FILED PURSUANT TO RULE 424(b)(3)
FILE NO. 333-66282
FILE NO. 333-66282-01
PROSPECTUS SUPPLEMENT
TRI-UNION DEVELOPMENT CORPORATION
OFFER TO EXCHANGE
$130,000,000 REGISTERED 12.5% SENIOR SECURED NOTES DUE 2006 FOR
ALL OUTSTANDING UNREGISTERED 12.5% SENIOR SECURED NOTES DUE 2006
PAYMENT UNCONDITIONALLY GUARANTEED ON A SENIOR SECURED BASIS BY
TRI-UNION OPERATING COMPANY
----------
RECENT DEVELOPMENTS
The attached Quarterly Report on Form 10-Q, dated November 14, 2001,
supplements the prospectus dated November 2, 2001, of Tri-Union Development
Corporation and Tri-Union Operating Company.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
December 3, 2001.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2001
Commission file number: 333-66282
TRI-UNION DEVELOPMENT CORPORATION
FORMERLY KNOWN AS TRIBO PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0381207
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
530 LOVETT BOULEVARD
HOUSTON, TEXAS 77006
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 533-4000
(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 no x
--- ---
AS OF NOVEMBER 13, 2001 THERE WERE 368,333 SHARES OF CLASS A COMMON STOCK, PAR
VALUE $0.01 PER SHARE AND 65,000 SHARES OF CLASS B COMMON STOCK, PAR VALUE $0.01
PER SHARE, OUTSTANDING
TRI-UNION DEVELOPMENT CORPORATION
(formerly Tribo Petroleum Corporation)
INDEX TO FINANCIAL INFORMATION
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income and Comprehensive Income for the
Three and Nine Months Ended September 30, 2001 and 2000 (unaudited) .... 3
Consolidated Balance Sheets at September 30, 2001 (unaudited) and
December 31, 2000 (audited)............................................. 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000 (unaudited)................................ 5
Notes to Consolidated Financial Statements (unaudited).................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk............... 19
Part II. Other Information
Item 1. Legal Proceedings....................................................... 20
Signature............................................................................. 22
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRI-UNION DEVELOPMENT CORPORATION
(FORMERLY TRIBO PETROLEUM CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
------------------------------ ------------------------------
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues and other:
Oil and gas sales $ 13,398,527 $ 22,267,327 $ 68,065,015 $ 48,454,590
Gain (loss) on marketable securities (139,556) 76,972 (556,735) 979,667
Gain on derivatives contract 8,365,229 -- 11,951,855 --
Other (loss) income (74,846) 47,367 822,076 466,674
------------ ------------ ------------ ------------
Total revenues and other 21,549,354 22,391,666 80,282,211 49,900,931
Expenses:
Lease operating expense 4,607,123 5,436,034 15,087,552 12,240,176
Workover expense 884,596 2,662,926 4,224,725 4,359,824
Production taxes 327,232 592,635 1,668,808 1,305,076
Depreciation, depletion and amortization 3,147,998 3,584,641 10,410,040 8,978,962
General and administrative expenses 1,350,751 1,115,201 4,499,985 3,562,075
------------ ------------ ------------ ------------
10,317,700 13,391,437 35,891,110 30,446,113
------------ ------------ ------------ ------------
Income from operations 11,231,654 9,000,229 44,391,101 19,454,818
------------ ------------ ------------ ------------
Interest expense 7,529,222 3,355,539 13,805,472 10,088,789
------------ ------------ ------------ ------------
Income before reorganization costs and
income taxes 3,702,432 5,644,690 30,585,629 9,366,029
Reorganization costs 690,458 910,217 8,001,566 1,825,026
------------ ------------ ------------ ------------
Income before income taxes 3,011,974 4,734,473 22,584,063 7,541,003
Provision (benefit) for income taxes (178,798) -- 212,644 --
------------ ------------ ------------ ------------
Net income 3,190,772 4,734,473 22,371,419 7,541,003
Other comprehensive income:
Unrealized gains on available-for-sale securities -- -- -- (1,803)
------------ ------------ ------------ ------------
Comprehensive income $ 3,190,772 $ 4,734,473 $ 22,371,419 $ 7,539,200
============ ============ ============ ============
Net income per share - basic and diluted $ 7.36 $ 19.86 $ 71.40 $ 31.63
============ ============ ============ ============
Weighted average shares outstanding - basic
and diluted 433.333 238,333 313,333 238,333
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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TRI-UNION DEVELOPMENT CORPORATION
(FORMERLY TRIBO PETROLEUM CORPORATION)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
(unaudited) (audited)
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,541,092 $ 32,989,939
Restricted cash 9,497,992 --
Accounts receivable, net of allowance for doubtful accounts of
$336,668 and $351,505 18,480,773 24,281,409
Marketable securities -- 472,248
Prepaid expenses and other 1,506,260 1,777,763
Derivatives contract 8,265,100 --
------------- -------------
Total current assets 49,291,217 59,521,359
Oil and natural gas properties 133,507,386 126,178,261
Accumulated depletion (49,256,614) (39,045,538)
------------- -------------
Oil and natural gas properties, net 84,250,772 87,132,723
Other property and equipment 1,473,048 477,951
Accumulated depreciation (385,175) (302,430)
------------- -------------
Other property and equipment, net 1,087,873 175,521
Other assets:
Restricted cash and bonds 5,151,083 4,674,645
Loan costs, net 18,289,610 99,700
Receivable from affiliate, net 9,717 989,866
Derivatives contract 3,686,755 --
------------- -------------
Total other assets 27,137,165 5,764,211
------------- -------------
Total assets $ 161,767,027 $ 152,593,814
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise:
Current liabilities
Accounts payable and accrued liabilities $ 26,233,974 $ 26,609,284
Accounts payable subject to renegotiation 5,929,172 --
Accrued interest 4,739,583 7,224,477
Notes payable -- 333,880
Current maturities of senior secured notes 20,000,000 --
------------- -------------
Total current liabilities 56,902,729 34,167,641
Pre-petition liabilities:
Accounts payable and accrued liabilities -- 38,015,232
Accrued interest -- 6,226,808
Note payable in default -- 104,323,500
------------- -------------
Total pre-petition liabilities subject to compromise -- 148,565,540
Senior secured notes 87,369,964 --
------------- -------------
Total liabilities 144,272,693 182,733,181
Stockholders' equity (deficit):
Class A common stock, $0.01 par value, 445,000 shares authorized;
368,333 and 238,333 shares issued and outstanding 3,683 2,383
Class B common stock, $0.01 par value, 65,000 shares authorized;
65,000 and none issued and outstanding 650 --
Additional-paid-in-capital 25,260,332 --
Accumulated deficit (7,770,331) (30,141,750)
------------- -------------
Total stockholders' equity (deficit) 17,494,334 (30,139,367)
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 161,767,027 $ 152,593,814
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
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TRI-UNION DEVELOPMENT CORPORATION
(FORMERLY TRIBO PETROLEUM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTH PERIODS ENDED
-----------------------------------
September 30, September 30,
2001 2000
------------ -------------
Cash flows from operating activities:
Net income $ 22,371,419 $ 7,541,003
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation, depletion and amortization 10,410,040 8,978,962
Amortization of bond discount 2,119,964 --
Amortization of debt issuance costs 1,713,356 --
Loss (gain) on sale of marketable securities 556,735 (979,667)
Accretion of bond interest (48,721) (129,764)
Loss on sale of equipment 7,042 --
Reorganization costs 8,001,566 1,825,026
Gain on derivatives contract (11,951,855) --
