,250 1,168,750
Accounts payable 2,153,893 1,383,082
Accrued expenses and other liabilities 1,077,252 1,101,834
------------ -------------
Total current liabilities 4,014,632 3,653,666
Long term debt 6,601,421 6,601,421
------------ -------------
Total Liabilities 10,616,053 10,255,087
Commitments and Contingencies (Note 2)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $3.00,
authorized 7,000,000 shares,
none issued -- --
Common stock, par value $.08, 50,000,000
shares authorized; 22,656,471 shares
issued and outstanding in 1995 and
19,099,048 shares in 1994 1,812,518 1,527,924
Additional paid-in capital 73,722,546 71,562,434
Stock purchase warrants 1,297,754 1,297,754
Accumulated Deficit (55,116,701) (52,413,486)
------------ -------------
Total Stockholders' Equity 21,716,117 21,974,626
------------ -------------
Total Liabilities and
Stockholders' Equity $ 32,332,170 $ 32,229,713
============ =============
See notes to consolidated financial statements
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1995 1994
------------ -------------
Revenues:
Oil and gas sales $ 304,870 $ 319,284
Refinery lease fees 399,933 629,290
Gain on disposal of assets 25,165 -
Interest Income (15,128) 32,101
Other 55,801 34,366
------------ -------------
Total revenues 770,641 1,015,041
------------ -------------
Expenses:
Operating 70,068 126,565
General and Aministrative 835,088 961,852
Depreciation, depletion and
amortization 303,432 358,716
Interest 237,005 291,946
------------ -------------
Total expenses 1,445,593 1,739,079
------------ -------------
Net Loss $ (674,952) $ (724,038)
============ =============
Loss per share of common stock $ (0.04) $ (0.04)
Weighted average number of shares
outstanding 19,299,048 19,099,013
============ =============
See notes to consolidated financial statements
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1995 1994
------------ -------------
REVENUES:
Oil and gas sales $ 929,799 $ 902,860
Refinery lease fees 779,860 1,611,041
Gain on disposal of assets 25,165 -
Interest income 21,074 82,379
Other 91,773 105,734
------------ -------------
Total revenues 1,847,671 2,702,014
------------ -------------
EXPENSES:
Lease operating 278,089 478,974
General and Administrative 2,583,460 2,980,388
Depreciation, depletion and
amortization 931,885 1,075,002
Interest 757,452 1,033,810
------------ -------------
Total expenses 4,550,886 5,568,174
------------ -------------
Net Loss $ (2,703,215) $ (2,866,160)
============ =============
Loss per share of common stock $ (0.13) $ (0.17)
============ =============
Weighted average number of shares
outstanding 21,535,847 17,345,366
============ =============
See notes to consolidated financial statements
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1995 1994
--------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,682,902) $ (2,866,160)
------------ ------------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and depletion 931,885 1,075,002
Amortization of bond/loan costs 67,997 162,097
Provision for issuance of warrants -- 210,588
Gain on disposal of assets (25,165) --
Changes in current assets & liabilities:
(Increase) decrease in accounts rec (109,157) 575,543
Decrease in inventory 322,070 136,174
(Increase) decrease in prepaid expe (140,276) (15,570)
Increase (decrease) in accounts payable
and accrued expense 846,230 (4,780,664)
------------ ------------
Total adjustments 1,893,584 (2,636,830)
------------ ------------
Net cash used by operating activities (789,318) (5,502,990)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (1,998,272) (4,397,471)
Additions to refinery property and equipmen -- 4,147
(Additions) retirements to other fixed asse (53,756) (21,544)
Proceeds from sale of assets 31,185 --
------------ ------------
Net cash used in investing activities (2,020,843) (4,371,780)
------------ ------------
Cash flows from financing activities:
Cash - restricted (8,920) (330,512)
Increase (decrease) in notes payable 82,237 (585,078)
Payments on long-term debt (467,500) (3,251,476)
Proceeds from sale of marketable securities -- 288,702
Proceeds from issuance of common stock, net of
stock registration costs, subscriptions
receivable and commissions 2,324,361 15,106,830
Proceeds from exercise of stock warrants 32 --
------------ ------------
Net cash provided by financing activities 1,930,210 11,228,466
------------ ------------
Net (decrease) increase in cash
and cash equivalents (879,951) 1,353,696
Cash and cash equivalents at beginning of period 943,371 53,137
------------ ------------
Cash and cash equivalents at end of period $ 63,420 $ 1,406,833
============ ============
See notes to consolidated financial statements
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
Notes
Additional Stock receivable
Common Stock paid-in purchase for issuance
Shares Amount capital warrants of stock Deficit Total
--------- ------------ ---------- ---------- ------------- ---------- -----------
Balance, December 31, 1994 19,099,048 $1,527,924 $71,595,370 $1,297,754 ($32,936) ($52,413,486) $21,974,626
Warrants Exercised 8 1 31 -- -- -- 32
Stock issued in lieu of
accounts payable 209,205 16,736 83,264 100,000
Stock issued for services 10,000 800 19,513 -- -- -- 20,313
Sale of common stock - net 3,338,210 267,057 2,057,304 -- -- -- 2,324,361
Net loss for the period -- -- -- -- -- (2,703,215) (2,703,215)
---------- ---------- ----------- ---------- -------- ------------ -----------
Balance, September 30, 1995 22,656,471 $1,812,518 $73,755,482 $1,297,754 ($32,936) ($55,116,701) $21,716,117
========== ========== =========== ========== ======== ============ ===========
See notes to consolidated financial statements.
