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EXHIBIT 99.2
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
Page
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Income for each of the three years in the period ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Supplementary Information on Oil and Gas Producing Activities . . . . . . . . . . . . . . . . . 15
Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . . . . . . . . . S-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PHOENIX RESOURCE COMPANIES, INC.:
We have audited the accompanying consolidated balance sheet of The
Phoenix Resource Companies, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Phoenix
Resource Companies, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the Index
under Item 8 Financial Statements and Supplementary Data is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
February 23, 1996
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
Year Ended December 31,
---------------------------------
1993 1994 1995
------- ------- -------
Revenues:
Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 22,302 $ 21,856 $ 23,433
Revenues dedicated to foreign tax liability . . . . . . . 10,578 10,866 9,822
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . . 32,880 32,722 33,255
Interest income . . . . . . . . . . . . . . . . . . . . . 464 935 1,436
Other income . . . . . . . . . . . . . . . . . . . . . . . 681 187 345
------- ------- -------
34,025 33,844 35,036
------- ------- -------
Costs and Expenses:
Production costs . . . . . . . . . . . . . . . . . . . . . 5,841 5,301 6,421
Depreciation, depletion and amortization . . . . . . . . . 1,967 2,213 5,795
General and administrative . . . . . . . . . . . . . . . . 2,663 2,314 2,194
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 138 -- --
------- ------- -------
10,609 9,828 14,410
------- ------- -------
Income before income taxes and extraordinary loss . . . . . . 23,416 24,016 20,626
Provision for income taxes:
U.S. alternative minimum tax . . . . . . . . . . . . . . . 328 259 193
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 10,578 10,866 9,822
------- ------- -------
Income before extraordinary loss . . . . . . . . . . . . . . 12,510 12,891 10,611
Extraordinary loss:
Early extinguishment of debt . . . . . . . . . . . . . . . (174) -- --
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 12,336 $ 12,891 $ 10,611
======= ======= ========
Income Per Share:
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . 17,000 16,432 16,214
======= ======= =======
Income before extraordinary loss . . . . . . . . . . . . $ 0.74 $ 0.78 $ 0.65
======= ======= ========
Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.73 $ 0.78 $ 0.65
======= ======= ========
The accompanying notes are an integral part of this statement.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
ASSETS
December 31,
-------------------------
1994 1995
-------- --------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 26,536 $ 22,759
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 2,561 5,639
Receivable for payment of foreign taxes . . . . . . . . . . . . . . 10,657 11,026
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 491 2,072
-------- --------
40,245 41,496
-------- --------
Property and Equipment, at cost:
Oil and gas properties (using full cost accounting) . . . . . . . . 18,624 40,842
Other property and equipment . . . . . . . . . . . . . . . . . . . . 1,909 983
-------- --------
20,533 41,825
Less: Accumulated depreciation, depletion and amortization . . . . . . 13,800 18,672
-------- --------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . 6,733 23,153
Deferred Receivable for payment of foreign taxes . . . . . . . . . . . 9,211 2,997
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 687
-------- --------
$ 56,441 $ 68,333
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,062 $ 562
Accrued foreign taxes . . . . . . . . . . . . . . . . . . . . . . . 10,657 11,026
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 857 952
-------- --------
12,576 12,540
-------- --------
Long-Term Liabilities:
Deferred foreign taxes . . . . . . . . . . . . . . . . . . . . . . . 9,211 2,997
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,096 988
-------- --------
10,307 3,985
-------- --------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock, par value $0.01 (authorized 5,000 shares, none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.01 (authorized 20,000 shares, 15,708
shares outstanding in 1994 and 16,190 in 1995) . . . . . . . . . . 170 170
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 39,311 45,170
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 2,929 12,281
Treasury stock, at cost (1,254 shares in 1994 and 772 in 1995) . . . (8,852) (5,813)
-------- --------
33,558 51,808
-------- --------
$ 56,441 $ 68,333