Changes in assets and liabilities:
Deposit of restricted cash (9,497,992) --
Accounts receivable 5,800,636 (2,896,506)
Prepaid expenses and other 271,503 (1,424,677)
Receivable from affiliate 92,313 230,543
Accounts payable and accrued liabilities (3,513,892) 15,605,302
Accounts payable subject to renegotiation 5,929,172 --
Pre-petition liabilities subject to compromise (44,242,039) (1,424,676)
------------- -------------
Net cash (used in) provided by operating activities before
reorganization items (11,980,753) 27,325,546
Operating cash flows from reorganization items:
Bankruptcy related professional fees paid (6,205,694) (1,133,856)
Interest earned during bankruptcy 945,722 288,841
------------- -------------
Net cash used in reorganization items (5,259,972) (845,015)
------------- -------------
Net cash (used in) provided by operating activities (17,240,725) 26,480,531
Cash flows from investing activities:
Purchase of marketable securities (742,909) (796,522)
Proceeds from sale of marketable securities 555,964 1,872,815
Additions to oil and natural gas properties (10,652,235) (9,551,248)
Purchase of furniture, fixtures and equipment (1,025,190) (28,883)
Proceeds from disposal of equipment 6,500 --
Proceeds from sales of oil and natural gas properties 2,225,529 389,971
Purchase of restricted cash and bonds (427,717) (255,000)
------------- -------------
Net cash used in investing activities (10,060,058) (8,368,867)
Cash flows from financing activities:
Proceeds from long-term debt 113,444,294 --
Payments of long-term debt (104,323,500) (381,500)
Payment of loan fees (2,934,978) --
Decrease in notes payable (333,880) (358,429)
------------- -------------
Net cash provided by (used in) financing activities 5,851,936 (739,929)
Net increase (decrease) in cash and cash equivalents (21,448,847) 17,371,735
Cash and cash equivalents - beginning of period 32,989,939 2,813,996
------------- -------------
Cash and cash equivalents - end of period $ 11,541,092 $ 20,185,731
============= =============
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 19,525,512 $ 2,739,520
Non-cash transactions:
Transfer of long-term debt to pre-petition liabilities subject
to compromise -- 104,700,000
Discount on units offering (24,750,000) --
Transfer of oil and natural gas properties to affiliate 1,097,611 --
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
TRI-UNION DEVELOPMENT CORPORATION
(FORMERLY TRIBO PETROLEUM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Tri-Union Development Corporation ("TDC") was incorporated in the State of
Texas in 1996 and is the successor by merger to Tribo Petroleum Corporation
("Tribo"), which was incorporated in September 1992. TDC and its subsidiary
(collectively, "the Company") is an independent oil and natural gas company
engaged in the acquisition, operation and development of oil and natural gas
properties primarily in areas of Texas and Louisiana, offshore in the shallow
waters of the Gulf of Mexico, and in the Sacramento Basin of northern
California.
The consolidated financial statements include the accounts of TDC and its
wholly owned subsidiary Tri-Union Operating Company ("TOC"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The information contained within these financial statements gives effect to our
merger with the former parent corporation, Tribo, on July 27, 2001.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM PRESENTATION
The accompanying unaudited consolidated interim financial statements and
disclosures for the three and nine months ended September 30, 2001 and 2000,
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with accounting principles
generally accepted in the United States of America. In the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation in all material respects of the results for
the interim periods have been made. The December 31, 2000 balance sheet was
derived from audited financial statements and notes included in a registration
statement, but do not include all disclosures required by accounting principles
generally accepted in the United States of America. The interim unaudited
financial statements for the three and nine months ended September 30, 2001 and
2000 should be read in conjunction with the Company's annual consolidated
financial statements for the years ended December 31, 2000 and 1999. The results
of operations for the three and nine months ended September 30, 2001 are not
necessarily indicative of results to be expected for the full year.
NOTE 3 -- 2001 EVENTS
(a) During March 2001, the Company entered into a lease agreement with a
related party for the lease of its current office facilities. The lease is on a
month-to-month basis and obligates the Company to pay the related party $26,000
per month.
(b) On May 23, 2001, TDC's plan of reorganization was confirmed by the
bankruptcy court, pending the completion of a securities offering. On June 18,
2001, TDC completed its securities offering and exited from bankruptcy. Net cash
proceeds from the offering provided sufficient available cash, allowing us to
pay or segregate funds for the payment of all claims in full. In addition, the
Company paid interest at 6% per annum for all unsecured pre-petition liabilities
subject to compromise, and interest at prime plus 2%, or 11.50% on the liability
relating to the cancellation of an executory contract.
(c) On May 25, 2001, the Company agreed to transfer certain oil and
natural gas properties with a net book value of approximately $1,138,000 to its
affiliate, Atasca Resources, Inc. In connection with this transaction, all
balances owing to and from the Company by its affiliates and its Chief Executive
Officer and sole shareholder on May 25, 2001 of approximately $1,013,000 were
forgiven. As a consequence of these transactions, the Company recorded a
one-time reorganization expense of approximately $1,985,000.
(d) On June 5, 2001, the Company sold certain oil and natural gas
properties for $2.2 million.
(e) On June 13, 2001, the Company increased its authorized share capital
to 445,000 shares of class A common stock and 65,000 shares of class B common
stock. The Company also affected a
-6-
238.333:1 stock split of its class A common stock. The consolidated financial
statements give retroactive effect to the stock split for all periods presented.
In connection with the stock split, the par value of the class A common stock
decreased from $1.00 to $0.01 per share. The par value of the class B common
stock is $0.01. The class B common stock is convertible into class A common
stock on a one for one basis upon the occurrence of certain events.
(f) On June 13, 2001, the Company issued a Prospectus for the sale of
130,000 Units, consisting of (1) $130 million of 12.5% senior secured notes due
2006 ("Notes") and (2) 130,000 shares of class A common stock of the Company.
Each unit consisted of $1,000 principal amount of Notes and one share of class A
common stock.
Notes
The Notes mature on June 1, 2006 and require amortization payments of the
greater of $20 million or 15.3% of the aggregate amount then outstanding as of
June 1, 2002 and 2003 and an amortization payment of the greater of $15 million
or 11.5% of the aggregate amount then outstanding as of June 1, 2004. Interest
is payable semi-annually on June 1 and December 1 of each year.
The Notes were issued at a 5.5% discount from their face amount resulting
in an aggregate discount of $7,150,000 that will be amortized as additional
interest expense over the term of the Notes.
Class A Common Stock
The Company issued 130,000 shares of class A common stock with an estimated
fair value of $17.6 million. The proceeds from the unit offering allocated to
the common stock gave rise to further bond discount, which will be amortized as
additional interest expense over the term of the Notes.