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements of American
International Petroleum Corporation and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September
30, 1995 and the results of operations and the cash flows for the three months
and nine months ended September 30, 1995 and 1994. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 1994 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's 1994 Annual Report on Form 10-K.
2. CONTINGENCIES
IRS Excise Tax Claim
In May 1992, a Company subsidiary, American International Refinery, Inc.
("AIRI"), was notified by the Internal Revenue Service ("IRS") that excise
taxes, penalties and interest of approximately $3,500,000 were owed from the
sale of fuel products during 1989. The IRS claims that AIRI failed to comply
with an administrative procedure that required sellers and buyers, in tax-free
transactions, to obtain certification from the IRS. The Company believes that
AIRI complied with the substance of the existing requirements, and such sales
were either tax-free or such excise taxes were paid by the end-users of such
products. The Company has submitted a formal response, and discussions with
the IRS National Appeals office are continuing. At this time the Company is
unable to determine what liability may arise from this assessment, although the
IRS has informed the Company that they are nullifying approximately $650,000 of
the penalties included in the $3.5 million mentioned above.
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Legal Proceedings
The Company and its subsidiaries are party to various legal proceedings,
including environmental matters. Although the ultimate disposition of these
proceedings is not presently determinable, in the opinion of the Company, any
liability that might ensue would not be material in relation to the
consolidated financial position or results of operations of the Company.
3. PROPERTY, PLANT AND EQUIPMENT
On March 31, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SAFS No.
121 addresses the accounting for the impairment of long-lived assets,
identified intangibles and goodwill related to those assets and requires that
the carrying amount of impaired assets be reduced to fair value. SFAS No. 121
must be adopted by the Company in its financial statements for the year ending
no later than December 31, 1996 although earlier adoption is encouraged. The
Company has not yet determined the effect, which could be material, of the
adoption of SFAS No. 121 on the financial statements or the date of adoption.
4. SUBSEQUENT EVENTS
On November 1, 1995, the Company reached a preliminary agreement (the
"Agreement") with Far Eastern Hydrocarbons Ltd., a Hong Kong Corporation
("FEH"), to purchase 20% of the issued and outstanding common stock of Resource
Holdings, Inc. ("RHI"), a Delaware corporation and wholly- owned subsidiary of
FEH, for $7.3 million to be paid by issuing 4.9 million shares of the Company's
common stock valued at $1.50 per share. Both parties have expressed a desire
that the Agreement, which has been approved by the respective Boards of both
companies, be closed on or before December 29, 1995 subject to the completion
of appropriate due diligence. The Agreement also gives the Company a 6 month
option to acquire the remaining 80% of RHI's common stock for an aggregate
price of $25 million, payable with the Company's common shares priced at a 10%
discount to the average closing bid price of the Company's Common Stock for the
20 trading days immediately preceding the closing. The exercise of such option
will be subject to Company shareholder approval, which the Company has agreed
to seek immediately upon the closing of its 20% acquisition of RHI.
RHI's assets consist of its wholly-owned Panamanian corporation, Kondur
Petroleum S.A. ("Kondur"), which owns 34.46% of the Malacca Straight PSC
Contract ("Malacca") in Sumatra, Indonesia. Kondur is the largest
Indonesian-owned domestic operator in Indonesia. The remaining interests in
Malacca are owned by China National Offshore Oil Corporation and Novus
Petroleum Ltd. (the "Partners"). Malacca
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covers an area of 2.7 million acres and contains 16 oil fields, which are
operated by Kondur, and are currently producing an aggregate of approximately
21,500 barrels of oil per day, providing Kondur with approximately $500,000 per
month in after-tax profits. Kondur intends to pay the Company's share of
these profits in the form of monthly dividend distributions to the Company.