======== ========
The accompanying notes are an integral part of this balance sheet.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Retained Treasury Stock
------------------ Paid-in Earnings ------------------ Stockholders'
Shares Amount Capital (Deficit) Shares Amount Equity
--------- ------- ------- --------- -------- -------- -----------
BALANCE AT DECEMBER 31, 1992 . . 16,977 $ 170 $ 39,212 $(21,488) -- $ -- $ 17,894
Stock options exercised . . . 40 -- 68 -- -- -- 68
Shares cancelled . . . . . . (75) -- -- -- -- -- --
Net income . . . . . . . . . -- -- -- 12,336 -- -- 12,336
--------- ---- -------- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1993 . . 16,942 170 39,280 (9,152) -- -- 30,298
Shares purchased . . . . . . (1,254) -- -- -- 1,254 (8,852) (8,852)
Stock options exercised . . . 20 -- 31 -- -- -- 31
Dividends paid, $0.05 per
share . . . . . . . . . . -- -- -- (810) -- -- (810)
Net income . . . . . . . . . -- -- -- 12,891 -- -- 12,891
--------- ---- -------- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1994 . . 15,708 170 39,311 2,929 1,254 (8,852) 33,558
Shares issued . . . . . . . . 606 -- 5,533 -- (606) 4,467 10,000
Shares purchased . . . . . . (152) -- -- -- 152 (1,634) (1,634)
Accrual pursuant to
Director Plan . . . . . . -- -- 368 -- -- -- 368
Stock options exercised . . . 28 -- (42) -- (28) 206 164
Dividends paid, $0.08
per share . . . . . . . . -- -- -- (1,259) -- -- (1,259)
Net income . . . . . . . . . -- -- -- 10,611 -- -- 10,611
--------- ---- -------- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1995 . . 16,190 $ 170 $ 45,170 $ 12,281 772 $ (5,813) $ 51,808
========= ==== ======== ======= ======= ======== =======
The accompanying notes are an integral part of this statement.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
Year Ended December 31,
----------------------------------
1993 1994 1995
--------- -------- --------
Cash flows from operating activities:
Cash received from purchasers . . . . . . . . . . . . . . . $23,274 $21,862 $ 20,442
Cash paid to suppliers and employees . . . . . . . . . . . . (9,510) (8,405) (8,617)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . (144) -- --
Income taxes paid . . . . . . . . . . . . . . . . . . . . . (583) (487) (515)
Interest and other cash receipts . . . . . . . . . . . . . . 821 847 1,462
------ ------ -------
Net cash provided by operating activities . . . . . . . . 13,858 13,817 12,772
------ ------ -------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . (2,651) (2,932) (23,554)
Proceeds from sales of property and equipment . . . . . . . 120 34 --
Supplemental purchase price payment . . . . . . . . . . . . 4,000 -- --
------ ------ -------
Net cash provided by (used in) investing activities . . . 1,469 (2,898) (23,554)
------ ------ ------
Cash flows from financing activities:
Sale of treasury stock . . . . . . . . . . . . . . . . . . . -- -- 10,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . -- (8,852) (1,634)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . -- (810) (1,259)
Debt issue costs . . . . . . . . . . . . . . . . . . . . . . -- -- (266)
Repayments of long-term debt . . . . . . . . . . . . . . . . (1,704) -- --
Proceeds from stock options exercised . . . . . . . . . . . 139 31 164
------ ------ -------
Net cash provided by (used in) financing activities . . . (1,565) (9,631) 7,005
------ ------ -------
Net increase (decrease) in cash and cash equivalents . . . . . 13,762 1,288 (3,777)
Cash and cash equivalents, beginning of year . . . . . . . . . 11,486 25,248 26,536
------ ------ -------
Cash and cash equivalents, end of year . . . . . . . . $25,248 $26,536 $ 22,759
====== ====== =======
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $12,336 $12,891 $ 10,611
------ ------ -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . 1,967 2,213 5,795
Capitalized general and administrative expense . . . . . (372) (604) (1,055)
Loss on early extinguishment of debt . . . . . . . . . . 174 -- --
Gain on sale of properties . . . . . . . . . . . . . . . (97) -- --
(Increase) decrease in accounts receivable related to
operating activities . . . . . . . . . . . . . . . . . 866 (350) (3,078)
Increase (decrease) in accounts payable related to
operating activities . . . . . . . . . . . . . . . . . (89) (156) 330
Increase (decrease) in accrued liabilities related to
operating activities . . . . . . . . . . . . . . . . . (541) 283 95
Other noncash items . . . . . . . . . . . . . . . . . . . (386) (460) 74
------ ------ -------
Total adjustments . . . . . . . . . . . . . . . . . . 1,522 926 2,161
------ ------ -------
Net cash provided by operating activities . . . . . $13,858 $13,817 $ 12,772
====== ====== =======
The accompanying notes are an integral part of this statement.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is an independent oil and gas company operating in Egypt.