Class B Common Stock
In conjunction with the offering, the Company issued 65,000 shares of
class B common stock to the initial purchaser of the Notes. These shares had a
fair value of $11,000,000 and were considered as unit offering costs. The
portion of the offering costs associated with the issuance of the Notes will be
amortized as additional interest expense over the term of the Notes. The class B
common stock has special voting rights and the ability to control the Company's
board of directors, subject to certain limitations.
In addition, the Company incurred other offering costs of $9,625,000. The
portion of the offering costs associated with the issuance of the Notes will be
amortized as additional interest expense over the term of the Notes.
(g) On June 18, 2001, the Company entered into a derivatives contract for
approximately 80% of the Company's projected oil and gas production from proved
developed producing reserves through June 30, 2003 and has agreed to maintain,
on a monthly basis, a rolling two-year derivatives contract until the maturity
of the notes. Currently, TDC has derivatives contracts in place through
September 30, 2003.
(h) On July 27, 2001, Tribo merged with one of its wholly owned
subsidiaries, TDC. As a result of the merger, the surviving corporation was TDC,
which assumed all of the rights and obligations of Tribo.
(i) The exchange offer registration statement became effective on November
6, 2001; 22 days after contractual penalties of .5% of interest on the balance
of the notes began accruing. The penalty totaled $37,916.67.
NOTE 4 - RESTRICTED CASH
Restricted cash recorded as current assets represents amounts deposited
into escrow as required by our plan of reorganization to satisfy the payment in
full of all remaining disputed pre-petition claims.
Restricted cash recorded as other assets represent funds, which are
pledged or are held in trust for the satisfaction of regulatory operating
deposits and performance bonds.
-7-
NOTE 5 - DERIVATIVES CONTRACT
Upon the issuance of the senior secured notes, approximately 80% of the
Company's projected oil and natural gas production from proved developed
producing reserves, and the basis differential attributable to approximately 80%
of its projected proved developed producing natural gas production from the
Company's California properties, were contracted through September 30, 2003 at
estimated net realized prices of $4.04 per Mcf and $24.97 per Bbl, or a weighted
natural gas-equivalent price of approximately $4.10 per Mcfe. In connection with
the issuance of the notes, the Company has agreed to maintain, on a monthly
basis, a rolling two-year derivatives contract until the maturity of the notes,
subject to certain conditions. These derivative transactions do not qualify for
hedge accounting under FAS 133, therefore, the Company will be marking these
transactions to fair value, which will be reflected in the balance sheet and
statement of income. The estimated fair value of these derivative arrangements
of September 30, 2001 resulted in a net current asset of $8,265,100 and a net
non-current asset of $3,686,755, with an offsetting amount of $11,951,855,
recorded as gain on derivatives contract.
NOTE 6 - EARNINGS PER SHARE
The basic net income per common share is computed by dividing the net
income available to common shareholders by the weighted average number of common
shares outstanding.
Diluted net income per common share is computed by dividing the net income
available to common shareholders, adjusted on an as if converted basis, by the
weighted average number of common shares outstanding plus potential dilutive
securities.
There were no dilutive securities for the three and nine month periods
ended September 30, 2001 and 2000.
NOTE 7 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." FAS 133, as amended by FAS 137, is
effective for transactions entered into after June 15, 2000. FAS 133 requires
that all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded for each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and the type of hedge transaction. The
ineffective portion of all hedges will be recognized in earnings. As of January
1, 2001, the Company adopted FAS 133 (see Note 5).
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. In June 2000, the SEC issued
SAB 101B that delayed the implementation date of SAB 101 until the quarter ended
December 31, 2000, with retroactive application to the beginning of our fiscal
year. The adoption of SAB 101 did not have a material impact on our financial
position or results of operations.
In March 2000, the Financial Accounting Standards Board issued
interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An interpretation of APB No. 25" ("FIN 44"). FIN 44 clarified the
application of Opinion No. 25 in certain respects, including; the definition of
"employee" for purposes of applying Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequences
of various modifications to the terms of a previously fixed stock option or
award; and the accounting for an exchange of stock compensation awards in a
business combination. In general, FIN 44 became effective July 1, 2000. The
adoption of FIN 44 did not have a material impact on our financial position or
results of operation.
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also required that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires,
-8-
upon adoption of SFAS 142 that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142
requires, among other things, that companies no longer amortize goodwill, but
instead test goodwill for impairment at least annually. In addition, SFAS 142
requires that the Company identify reporting units for the purposes of assessing
potential future impairments of goodwill and to reassess the amortization of
intangible assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance with SFAS
142. SFAS 142 is required to be applied in fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142 requires the
Company to complete a transitional goodwill impairment test six months from the
date of adoption. The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after adoption of SFAS
142. Currently, the Company is assessing but has not yet determined how the
adoption of SFAS 141 and SFAS 142 will impact its financial position and results
of operations.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our results of operations and financial
condition includes the results of operations and financial condition of our
former parent for periods presented prior to July 27, 2001, our subsidiary and
us on a consolidated basis. Our consolidated financial statements and the
related notes contain additional detailed information that should be referred to
when reviewing this material.
GENERAL
We are an independent oil and natural gas company engaged in the
acquisition, development, exploration and production of oil and natural gas
properties in three core areas.
We commenced operations in 1992 and from our inception until mid-1996 we
primarily acquired and developed properties onshore in south and southeast
Texas. We expanded into the Sacramento Basin of northern California with our
acquisition of Reunion in 1996. We established a core area of operation in the
shallow waters of the Gulf of Mexico in 1997 with acquisitions from Apache and
Statoil. In 1998 we expanded our onshore Gulf Coast properties by completing our
largest acquisition to date, the $63.0 million acquisition of onshore Texas oil
and natural gas properties from Apache. We have since focused our efforts and
capital resources on developing our assets.
We have one subsidiary, Tri-Union Operating Company, which is wholly owned
by us. Tri-Union Operating's principal asset is a net profits interest in a
field operated by us. This interest is the only oil and natural gas property of
Tri-Union Operating and represents less than 5% of our consolidated proved
reserves.
In March 1998, we acquired certain onshore Texas oil and natural gas
properties from Apache Corporation with the proceeds from a short-term,
amortizing bank loan. In August 1998, before we were able to refinance our bank
loan, commodity prices began falling, with oil prices ultimately reaching a
12-year low in December 1998. The resultant negative effect on our cash flow
from the deterioration of commodity prices, coupled with the required
amortization payments on our bank loan, severely restricted the amount of
capital we were able to dedicate to development drilling. Consequently, our oil
and natural gas production declined, further negatively affecting our cash flow.
In October 1998, our short-term loan matured and we arranged a forbearance
agreement providing for interest payments to be partially capitalized. In July
1999, this forbearance agreement terminated and we made negotiated interest
payments while attempting to negotiate a restructuring of our obligations.
On March 14, 2000, we chose to seek protection under Chapter 11 of the
U.S. Bankruptcy Code. Tri-Union Operating continued to operate outside of
bankruptcy. On July 18, 2001, we sold in a private unit offering $130,000,000 of
old notes, each unit consisting of one old note in the principal amount of
$1,000 and one share of class A common stock of Tribo Petroleum Corporation, our
former parent corporation. The proceeds from the units offering and our
available cash balances were sufficient to allow us to pay or segregate funds
for the payment of all creditor claims in full, including interest, and to exit
bankruptcy on June 18, 2001.