According to FEH, Malacca has an estimated 55 million barrels of proven
recoverable oil reserves and 35 billion cubic feet of proven recoverable gas
reserves. It also includes an additional 80 million barrels and 47 Bcf of
probable oil and gas reserves, respectively, and 150 million barrels of
potential oil equivalent reserves.
FEH intends to be a long-term shareholder of the Company and has indicated an
interest in providing assets and capital to fund certain energy-related
projects to be undertaken by the Company as agreed to from time to time by FEH
and the Company, with the intent that the Company participate significantly in
the international energy community.
On October 27, 1995, the Company signed two Letters of Intent and a Memorandum
of Understanding ("MOU") with P.T. Pelangi Niaga Mitra International
("Pelangi"), a privately held Indonesian company. Pelangi has won the tender
and was awarded the rights to obtain Technical Assistance Contracts and to
operate the Lapangan Haurgeulis ("LH") and the Lapangan Pamanukan Selatan
("LPS") Fields, both with gas discoveries located in West Java, Indonesia.
The Company is to farm-in to an undivided 49% working interest in the LH and
LPS discoveries, as discussed below, and to earn its interest by providing 100%
of the funding for the exploration, development and operation of both
discoveries. The Company also is to be the operator of the related fields and
is to be reimbursed for the funding from 100% of the future gas production as
cost recovery, and receive 75% of the profit gas until it has recovered 175% of
the advanced funds. At that point, the Company's interest will revert to its
original 49%. Indirect overhead charges of up to 5% will be also chargeable by
the Company as part of cost recovery.
The Company's funding requirements for the gas discoveries will approximate
$700,000 during the first six months after closing of the initial transaction
with Pelangi. The Company expects LH to close by year-end, and LPS during the
first quarter of 1996, subject to the Company's completion of its geological
and engineering evaluations and appropriate due diligence.
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The MOU entitles the Company to a two-year right of first refusal to farm-in to
a 49% undivided working interest in any future contracts obtained by Pelangi
from Pertamina, the Indonesian Government Oil Company. The Company will have
three months to exercise its farm-in right after receipt of notification by the
Company that such future contracts are available. The cost of such contracts
are to be negotiated from time to time.
The Company recently completed Regulation S Offerings of its common stock, in
which it sold an aggregate of 1,864,546 shares for net proceeds of $943,500.
Approximately 82% of the sales occurred in October 1995, and the remainder
occurred in September 1995.
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ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit as of September 30, 1995 was
approximately $1,340,000 compared to a deficit of approximately $28,000 at
December 31, 1994, due primarily to lower than expected lease fee proceeds from
the Lessee (Gold Line Refining, Ltd. or "Gold Line") of the Company's refinery
during 1995 (See "Results of Operations - Refinery Operations"). Gold Line's
new government contract, coupled with its other contract currently in effect,
will require it to process between 14,000 and 16,000 barrels of feedstock per
day, which in turn is expected to provide an additional $48,000 to $75,000 of
future monthly lease fee proceeds to the Company, compared to the average
monthly lease fees of approximately $110,000 received from April through
October 1995.
During the first nine months of 1995, the Company utilized approximately
$803,000 to pay current portions of debt and related interest and $2,052,000
for investing activities during the current period, primarily for oil and gas
exploration in Peru. It also utilized approximately $789,000 for operations.
The net loss for the period totalled $2,682,902, including non-cash provisions
for depreciation, depletion, and amortization of $999,882. Current assets
other than cash decreased approximately $73,000, and approximately $846,000 was
provided by an increase in accounts payable.
The Company's work obligations in Peru and Colombia during the next twelve
months totals approximately $750,000. The Company expects to finance these
obligations with borrowed funds, primarily from local banks in South America.
However, the number of wells that the Company may drill in these areas, in
addition to the satisfaction of its work obligations, will depend upon the
level of success of its drilling efforts, and upon available capital.
The Company's 12% Secured Debentures (the "Debentures") require certain annual
principal and semi-annual interest payments, which began December 31, 1994.