Company operations include exploring, developing and operating crude oil and
natural gas properties in Egypt.
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Oil and Gas Operations - The Company uses the full cost method of
accounting for oil and gas operations. Under the full cost method, all costs
associated with the acquisition, exploration and development of oil and gas
reserves, including nonproductive costs, are capitalized as incurred. Internal
overhead which is directly identified with acquisition, exploration and
development activities is capitalized. The Company capitalized $0.4 million,
$0.6 million and $1.1 million of internal overhead for the years ended December
31, 1993, 1994 and 1995, respectively.
The capitalized costs of oil and gas properties are accumulated in
cost centers on a country-by-country basis and are amortized using the
unit-of-production method based on proved reserves. Estimated future
development costs are included in the amortization base. Depreciation,
depletion and amortization expense per equivalent oil barrel for Egypt was
$0.66, $0.87 and $2.51 for the years ended December 31, 1993, 1994 and 1995,
respectively. Capitalized costs and estimated future development costs
associated with unevaluated properties are excluded from amortization until the
quantity of proved reserves attributable to the property has been determined or
impairment has occurred. At December 31, 1993 and 1994, the Company excluded
$1 million of capitalized costs related to the Qarun Concession from
amortization. At December 31, 1995 the Company excluded $0.9 million of
capitalized costs related to the Khalda Offset acreage from amortization.
These costs will be included in the amortization base as prospects within the
Khalda Offset acreage are evaluated.
Dispositions of oil and gas properties are recorded as adjustments to
capitalized costs, with no gain or loss recognized unless such adjustments
would significantly alter the relationship between capitalized costs and proved
reserves. Accordingly, the gain on the sale of a portion of the Company's
interest in the Khalda Concession in 1989 and the subsequent supplemental
payments in 1992 and 1993 were recorded as reductions of capitalized costs with
no gain recognized.
The unamortized cost of oil and gas properties less related deferred
income tax may not exceed an amount equal to the net present value discounted
at 10% of proved oil and gas reserves plus the lower of cost or estimated fair
market value of unevaluated properties. To the extent the Company's
unamortized cost of oil and gas properties exceeded this ceiling amount, a
provision for additional depreciation, depletion and amortization would be
required.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Production Entitlements - Pursuant to the entitlement method, the
Company recognizes revenue from its Egyptian concessions in the period it is
entitled to such production. Production costs are expensed as incurred. At
period-end any revenue to which the Company is entitled but has not received is
recorded as an account receivable; revenue the Company has received but is not
entitled to is recorded in current liabilities as deferred revenue. As of
December 31, 1994 and 1995 the Company had recorded an account receivable of
$0.4 million representing approximately 23,000 barrels of crude oil and $0.5
million representing approximately 29,000 barrels of crude oil, respectively.
Taxes on Income - The Company recognizes deferred tax liabilities and
assets for the expected future tax consequences, if any, of temporary
differences between the tax and financial reporting bases of the Company's
assets and liabilities.
The Company operates in two tax jurisdictions, the U.S. and Egypt.