At December 31, 2000, our net proved reserves were 180.1 Bcfe with a PV-10
Value of $630.0 million. At December 31, 1999, our net proved reserves were
205.2 Bcfe with a PV-10 Value of $292.5 million. While our total proved reserves
quantities at December 31, 2000 decreased by 12% versus those at December 31,
1999, our proved developed producing reserves actually increased by 3% over the
same period. The decrease in total proved reserves was primarily due to lease
expirations that resulted in the loss of proved undeveloped reserves in our
offshore Gulf Coast area. These leases expired as a consequence of our inability
to obtain approval from the bankruptcy court to make the significant capital
investments required to maintain these leases. Our capital budget has been
primarily focused on converting proved developed non-producing and proved
undeveloped reserves to production.
During 1998, 1999, 2000 and the first nine months of 2001, our capital
expenditures on oil and gas activities totaled approximately $72.0 million,
$13.6 million, $10.9 million and $10.7 million,
-10-
respectively. These expenditures related to operations in our three core areas.
In 1998, 87% of our capital expenditures were related to the acquisitions of
reserves. In 1999 and 2000, a total of $10.6 million, or 44% of our capital
expenditures were for development drilling and recompletions. The remaining 56%
was incurred on items such as platform and pipeline improvements that were
identified at the time of our acquisition of the properties, compressor
installations and on 3-D seismic surveys. During 1999 and 2000 our development
capital investments of $10.6 million were expended to complete 28 development
wells, exploitation wells and recompletions. With our working capital from the
offering and cash flow from operations, we plan to significantly increase our
capital budget for the remainder of 2001 and 2002 to $34.2 million, to complete
93 development drilling, exploitation and recompletion projects.
On July 27, 2001, we were the surviving corporation in a merger with our
parent corporation, Tribo Petroleum Corporation. As a consequence of this
merger, we assumed all of the rights and obligations of Tribo, including those
under the indenture. The financial information contained herein is the
consolidated financial information for Tribo, our subsidiary and us.
We use the full cost method of accounting for oil and natural gas property
acquisition, exploitation and development activities. Under this method, all
productive and nonproductive costs incurred in connection with the acquisition
of, exploration for and development of oil and natural gas reserves are
capitalized. Capitalized costs include lease acquisitions, geological and
geophysical work, delay rentals and the costs of drilling, completing and
equipping oil and natural gas wells. Gains or losses are recognized only upon
sales or dispositions of significant amounts of oil and natural gas reserves.
Proceeds from all other sales or dispositions are treated as reductions to
capitalized costs.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
For the three months ended September 30, 2001, consolidated net income was
$3,190,772, a 33% decrease over consolidated net income of $4,734,473 for the
three months ended September 30, 2000.
Earnings before interest, taxes, depreciation, amortization, gains or
losses on derivative contracts, and reorganization costs was $6,014,423 for the
nine months ended September 30, 2001 as compared to $12,584,870 for the three
months ended September 30, 2000.
OIL AND GAS REVENUES. Oil and natural gas revenues decreased $8,868,800,
or 40%, to $13,398,527 for the three months ended September 30, 2001, from
$22,267,327 for the three months ended September 30, 2000. The decrease in oil
and natural gas revenues was primarily the result of a decrease in production
volumes and a substantial decrease in the average price we received for natural
gas during the period. The following table summarizes the consolidated results
of oil and natural gas production and related pricing for the three months ended
September 30, 2001 and 2000:
For the Three Months Ended September 30,
---------------------------------------
2000 2001 % Change
-------- ------- ---------
Oil production volumes (Mbbls) 387 302 -22%
Gas production volumes (Mmcf) 2,115 1,576 -26%
Total (Mmcfe) 4,439 3,388 -24%
Average oil price (per Bbl) $29.66 $24.04 -19%
Average gas price (per Mcf) $5.10 $3.89 -24%
Average price (per Mcfe) $5.02 $3.95 -21%
GAIN OR LOSS ON MARKETABLE SECURITIES. We recognized $139,556 in losses on
marketable securities for the three months ended September 30, 2001, as compared
to gains of $76,972 for the three months ended September 30, 2000. Marketable
securities bought and held principally for the purpose of sale in the near term
are classified as trading securities. Trading securities are recorded at fair
value on the balance sheet as current assets, with the change in fair value
recognized during the period included in earnings.
-11-
GAIN ON DERIVATIVES CONTRACT. In connection with the issuance of the
senior secured notes, we agreed to maintain, subject to certain conditions, on a
monthly basis, a rolling two-year derivatives contract until the maturity of the
notes on approximately 80% of our projected oil and natural gas production from
proved developed producing reserves and the basis differential attributable to
approximately 80% of our projected proved developed producing natural gas
production from our California properties. We currently have a derivatives
contract in place through September 30, 2003 at estimated net realized prices
that we expect will exceed $4.04 per Mcf and $24.97 per Bbl, or a weighted
natural gas-equivalent price of approximately $4.10 per Mcfe. The estimated fair
value of this derivatives contract at September 30, 2001 resulted in the
recording of a gain on derivatives contract of $8,365,229 for the three months
ended September 30, 2001.
OTHER (LOSS) INCOME. Other income decreased $122,214 or 258%, to a loss of
$74,846 for the three months ended September 30, 2001 from income of $47,367 for
the three months ended September 30, 2000. The decrease was the result of a loss
on the sale of zero coupon U.S. Treasury bonds which had a maturity of 2019,
held in trust and pledged to the Minerals Management Service ("MMS") for the
plugging and abandonment of certain wells and the decommissioning of offshore
platforms. The sale of these bonds was necessary as a result of a change in MMS
collateral requirements.
LEASE OPERATING EXPENSE. Lease operating expense decreased $828,910, or
15%, to $4,607,123 for the three months ended September 30, 2001 from $5,436,034
for the three months ended September 30, 2000. Lease operating expense was $1.36
per Mcfe for the three months ended September 30, 2001, an increase of 11% from
$1.22 per Mcfe for the three months ended September 30, 2000. The decrease in
lease operating expense is primarily the result of a decrease in the costs of
maintenance and repairs, saltwater disposal and dehydration. Additionally, lease
operations on certain properties were no longer necessary upon the sale of our
Ship Shoal 58 field in June 2001 and the plugging and decommissioning of the
West Cameron 531, South Marsh Island 232 and Brazos 476 wells.
WORKOVER EXPENSE. Workover expense decreased $1,778,329, or 67%, to
$884,596 for the three months ended September 30, 2001 from $2,662,926 for the
three months ended September 30, 2000. Workover expense was $0.26 per Mcfe for
the three months ended September 30, 2001, a decrease of 56% from $0.60 per Mcfe
for the three months ended September 30, 2000. During the three months ended
September 30, 2000, a workover program was commenced that included normal and
recurring workovers and a backlog of workovers from 1998 and 1999 resulting in a
higher than usual occurrence of workover expense.