The Debentures contain certain restrictive covenants and conditions with which
the Company must comply. In June 1995, MG Trade Finance Corporation ("MGTF"),
which holds 90% of the Debentures, agreed to waive certain restrictive
covenants related to the Company's ability to borrow funds from entities other
than MGTF and returned all of its existing Company Warrants (to purchase
436,667 shares of the Company's Common Stock
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at an average price of $16.32 per share) in exchange for the Company's issuing
new warrants to MGTF to purchase 150,000 shares of the Company's Common Stock
at $2.00 per share. Approximately $701,000 and $252,000 in principal and
interest related to the Debentures, respectively, are due December 31, 1995.
The Company is currently in compliance with all covenants and conditions
related to the Debentures. In the event the Company is unable to meet its
obligations pursuant to the Debentures in a timely manner, the Company's oil
and gas reserves and operations could be adversely affected.
In March 1995, Gold Line obtained a $15 million credit line from NationsBank to
provide Gold Line with funding to purchase feedstock for its refinery
operations. The terms of this credit line included a Subordination Agreement,
to which the Company is also a party, wherein the Company agreed to subordinate
its $1.8 million note receivable (the "Note") from Gold Line. Pursuant to
certain restrictive covenants included in the Subordination Agreement, Gold
Line was prevented from making its initial Note payment to the company in
September 1995, which included approximately $144,000 and $45,000 in principal
and interest, respectively. Gold Line's ability to repay the Note is dependent
upon the profitability of its refinery operations, and the Company expects that
Gold Line's ability to repay will be enhanced by the signing of its new
government contract (See "Results of Operations - Refinery Operations").
However, there can be no assurance that Gold Line will be able to repay the
Note in full to the Company.
During 1995, the Company has pursued various methods of reducing its debt and
operating accounts payable, including obtaining foreign bank loans, extending
vendor payments over time, and stock issuances for cash or for services
rendered. The Company recently completed Regulation S Offerings of its common
stock, in which it sold an aggregate of 1,864,546 shares for net proceeds of
$943,500. Approximately 82% of the sales occurred in October 1995, and the
remainder occurred in September 1995.
Should the Indonesian Agreements the Company is currently negotiating be
completed, management anticipates that additional cash flow and working capital
will become available to the Company. While management believes these
Agreements will be consummated, there can be no assurance at this time that the
Company will be successful in completing them.
The terms of the Company's Employment Contract with its Chairman and Chief
Executive Officer, Dr. George N. Faris, required that the Company, under
certain circumstances, if a change of control were to occur, to make a cash
payment to him of up to 2.9 times his then current fixed compensation. In
addition, the Company has agreed, under certain conditions, to make severance
payments to Dr. Faris
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valued at $50,000 per year of his service to the Company, retroactive to 1981.
As of October 13, 1995, Dr. Faris agreed to relinquish his rights under both
the change of control and severance pay clauses of his Employment Agreement, in
exchange for 900,000 restricted shares of the Company's common stock.
The Company is currently having discussions with various parties who have
expressed an interest in purchasing the Refinery. Proceeds received from the
sale would be used by the Company to repay debt, to fund acquisitions of
producing oil and gas reserves, and to supplement the Company's operation and
general working capital requirements. However, there can be no assurance that
any sale agreement will be reached.
The Company intends to meet its capital and operating funds requirements in the
near term from revenues generated from operations, from additional debt and/or
equity financing as necessary and/or from proceeds from the sale of the
Refinery. However, there is no assurance of the success of any financing
effort the Company may pursue or the timing or success of the sale of the
Refinery. In the event the Company is not able to meet its future exploration
commitments in Colombia and Peru in a timely manner, Management believes it
will be able to extend certain commitments and may seek financial partners for
certain of its commitments. However, in the event the Company cannot meet its
exploration obligations by any of the means described above, certain prospects
in Colombia and Peru may be relinquished.
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RESULTS OF OPERATIONS
For the Three Months Ended September 30, 1995 as compared
to the Three Months Ended September 30, 1994
The following table highlights the Company's results of operations for the
three months ended September 30, 1995 and 1994.