PRODUCTION TAXES. Production taxes decreased by $265,403 or 45% to
$327,232 for the three months ended September 30, 2001 from $592,635 for the
three months ended September 30, 2000. Production taxes were $0.10 per Mcfe for
the three months ended September 30, 2001, a decrease of 28% from $0.13 per Mcfe
for the three months ended September 30, 2000. Decreases in oil and natural gas
production and revenues during the three months ended September 30, 2001
resulted in a decrease in the amount of production taxes paid during the period.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE ("DD&A"): DD&A expense
decreased by $436,642, or 12%, to $3,147,998 for the three months ended
September 30, 2001 from $3,584,641 for the three months ended September 30,
2000. DD&A was $0.93 per Mcfe for the three months ended September 30, 2001, an
increase of 15% from $0.81 per Mcfe for the three months ended September 30,
2000. The decrease in DD&A is the result of a decrease in production volumes
during the three months ended September 30, 2001.
GENERAL AND ADMINISTRATIVE EXPENSE ("G&A"): G&A increased $237,990, or
21%, to $1,353,191 for the three months ended September 30, 2001 from $1,115,201
for the three months ended September 30, 2000. G&A was $0.40 per Mcfe for the
three months ended September 30, 2001, an increase of 59% from $0.25 per Mcfe
for the three months ended September 30, 2000. The increase was primarily the
result of an increase in legal fees incurred and an increase in salary and
director fee expenses incurred during the three-month period ended September 30,
2001.
INTEREST EXPENSE. Interest expense increased $4,173,683 or 124%, to
$7,529,222 for the three months ended September 30, 2001 from $3,355,539 for the
three months ended September 30, 2000. The increase is primarily the result of
non-cash amortization of bond discount and deferred loan costs to interest
expense of $1,857,492 and $1,507,065 respectively, for the three months ended
September 30, 2001 and 2000.
-12-
REORGANIZATION COSTS: TDC filed a voluntary petition for relief under the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of
Texas, Houston Division on March 14, 2000. As a result, we incurred certain
reorganization costs totaling $690,458 for the three months ended September 30,
2001, a 24% decrease from $910,217 for the three months ended September 30,
2000. These reorganization costs consist of the following:
Professional fees and other - We were required to hire certain legal and
accounting professionals to assist us and certain of our creditors with the
bankruptcy proceedings.
Interest and amounts paid to creditors - Represents payments of amounts
owed to creditors with pre-petition claims, including interest.
Satisfaction of certain related party transactions - We entered into an
agreement whereby we transferred to Atasca certain oil and gas properties and
marketable securities owned by Tribo Petroleum Corporation and assigned to
Atasca the net obligations owed to us by Richard Bowman, the Company's Chief
Executive Officer. Additionally, we released Tribo Production Company, Ltd.,
BL Production Co., Ltd., and Atasca Properties, Ltd. from the net obligations
they each owe to us. After giving effect to these transactions, all balances
owing to and from us and these related parties have been satisfied.
Interest - Interest income earned during bankruptcy has been recorded as
an offset to reorganization costs as prescribed by SOP 90-7.
The following table summarizes our reorganization costs incurred:
Three Months Ended September 30,
---------------------------------
2000 2001
-------------- --------------
Professional fees and other $ 1,157,404 $ 245,147
Interest and amounts paid to creditors - 342,858
Satisfaction of certain related party
transactions - 102,453
Interest income ( 247,187) -
------------- --------------
Total reorganization costs $ 910,217 $ 690,458
============== ==============
PROVISION FOR INCOME TAXES. The Company recognized a benefit for income
taxes in the amount of $178,798 for the three months ended September 30, 2001,
as the Company incurred a taxable loss for the three month period. No provision
for federal income tax was required for the three months ended September 30,
2000.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September
30, 2000
For the nine months ended September 30, 2001, consolidated net income was
$22,371,419, a 197% improvement over consolidated net income of $7,541,003 for
the nine months ended September 30, 2000.
Earnings before interest, taxes, depreciation, amortization, gains or
losses on derivatives contracts, and reorganization costs was $42,849,286 for
the nine months ended September 30, 2001 as compared to $28,433,780 for the nine
months ended September 30, 2000.
OIL AND GAS REVENUES. Oil and natural gas revenues increased $19,610,424,
or 40%, to $68,065,015 for the nine months ended September 30, 2001, from
$48,454,590 for the nine months ended September 30, 2000. The increase in oil
and natural gas revenues was primarily the result of an increase in production
volumes and a substantial increase in the average price we received for natural
gas during the period, which may not reflect the prices we receive in future
periods. The following table summarizes the consolidated results of oil and
natural gas production and related pricing for the nine months ended September
30, 2001 and 2000:
-13-
For the Nine Months Ended September 30,
--------------------------------------
2000 2001 % Change
--------- --------- --------
Oil production volumes (Mbbls) 927 994 7%
Gas production volumes (Mmcf) 5,528 6,191 12%
Total (Mmcfe) 11,092 12,155 10%
Average oil price (per Bbl) $29.60 $26.19 -12%
Average gas price (per Mcf) $3.80 $6.79 79%
Average price (per Mcfe) $4.37 $5.60 28%
GAIN OR LOSS ON MARKETABLE SECURITIES. We recognized $556,735 in losses on
marketable securities for the nine months ended September 30, 2001, as compared
to gains of $979,667 for the nine months ended September 30, 2000. Marketable
securities bought and held principally for the purpose of sale in the near term
are classified as trading securities. Trading securities are recorded at fair
value on the balance sheet as current assets, with the change in fair value
recognized during the period included in earnings.
GAIN ON DERIVATIVES CONTRACT. In connection with the issuance of the
senior secured notes, we agreed to maintain, subject to certain conditions, on a
monthly basis, a rolling two-year derivatives contract, until the maturity of
the notes on approximately 80% of our projected oil and natural gas production
from proved developed producing reserves and the basis differential attributable
to approximately 80% of our projected proved developed producing natural gas
production from our California properties we currently have under a derivatives
contract in place through September 30, 2003 at estimated net realized prices of
$4.04 per Mcf and $24.97 per Bbl, or a weighted natural gas-equivalent price of
approximately $4.10 per Mcfe. The estimated fair value of this derivatives
contract at September 30, 2001 resulted in the recording of a gain on
derivatives contract of $11,951,855 during the nine months ended September 30,
2001.
OTHER INCOME. Other income increased $355,402 or 79%, to $822,076 for the
nine months ended September 30, 2001 from $466,674 for the nine months ended
September 30, 2000. The increase was primarily the result of the sale of
emission reduction credits from our Hastings Field. This increase was partially
offset by a loss on the sale of zero coupon U.S. Treasury bonds which had a
maturity of 2019, held in trust and pledged to the Minerals Management Service
("MMS") for the plugging and abandonment of certain wells and the
decommissioning of offshore platforms. The sale of these bonds was necessary as
a result of a change in MMS collateral requirements.
LEASE OPERATING EXPENSE. Lease operating expense increased $2,847,376, or
23%, to $15,087,552 for the nine months ended September 30, 2001 from
$12,240,176 for the nine months ended September 30, 2000. Lease operating
expense was $1.24 per Mcfe for the nine months ended September 30, 2001, an
increase of 12% from $1.10 per Mcfe for the nine months ended September 30,
2000. The increase in lease operating expense is primarily the result of higher
electricity and fuel costs, an increase in the number of producing wells and MMS
compliance work at our Matagorda Island A-4 and Brazos 104 facility during the
first half of 2001. This increase was partially offset by a decrease in the
costs of maintenance and repairs, saltwater disposal and dehydration during the
third quarter of 2001. Additionally, lease operations on certain properties were
no longer necessary after the sale of our Ship Shoal 58 field in June 2001 and
the plugging and decommissioning of the West Cameron 531, South Marsh Island 232
and Brazos 476 wells.
WORKOVER EXPENSE. Workover expense decreased $135,098, or 3%, to
$4,224,725 for the nine months ended September 30, 2001 from $4,359,824 for the
nine months ended September 30, 2000. Workover expense was $0.35 per Mcfe for
the nine months ended September 30, 2001, a decrease of 12% from $0.39 per Mcfe
for the nine months ended September 30, 2000. During the first half of 2000,
workover spending was minimized. During the remainder of 2000 and the first half
of 2001, a workover program was completed that included normal and recurring
workovers and a backlog of workovers from 1998 and 1999.
-14-
PRODUCTION TAXES. Production taxes increased by $363,732 or 28% to
$1,668,808 for the nine months ended September 30, 2001 from $1,305,076 for the
nine months ended September 30, 2000. Production taxes were $0.14 per Mcfe for
the nine months ended September 30, 2001, an increase of 17% from $0.12 per Mcfe
for the nine months ended September 30, 2000. Increases in oil and natural gas
production and revenues during the nine months ended September 30, 2001 resulted
in an increase in the amount of production taxes paid during the period.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE ("DD&A"): DD&A expense
increased by $1,431,078, or 16%, to $10,410,040 for the nine months ended
September 30, 2001 from $8,978,962 for the nine months ended September 30, 2000.
DD&A was $0.86 per Mcfe for the nine months ended September 30, 2001, an
increase of 6% from $0.81 per Mcfe for the nine months ended September 30, 2000.
Increased oil and natural gas production during the nine months ended September
30, 2001 resulted in an increase in the amount of depletion computed on those
volumes.
GENERAL AND ADMINISTRATIVE EXPENSE ("G&A"): G&A increased $927,586, or
26%, to $4,489,661 for the nine months ended September 30, 2001 from $3,562,075
for the nine months ended September 30, 2000. G&A was $0.37 per Mcfe for the
nine months ended September 30, 2001, an increase of 15% from $0.32 per Mcfe for
the nine months ended September 30, 2000. The increase was primarily the result
of an increase in legal fees incurred and an increase in salary and director fee
expenses incurred during the first nine months of 2001.
INTEREST EXPENSE. Interest expense increased $3,716,683, or 37%, to
$13,805,472 for the nine months ended September 30, 2001 from $10,088,789 for
the nine months ended September 30, 2000. The increase is primarily the result
of non-cash amortization of bond discount and deferred loan costs to interest
expense of $2,119,964 and $1,713,356 respectively, for the nine months ended
September 30, 2001 and 2000.
REORGANIZATION COSTS: TDC filed a voluntary petition for relief under the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of
Texas, Houston Division on March 14, 2000. As a result, we incurred certain
reorganization costs totaling $8,001,566 for the nine months ended September 30,
2001, a 338% increase from $1,825,026 for the nine months ended September 30,
2000. These reorganization costs consist of the following:
Professional fees and other - We were required to hire certain legal and
accounting professionals to assist us, and certain of our creditors with the
bankruptcy proceedings.
Retention - In an effort to maintain our employees through the bankruptcy
period, we paid a retention bonus to our employees during the months of June and
July 2001.
Additional bank and refinancing charges - We incurred additional fees and
costs associated with the payoff of our previous bank debt.
Interest and amounts paid to creditors - Represents payments of amounts
owed to creditors with pre-petition claims, including interest.
Satisfaction of certain related party transactions - We entered into an
agreement whereby we transferred to Atasca certain oil and gas properties and
marketable securities owned by Tribo Petroleum Corporation and assigned to
Atasca the net obligations owed to us by Richard Bowman. Additionally, we
released Tribo Production Company, Ltd., BL Production Co., Ltd., and Atasca
Properties, Ltd. from the net obligations they each owe to us. After giving
effect to these transactions, all balances owing to and from us and these
related parties have been satisfied.
Interest - Interest income earned during bankruptcy has been recorded as
an offset to reorganization costs as prescribed by SOP 90-7.
The following table summarizes our reorganization costs incurred:
-15-
Nine Months Ended September 30,
---------------------------------
2000 2001
-------------- --------------
Professional fees and other $ 2,113,867 $ 2,825,602
Retention bonus - 301,740
Additional bank and refinancing charges - 1,754,750
Interest and amounts paid to creditors - 2,079,752
Satisfaction of certain related party
transactions - 1,985,442
Interest income ( 288,841) ( 945,722)
------------- -------------
Total reorganization costs $ 1,825,026 $ 8,001,566
============== ==============
PROVISION FOR INCOME TAXES. A $212,644 provision for income tax was made
for the nine months ended September 30, 2001, primarily as a result of
alternative minimum tax requirements. No provision for federal income tax was
required for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
In March 1998, TDC acquired certain onshore Texas oil and natural gas
properties from Apache Corporation. Prior to the acquisition, we had
approximately $35 million in debt outstanding. We incurred an additional $63
million in debt in connection with the acquisition. We utilized funds from a
short-term, amortizing bank loan in connection with the acquisition of Reunion.
In August 1998, before we were able to refinance our bank loan, commodity prices
began falling, with oil prices ultimately reaching a 12-year low in December of
that year. The resultant negative effect on our cash flow from the deterioration
of commodity prices, coupled with the required amortization on our bank loan,
severely restricted the amount of capital we were able to dedicate to
development drilling. Consequently, our oil and natural gas production declined,
further negatively affecting our cash flow. In October 1998, our short-term loan
matured and we arranged a forbearance agreement providing for interest payments
to be partially capitalized and providing us with additional time to refinance
our obligation. In July 1999, this forbearance agreement terminated and we made
negotiated interest payments while attempting to negotiate a restructuring of
our obligations. By March 2000, the aggregate principal balance of our bank debt
has increased as a result of capitalization of interest and expenses to
approximately $105 million. In February 2000, the bank declared a default on the
loan, demanded payment of all principal and interest and posted the shares of
Tribo Petroleum Corporation, our parent corporation and a guarantor of the loan,
for foreclosure. As a consequence of the bank's foreclosure action, on March 14,
2000, we filed for bankruptcy protection. After the filing, we operated as a
"debtor-in-possession," continuing in possession of our estate, the operation of
our business and the management of our properties. Under Chapter 11, certain
claims against us in existence prior to the filing of the petition were stayed
from enforcement or collection. These claims are reflected in full in the
consolidated December 31, 2000 balance sheet as "pre-petition liabilities
subject to compromise." We filed our amended plan of reorganization in the
bankruptcy court on May 9, 2001. Our plan was confirmed by a court order entered
as of May 23, 2001, subject to the completion of an offering of the notes and
class A common stock. On June 18, 2001, the offering closed and we exited from
bankruptcy. The proceeds of the offering and our available cash balances at
closing were sufficient to allow us to pay or segregate funds for the payment of
all claims.