For The Three Months
Ended September 30,
1995 1994
Exploration and Production Activity:
Colombia Properties:
--------------------
Revenues - Oil Sales (000's) $253 $264
Lease Operating Expenses (000's) $81 $103
Production Volume - Bbls 30,843 32,515
Average Price per Bbl $8.19 $8.13
Production Cost per Bbl $2.62 $3.18
DD&A per Bbl $3.86 $4.28
Peru Properties:
----------------
Revenues - Oil Sales (000's) $52 $55
Lease Operating Expenses (000's)
($12)(2) $17
Production Volume - Bbls 4,312 7,819
Average Price per Bbl
$11.96(3)
$7.00(4)
Production Cost per Bbl
($2.73)(2) $2.14
DD&A per Bbl (1) - -
Refinery Operations:
Refinery Lease Fees (000's) $400 $629
Maintenance Expenses (000's) $1 $6
Average Daily Throughput - (Bbls) 11,109 17,100
Average Throughput Fee $0.40 $0.40
__________________________________________________________________
(1) Excludes DD&A for Peruvian activity since all related properties are
currently considered "unevaluated".
(2) Reflects adjustments for over-accrued lease operating expenses during
the second quarter of 1995.
(3) Includes government royalty.
(4) Excludes government royalty.
Oil and Gas Operations:
Colombia
Colombian oil and gas sales during the third quarter of 1995 reflect a decrease
of approximately 5% compared to the same period in the prior year. Actual
production and sales were down
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approximately 21% and 26%, respectively, for the current quarter compared to
the same period last year. These decreases are due primarily to normal field
production decline and a decrease in the Company's workover projects during the
current period compared to the same period last year. The actual decrease in
sales during this quarter was offset by a 15% increase in sales of oil
resulting primarily because the Company has taken an excess of its working
interest share of produced oil, relative to its partner, Ecopetrol, of
approximately 4,100 barrels of oil during the third quarter of 1995. Ecopetrol
may make up this deficiency over time by taking up to 10% more than its working
interest share of production until the imbalance is cured.
The Company recently completed the first of a four-well drilling program in its
Toqui-Toqui Field. The Toqui #32 well was placed on production in
mid-September 1995 and has stabilized at a daily production rate of
approximately 140 barrels of oil. The Company drilled the well on a "sole
risk" basis and will receive 100% of the new production, after a 20% royalty
is paid to the government, until 200% of the well costs have been recovered.
The Company believes the four-well program will provide it with a minimum
additional net cash flow of $80,000 per month by the end of the first quarter
of 1996, depending upon the overall success of the program and the continuation
of the existing oil price.
Peru
Peru operations started in July 1994, and costs for the third quarter of 1994
are minimum costs incurred during initial work performed in starting up the
field and are not indicative of true operating costs for that period, in
contrast to the production costs presented for the third quarter of 1995.
Sales revenues and volumes presented for the third quarter of 1994 include
relatively high initial flush production and are not indicative of the ordinary
production levels, in contrast to the sales revenues and volumes presented for
the third quarter of 1995.
Production volumes for the current period have decreased approximately 45%
compared to the same period last year for the reason stated above. Revenues
only decreased approximately 5% due primarily to the Company receiving an
increase in the contract price that it receives for its oil which became
effective during the second quarter of 1995.
Production costs for the three months ended September 30, 1995 reflects
adjustments for overaccrued Lease Operating Expenses during the second quarter
of 1995, which have created a negative balance in Lease Operating Expenses for
Peru in the third quarter of 1995. Actual lease operating expense for this
period, exclusive of the adjustment, totalled approximately $15,000, for a unit
production cost of $3.48 per barrel.
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In early August 1995, the Peruvian Government approved the conversion of the
Company's Service Contract for Block IV to a License Contract under the
provisions of a new petroleum law. The new contract resulted in a significant
increase in the average price of the Company's oil during the third quarter of
1995. Net of the government's royalty, its average price of oil now
approximates $10.00 per barrel, a 42% increase over the old contract price.
The Company has had some recent success with a workover program, which has
increased the daily production rates in Block IV to approximately 75 - 100
barrels of oil. The Company plans to extend this workover program to other
well locations in the Block, with the objective of increasing daily production
rates in the Block to 400 - 500 barrels of oil per day.
All Peru properties are currently considered "unevaluated".
Refinery Operations:
Refinery lease fees decreased 36% in the current quarter compared to the third
quarter of 1994, primarily because Gold Line provided products under two
government contracts for an aggregate daily throughput level of 15,000 barrels
a day for the entire third quarter of last year, compared to operating under
only one contract for 10,000 barrels a day for only two months in this current
period. Gold Line was awarded an additional government contract during
September 1995, which is expected to increase its daily throughput requirement
to 14,000 to 16,000 barrels a day.
Other Revenue:
Other revenues increased by approximately $2,100, or 6%, during the current
quarter due primarily to the increase in foreign exchange gains in this period
compared to the same quarter of 1994. The other $19,000 increase reflected
during the current quarter is primarily due to a prior period reclassification
between interest income and other revenues.
General and Administrative:
General and Administrative expenses decreased in the third quarter of 1995 by
approximately $127,000, or 13%, compared to the same period during 1994.
Decreases realized in this period compared to the same period last year include
payroll & payroll related expenses, travel expenses, and investor relations
expenses, which decreased by $65,000, $22,000, and $63,000, respectively.
Legal and accounting fees increased in the current period compared to the third
quarter of 1994 by approximately $46,000 and $34,000, respectively, primarily
due to increased activity in the ongoing excise tax dispute with the IRS.
Office rents decreased by approximately $44,000 for the current quarter,
compared to the same period last year, due primarily to the reduction of leased
office
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space at the corporate office and in Colombia. Interest expense decreased
$55,000, or 19% for the three months ended September 30, 1995, compared to the
same period in 1994, due to the decrease in the outstanding balance of the
Company's 12% Secured Debentures outstanding as of June 30, 1995, compared to
June 30, 1994. Additional decreases are attributable to the reduction in the
interest rate on the Company's note payable to MGTF from prime plus 2%, for the
quarter ending September 30, 1994, to prime plus 1% for the current quarter.
Depreciation, Depletion and Amortization decreased approximately $55,000, or
15%, for the current period compared to the same period last year. The
depletion rate of $3.86 per barrel calculated and used for the entire year of
1995 is a 10% decrease from the $4.28 per barrel used in the same period last
year, due primarily to a write-down in the value of the Company's depletable
cost basis at December 31, 1994 and reduced oil production during 1995, as
previously discussed.
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RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1995 as compared to the
Nine Months Ended September 30, 1994
The following table highlights the Company's results of operations for the nine
months ended September 30, 1995 and 1994.
For The Nine Months
Ended September 30,
1995 1994
---- ----
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) $793 $848
Lease Operating Expenses (000's) $223 $453
Production Volume - Bbls 98,009 92,468
Average Price per Bbl $8.10 $8.13
Production Cost per Bbl $2.28 $3.18
DD&A per Bbl $3.86 $4.28
Peru Properties:
Revenues - Oil Sales (000's) $136 $55
Lease Operating Expenses (000's) $52 $17
Production Volume - Bbls 15,861 7,819
Average Price per Bbl $8.60 $7.00
Production Cost per Bbl $3.26 $2.14
DD&A per Bbl (1) - -
Refinery Operations:
Refinery Lease Fees (000's) $780 $1,611
Maintenance Expenses (000's) $3 $9
Average Daily Throughput - (Bbls) 10,539 15,249
Average Throughput Fee $0.40 $0.39
__________________________________________________________________
(1) Excludes DD&A for Peruvian activity since all related properties are
currently considered "unevaluated".
Oil and Gas Operations:
Colombia
Colombian oil and gas sales during the nine months ended September 30, 1995
reflect a decrease of approximately 6% compared to the same period in the prior
year. The decrease was limited to this amount primarily because the Company
has taken an excess of its working interest share of produced oil, relative to
its partner,
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Ecopetrol, of approximately 21,000 barrels of oil during the first nine months
of 1995. Ecopetrol may make up this deficiency by taking up to 10% more than
its working interest share of production until the imbalance is cured. Actual
gross production and sales of the Company's shareable oil were down
approximately 14% and 16%, respectively, for the current period compared to the
same period last year. Decreases in sales revenues compared to the same period
last year are attributable to the sale, as of May 1, 1995, of the Company's oil
directly to the end user at the well head, thereby receiving a price for the
oil that excludes transportation costs. Such costs were included in the sales
price during part of this same period last year, but not in the current period.
Oil production decreased due to a decrease in the well workover program during
the current period compared to the same period last year.
The Company recently completed the first of a four-well drilling program in its
Toqui-Toqui Field. The Toqui #32 well was placed on production in
mid-September 1995 and has stabilized at a daily production rate of
approximately 140 barrels of oil. The Company drilled the well on a "sole
risk" basis and will receive 100% of the new production, after a 20% royalty
is paid to the government, until 200% of the well costs have been recovered.
The Company believes the four-well program will provide it with a minimum
additional net cash flow of $80,000 per month by the end of the first quarter
of 1996, depending upon the overall success of the program and the continuation
of the existing oil sales price.