At September 30, 2001, we had $130.0 million of 12.5% senior secured
notes. The notes mature on June 1, 2006 and require amortization payments of the
greater of $20 million and 15.3% as of June 1, 2002 and 2003 and an amortization
payment of the greater of $15 million and 11.5% as of June 1, 2004. Interest is
payable semi-annually on June 1 and December 1 of each year.
During the nine months ended September 30, 2001, our cash balances
decreased by $21,448,847 to $11,541,092 from $32,989,939 at December 31, 2000.
Net cash used by operating activities before reorganization items was
$11,980,752 for the nine months ended September 30, 2001. The increase is the
result of a decrease in accounts payable, accounts receivables and prepaid
expenses for the nine months ended September 30, 2001. Additionally, we have
$9,497,992 deposited into restricted cash as required by our plan of
reorganization to satisfy the payment in full of all remaining disputed
pre-petition claims. These uses of cash were partially offset by an increase in
net income of $22,371,419 after reorganization costs of $8,001,566 and income
from hedging contract of $11,951,855 for the nine months ended September 30,
2001, when compared to net income of $7,541,003 after reorganization costs of
$1,825,026 for the nine months ended September 30, 2000.
-16-
Net cash used in investing activities was $10,060,058 for the nine months
ended September 30, 2001 when compared to $8,368,867 for the nine months ended
September 30, 2000. The increase is primarily the result of an increase in
proceeds from the sales of oil and natural gas properties of $1,835,558, to
$2,225,529 for the nine months ended September 30, 2001 from $381,971 for the
nine months ended September 30, 2000. Additionally, additions to oil and natural
gas properties and other equipment increased $2,097,294 to $11,677,425 for the
nine months ended September 30, 2001 from $9,580,131 for the nine months ended
September 30, 2000. This increase is partially offset by a decrease in proceeds
from the sale of marketable securities of $1,316,851 to $555,964 for the nine
months ended September 30, 2001 from $1,872,815 for the nine months ended June
30, 2000.
Net cash provided by financing activities was $5,851,936 for the nine
months ended September 30, 2001 when compared to net cash used of $739,929 for
the nine months ended September 30, 2000. The increase is the result of the
completion of the senior notes offering on June 18, 2001 resulting in our exit
from bankruptcy. The net cash proceeds from the offering provided sufficient
available cash, allowing us to pay or segregate funds for the payment of all
claims.
The following table sets forth information concerning our oil and natural
gas property acquisition, exploration and development activities and the related
costs during the year's ended December 31, 1998, 1999 and 2000 and the nine
months ended September 30, 2001:
Nine Months
Ended
Year Ended December 31, September 30,
--------------------------------------- 2001
1998 1999 2000 (unaudited)
------- ------- ------- ---------
(in thousands)
Property acquisition - proved $62,477 $ 250 $ 408 $ --
Development costs 9,515 13,322 10,080 10,652
Exploration costs -- -- 389 --
------- ------- ------- -------
Total costs incurred $71,922 $13,572 $10,878 $10,652
CAPITAL REQUIREMENTS
Historically, our principal sources of capital have been cash flows from
operations, short-term reserve-based bank loans, private placement units, and
proceeds from asset sales. Our principal uses for capital have been the
acquisition and development of oil and natural gas properties.
On June 18, 2001, TDC emerged from bankruptcy by way of the issuance of
$130 million in face value notes and 130,000 shares of Class A common stock. The
notes bear interest at 12.5% per annum and mature June 2006. The net proceeds of
$113,444,294 and cash on hand at closing were used to satisfy certain
pre-petition obligations, retire an existing bank loan, and provide sufficient
working capital for the company's oil and natural gas operations, capital
expenditure and recompletion program.
At September 30, 2001, our cash balance was $11.5 million. Our budget for
2001 includes capital expenditures of $17.1 million, representing an increase of
57% over our total capital expenditures for 2000. We expect to use approximately
$14.6 million of this amount for development drilling and recompletions,
approximately $1.7 million to conduct two 3-D seismic surveys over certain
leases in California and $0.8 million for other geological and geophysical
expenditures. At September 30, 2001, we had expended $10.7 of our development
and drilling budget for 2001.
At September 30, 2001, we had $130.0 million of 12.5% senior secured debt.
The notes mature on June 1, 2006 and have a required amortization payment of the
greater of $20 million and 15.3% on June 1, 2002. Interest is payable
semi-annually on June 1 and December 1 of each year, with the first such payment
payable on December 1, 2001. Net cash flows from operations and proceeds from
asset sales are expected to provide sufficient cash flows to allow us to meet
our obligations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for Derivative
Instruments and Hedging
-17-
Activities." FAS 133, as amended by FAS 137, is effective for transactions
entered into after June 15, 2000. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded for each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges will be recognized in earnings. As of January 1, 2001, the Company
adopted FAS 133.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. In June 2000, the SEC issued
SAB 101B that delayed the implementation date of SAB 101 until the quarter ended
December 31, 2000, with retroactive application to the beginning of our fiscal
year. The adoption of SAB 101 did not have a material impact on our financial
position or results of operations.
In March 2000, the Financial Accounting Standards Board issued
interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An interpretation of APB No. 25" ("FIN 44"). FIN 44 clarified the
application of Opinion No. 25 in certain respects, including; the definition of
"employee" for purposes of applying Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequences
of various modifications to the terms of a previously fixed stock option or
award; and the accounting for an exchange of stock compensation awards in a
business combination. In general, FIN 44 became effective July 1, 2000. The
adoption of FIN 44 did not have a material impact on our financial position or
results of operation.
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also required that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142 that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with SFAS 142. SFAS 142 is required to be applied in fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. The Company is also
required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. Currently, the Company is
assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142
will impact its financial position and results of operations.
-18-
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Commodities Price Swaps
Derivative Instruments Used In Our Production
We have entered into a natural gas and crude oil derivatives agreement with
counter parties to manage commodities price risk associated with a portion of
our production. These derivatives are not held for trading purposes. Under these
derivative agreements, we receive a fixed price on a notional quantity of
natural gas and crude oil in exchange for paying a variable price based on a
market index, such as the NYMEX natural gas and crude oil futures and the PG&E
Citygate Index. We entered into no commodities price swaps covering production
in the first six months of 2001. The following table reflects the production
volumes and the weighted average prices under our commodities price swaps
(including settled swaps) at September 30, 2001.
QUARTER ENDING NYMEX SWAPS PG&E CITYGATE SWAPS
VOLUME NYMEX PRICE VOLUME PG&E CG
Price
MMcf MBbl $/Mmbtu $/Bbl MMcf $/Mmbtu
Dec. 31, 2001 1,663 258 $ 3.96 $ 25.30 673 $ 4.62
Mar. 31, 2002 994 203 3.96 25.30 392 4.62
Jun. 30, 2002 1,005 205 3.96 25.30 396 4.62
Sep. 30, 2002 1,016 208 3.96 25.30 400 4.36
Dec. 31, 2002 1,016 208 3.96 25.30 400 4.36
Mar. 31, 2003 693 173 3.96 25.30 296 4.36
Jun. 30, 2003 701 175 3.96 25.30 300 4.36
Sep. 30, 2003 708 177 3.27 22.33 301 3.50
The prices presented above are averages for each of the quarters indicated. At
September 30, 2001, the commodities price swaps above represented approximately
$12.0 million in income.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are party to litigation or other legal proceedings
that we consider to be a part of the ordinary course of our business. Other than
as set forth below, we are not involved in any legal proceedings nor are we
party to any pending or threatened claims that could reasonably be expected to
have a materially adverse effect on our financial condition, cash flow or
results of operations.
Bankruptcy filing
On March 14, 2000, we filed a voluntary petition under Chapter 11 of the
U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of Texas, Houston Division. We filed our amended plan of reorganization
in the bankruptcy proceeding on May 9, 2001. Our plan provided for payment in
cash, or segregation of funds for the payment, to each creditor of its full,
allowed claim, including interest, on the closing date of the original offering.
Our plan was confirmed by a court order on May 23, 2001, subject to the
completion of the offering of the old notes. Upon the closing of the offering,
we paid or segregated funds for the payment of all allowed claims in accordance
with our plan and the court order and, except as specifically discussed below,
lawsuits, administrative actions and other proceedings that arose prior to the
confirmation were dismissed as to us. Claims that we dispute will be heard by
the bankruptcy court. If claims are resolved for less than the amount segregated
by us, we will receive the balance of the funds.
Credit Lyonnais and Credit Lyonnais Securities
In March 2000, Richard Bowman and we filed suit against Credit Lyonnais,
New York Branch and Credit Lyonnais Securities (USA), Inc. in the 16th Judicial
District Court of Harris County, Texas asserting claims for violations of the
Federal Bank Tying Act, fraud and tortious interference. Credit Lyonnais filed a
counterclaim against us seeking repayment of monies loaned to us by Credit
Lyonnais, interest and attorney's fees. At the time these claims arose, Credit
Lyonnais was our senior secured lender. Specifically, we alleged that we were
wrongfully induced into incurring additional secured indebtedness associated
with the acquisition of certain oil and natural gas properties from Apache
Corporation. This additional indebtedness was to be refinanced on a short-term
basis by a debt or equity offering underwritten or privately placed by Credit
Lyonnais and/or its securities affiliate, Credit Lyonnais Securities, Inc. We
alleged that Credit Lyonnais advised us that it would not increase our credit
facility to an amount necessary to consummate the acquisition from Apache unless
we entered into an agreement with Credit Lyonnais Securities to act as our
exclusive financial advisor for such an offering. We agreed to enter into such
an arrangement based upon representations made to us regarding the ability,
experience and expertise of Credit Lyonnais Securities to assist us in such an
offering. We further alleged that no meaningful effort was made on the part of
Credit Lyonnais or Credit Lyonnais Securities to assist us in raising the funds
necessary to refinance the credit facility.
As part of the confirmation of our plan, Richard Bowman and we reached a
settlement of this litigation in May 2001. The terms of the settlement included
a reduction in the amount of the secured claim of Credit Lyonnais in the
approximate amount of $3.3 million and our agreement not to dispute, other than
for arithmetic error, the remainder of Credit Lyonnais' secured claim, in the
approximate amount of $127.3 million, including principal, interest, fees and
expenses as of May 31, 2001. Richard Bowman assigned his interest in the
settlement to us.
Aviara Energy Corporation
On November 10, 1999, Aviara Energy Corporation filed suit against us in
the 129th Judicial District Court of Harris County, Texas, alleging that we owe
approximately $1.8 million in joint interest expenses under a participation and
operating agreement. Aviara subsequently filed an amended proof of claim to add
post-petition administrative expenses and interest of approximately $1.0 million
to its claim. No action on this suit was taken during our bankruptcy. An agreed
ordered was entered into and approved by the court on August 28, 2001 whereby
Aviara would be paid $2,694,235 plus interest from March 14, 2000 to June 18,
2001 at 6% per annum. On September 5, 2001, funds were distributed from our
restricted escrowed account in satisfaction of this claim.
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Chieftain International
On March 31, 1999, Chieftain International (U.S.) Inc. filed suit against
us in the United States District Court for the Eastern District of Louisiana
alleging that we owe joint interest expenses in the amount of approximately $3.0
million, together with accrued interest, attorneys' fees and costs, in
connection with Chieftain's operation of two mineral leases. No action on this
suit was taken during our bankruptcy. The plaintiff has filed a motion with the
United States Bankruptcy Court for the Southern District of Texas, Houston
Division, requesting that the state district court in Louisiana be allowed to
liquidate the claim. The motion was granted and the case was remanded to state
court in Louisiana. We intend to continue to vigorously defend this suit. Funds
in the amount of approximately $5.5 million were segregated in accordance with
our plan, pending the trial or resolution of this dispute in Louisiana.
Seitel Data, Ltd. and DDD Energy, Inc.
On December 13, 2000, Seitel Data, Ltd., and DDD Energy, Inc., filed suit
against Tribo Petroleum Corporation in the 334th Judicial District of Harris
County, Texas, alleging that Tribo owed approximately $0.8 million in damages,
together with interest and attorney's fees for goods and services delivered for
our benefit. Currently, an agreed order has been entered in the bankruptcy court
to pay the full amount of this claim, together with interest, in accordance with
our plan.
Minerals Management Service
We have reached a settlement with the MMS that resolves a civil
enforcement action first brought against us in August 2000, with respect to
certain alleged violations of MMS rules relating to the operation of our
offshore facilities prior to the commencement of our bankruptcy proceedings. As
part of the settlement, we have agreed to pay civil penalties in the amount of
$506,500, with $25,325 paid out initially, and the remaining $481,175 paid out
in quarterly installments over a two-year period. We have also agreed to provide
the MMS with approximately $9.8 million in operators bonds. The settlement
between the MMS and us is not an admission of liability with respect to the
violations alleged by the MMS.
Arch W. Helton, Helton Properties, Inc., and Linda Barnhill
On May 28, 1997, Arch W. Helton and Helton Properties, Inc., filed suit
against us in the 80th Judicial District Court of Harris County, Texas.
Subsequently, Linda Barnhill joined as a plaintiff. The suit alleges that we owe
additional royalties on oil and natural gas produced from February 1987 to date
as to certain completions in oil and natural gas properties located in Alvin,
Texas, that oil and natural gas was drained from approximately 18 acres in which
they claim interests and seeks the recovery of attorneys' fees. As to certain of
the plaintiffs' claims, we have obtained a favorable decision from the Texas
Railroad Commission. An appeal of the decision by the plaintiffs is currently
pending. We believe the decision will be affirmed and that, if affirmed, it
could result in the full avoidance of all of the plaintiffs' claims. Even if the
decision is not affirmed, we believe we have other defenses that could result in
the full avoidance of the claims. We have filed a partial summary judgment on
limitations and other defenses that is currently pending. We intend to continue
to vigorously defend this suit. Funds in the amount of approximately $1.0
million have been segregated in accordance with our plan pending the resolution
of this dispute by the bankruptcy court. We believe these funds are sufficient
to cover our net interest in the full proof of claim filed in the amount of $3.0
million.
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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.
TRI-UNION DEVELOPMENT CORPORATION
November 13, 2001 By: /s/ Richard Bowman
---------------------------------------
Richard Bowman, Chairman, Chief Executive
Officer and President
By: /s/ Suzanne R. Ambrose
---------------------------------------
Suzanne R. Ambrose, Vice President and Chief
Accounting Officer
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