Peru
Peru operations started in July 1994, and costs reflected through the third
quarter of 1994 are minimum costs incurred during initial work performed in
starting up the field and are not indicative of true operating costs for that
period, in contrast to the production costs presented through the third quarter
of 1995. Sales revenues and volumes presented through the third quarter of
1994 include relatively high initial flush production and are not indicative of
the ordinary production levels, in contrast to the sales revenues and volumes
presented through the third quarter of 1995.
Although production volumes for the current period decreased approximately 45%
compared to the same period last year for the reason stated above, revenues
decreased only 5%, due primarily to the Company's receiving a higher contract
price for its oil, which price became effective during the second quarter of
1995.
Although production costs for the nine months ended September 30, 1995
increased approximately $35,000 compared to the same period last year, the
period ending September 30, 1994 reflected only three months of operations,
compared to nine months of operations for the current period. On a pro-rata
basis, the operating costs for the two periods were similar.
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All Peru properties are currently considered "unevaluated".
Refinery Operations:
Refinery lease fees decreased 52% in the current period compared to the same
period last year because Gold Line was not operational at all during the first
quarter of 1995 and only partially operational during the second quarter of
1995. During the first quarter of this year, Gold Line was in the process of
obtaining additional financing and, during the second quarter, had been
negotiating feedstock contracts and performing start-up maintenance. The
throughput fees increased 14%, from $0.35 a barrel to $0.40 a barrel over the
same period last year. The fees will increase to $0.50 per barrel starting
January 1, 1996.
Other Revenue:
Other revenues decreased approximately $14,000 during the current period due
primarily to the decrease in foreign exchange rate gains in this period
compared to the same period in 1994.
General and Administrative:
General and Administrative expenses decreased approximately $397,000, or 13%,
compared to the same period during 1994. Approximately one-half of this
decrease resulted from a non-cash charge adjusting the exercise price of
certain outstanding warrants in the first quarter 1994. Other decreases
realized in this period compared to the same period last year included payroll
& payroll related expenses, travel expenses and investor relations expenses,
which decreased approximately $344,000, $57,000 and $96,000, respectively.
Legal and accounting fees increased by approximately $166,000 and $26,484,
respectively, primarily due to increased activity in an ongoing excise tax
dispute with the IRS. Office rents decreased by approximately $41,000 for the
current period compared to the same period last year, due primarily to the
reduction of leased office space at the corporate office and in Colombia.
Interest expense decreased by $276,000, or 27% due to reductions in the balance
of the Company's 12% Secured Debentures outstanding as of June 30, 1995,
compared to June 30, 1994, and the decrease in the interest rate on the
Company's note payable to MGTF from prime plus 2% for the period ending
September 30, 1994, compared to prime plus 1% for the current period.
Depreciation, Depletion, and Amortization decreased approximately $143,000, or
13%, for the current period compared to the same period last year. The
depletion rate of $3.86 per barrel calculated for 1995 is a 10% decrease from
the $4.28 per barrel used in the same period last year, due primarily to a
write-down in the value of the Company's depletable cost basis at December 31,
1994 and reduced oil production during 1995, as previously discussed.
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PART II: OTHER INFORMATION
ITEM 5. (a) Indonesian Transactions
The Company's previously announced agreement with
P.T. Ustraindo Petrogas ("UPG") has been suspended
due to certain issues of controversy solely between
UPG and Pertamina, which issues are primarily related
to UPG's alleged non-performance of its contracts
with Pertamina. The company has elected to wait for
a final decision between UPG and Pertamina before
taking any further action regarding its agreement
with UPG. There is no assurance, however, that the
resolution of these issues will be favorable to the
Company.
On November 1, 1995, the Company reached a
preliminary agreement with Far Eastern Hydrocarbons
Ltd., a Hong Kong Corporation ("FEH"), to purchase
20% of the issued and outstanding common stock of
Resource Holdings, Inc. ("RHI"), a Delaware
corporation and wholly-owned subsidiary of FEH, for
$7.3 million to be paid by issuing 4.9 million shares
of the Company's common stock valued at $1.50 per
share. Both parties have expressed a desire that the
Agreement, which has been approved by the respective
Boards of both companies, be closed on or before
December 29, 1995 subject to the completion of
appropriate due diligence. The Agreement also gives
the Company a 6 month option to acquire the remaining
80% of RHI's common stock for an aggregate price of
$25 million, payable with the Company's common shares
priced at a 10% discount to the average closing bid
price of the Company's Common Stock for the 20
trading days immediately preceding the closing. The
exercise of such option will be subject to the
Company's shareholder approval, which the Company has
agreed to seek immediately upon the closing of its
20% acquisition of RHI.
RHI's assets consist of its wholly-owned Panamanian
corporation, Kondur Petroleum S.A. ("Kondur"), which
owns 34.46% of the Malacca Straight PSC Contract
("Malacca") in Sumatra, Indonesia. Kondur is the
largest Indonesian-owned domestic operator in
Indonesia. The remaining interests in Malacca are
owned by China National Offshore Oil Corporation and
Novus Petroleum Ltd. (the "Partners"). Malacca
covers an area of 2.7 million acres and contains 16
oil fields, which are operated by Kondur, and are
currently producing an aggregate of approximately
21,500 barrels of oil per day, providing Kondur with
approximately
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$500,000 per month in after-tax profits. Kondur
intends to pay the Company's share of these profits
in the form of monthly dividend distributions to the
Company. According to FEH, Malacca has an estimated
55 million barrels of proven recoverable oil reserves
and 35 billion cubic feet of proven recoverable gas
reserves. It also includes an additional 80 million
barrels and 47 Bcf of probable oil and gas reserves,
respectively, and 150 million barrels of potential
oil equivalent reserves.
FEH intends to be a long-term shareholder of the
Company and has indicated an interest in providing
assets and capital to fund certain energy-related
projects to be undertaken by the Company as agreed to
from time to time by FEH and the Company, with the
intent that the Company participate significantly in
the international energy community.
On October 27, 1995, the Company signed two Letters
of Intent and a Memorandum of Understanding ("MOU")
with P.T. Pelangi Niaga Mitra International
("Pelangi"), a privately held Indonesian company.
Pelangi has won the tender and was awarded the rights
to obtain Technical Assistance Contracts and to
operate the Lapangan Haurgeulis ("LH") and the
Lapangan Pamanukan Selatan ("LPS") Fields, both with
gas discoveries located in West Java, Indonesia.
The Company is to farm-in, as discussed below, to an
undivided 49% working interest in the LH and LPS
discoveries and to earn its interest by providing
100% of the funding for the exploration, development
and operation of both discoveries. The Company also
is to be the operator of the related fields and is
to be reimbursed for the funding from 100% of the
future gas production as cost recovery, and receive
75% of the profit gas until it has recovered 175% of
the advanced funds. At that point, the Company's
interest will revert to its original 49%. Indirect
overhead charges of up to 5% will be also chargeable
by the Company as part of cost recovery.
The Company's funding requirements for the gas
discoveries will approximate $700,000 during the
first six months after closing of the initial
transaction with Pelangi. The Company expects LH to
close by year-end, and LPS during the first quarter
of 1996, subject to the Company's completion of its
geological and engineering evaluations and
appropriate due diligence.
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The MOU entitles the Company to a two-year right of
first refusal to farm-in to a 49% undivided working
interest in any future contracts obtained by Pelangi
from Pertamina, the Indonesian Government Oil
Company. The Company will have three months to
exercise its farm-in right after receipt of
notification by the Company that such future
contracts are available. The cost of such contracts
are to be negotiated from time to time.
(b) President's Resignation
On November 3, 1995, the Company accepted the
resignation of its President and Chief Operating
Officer Mr. Kenneth N. Durham. Mr. Durham's
resignation was unrelated to any of the agreements
the Company is currently pursuing and is intended to
allow him the opportunity to explore other personal
and business interests.
(c) Regulation S Offerings
The Company recently completed Regulation S Offerings
of its common stock, in which it sold 1,864,546
shares for net proceeds of $943,500. Approximately
82% of the sales occurred in October 1995, the
remainder occurred in September 1995.
(d) Employment Contract
The terms of the Company's Employment Contract with
its Chairman and Chief Executive Officer, Dr. George
N. Faris, required that the Company, under certain
circumstances, if a change of control were to occur,
to make a cash payment to him of up to 2.9 times his
then current fixed compensation. In addition, the
Company has agreed, under certain conditions, to make
severance payments to Dr. Faris valued at $50,000 per
year of his service to the Company, retroactive to
1981. As of October 13, 1995, Dr. Faris agreed to
relinquish his rights under both the change of
control and severance pay clauses of his Employment
Agreement, in exchange for 900,000 restricted shares
of the Company's common stock.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K. None
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1995
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: /s/ Denis J. Fitzpatrick
----------------------------
Denis J. Fitzpatrick
Chief Financial Officer
By: /s/ William L. Tracy
----------------------------
William L. Tracy
Treasurer/Controller
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 -- Financial Data Schedule