All of the Company's Egyptian operations are conducted through wholly-owned
U.S. subsidiaries, and all income generated by the Egyptian operations is also
included in the Company's consolidated U.S. taxable income. In accordance with
the provisions of Egyptian concession agreements, EGPC's share of revenues
includes Egyptian income taxes and government royalties attributable to the
Company, which are paid directly by EGPC. Payment of these Egyptian income
taxes by EGPC creates for the Company both U.S. taxable income and foreign tax
credits (or deductions, at the option of the Company) which can be utilized to
reduce U.S. income taxes, if any, on earnings from the Company's foreign
operations.
The Company records its share of the Egyptian income tax expense and
revenue dedicated to foreign tax liabilities for the tax payment to be made on
its behalf by EGPC. The Company records an Egyptian deferred income tax
liability, and an identical deferred receivable, related to its share of
temporary differences in reporting Egyptian taxable income by the Company
during the current and prior years.
Cash and Cash Equivalents - For the Statement of Cash Flows, the
Company considers unrestricted cash on hand and all highly liquid debt
instruments purchased with a maturity of generally three months or less to be
cash equivalents.
Foreign Currency Transactions - Nearly all transactions of the Company
and its wholly-owned subsidiaries are made in U.S. dollars. As a result,
foreign currency exchange gains and losses, if any, are recognized in the
period incurred. Total foreign exchange gains and losses are immaterial.
Stock Option Plans - The Company accounts for its stock option plans
using the intrinsic value method in accordance with Accounting Principles
Opinion No. 25. In October 1995 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." The Company will adopt the pro
forma disclosure requirements of SFAS No. 123 in 1996.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- QUARTERLY RESULTS OF OPERATIONS:
The unaudited results of operations for the quarterly periods of 1994
and 1995 are summarized below, in thousands, except per share amounts, oil
prices and average daily gross production.
1994
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- -------- -------- --------
Oil and gas revenues . . . . . . . . . . . . . . . . $ 4,474 $ 5,786 $ 5,925 $ 5,671 $21,856
Revenues dedicated to foreign tax liability . . . . . 2,222 2,767 2,977 2,900 10,866
Other revenues . . . . . . . . . . . . . . . . . . . 241 245 287 349 1,122
------- ------ ------ ------ ------
6,937 8,798 9,189 8,920 33,844
------- ------ ------ ------ ------
Production costs . . . . . . . . . . . . . . . . . . 1,102 1,656 1,519 1,024 5,301
Other costs and expenses . . . . . . . . . . . . . . 1,120 943 953 1,511 4,527
------- ------ ------ ------ ------
2,222 2,599 2,472 2,535 9,828
------- ------ ------ ------ ------
Income before income taxes . . . . . . . . . . . . . 4,715 6,199 6,717 6,385 24,016
Provision for income taxes . . . . . . . . . . . . . 2,274 2,837 3,047 2,967 11,125
------- ------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . $ 2,441 $ 3,362 $ 3,670 $ 3,418 $12,891
======= ====== ======= ====== ======
Net income, per share . . . . . . . . . . . . . . . . $ 0.14 $ 0.20 $ 0.23 $ 0.21 $ 0.78
======= ====== ======= ====== ======
Average daily gross oil production--Khalda . . . . . 31,244 32,917 34,008 32,724 32,731
Average oil price--Egypt . . . . . . . . . . . . . $ 14.08 $ 15.91 $ 16.24 $ 16.47 $ 15.72
1995
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- -------- -------- --------
Oil and gas revenues . . . . . . . . . . . . . . . . $ 5,486 $ 5,891 $ 5,418 $ 6,638 $23,433
Revenues dedicated to foreign tax liability . . . . . 2,831 2,988 2,514 1,489 9,822
Other revenues . . . . . . . . . . . . . . . . . . . 370 436 589 386 1,781
------- ------ ------ ------ ------
8,687 9,315 8,521 8,513 35,036
------- ------ ------ ------ ------
Production costs . . . . . . . . . . . . . . . . . . 1,377 1,654 1,465 1,925 6,421
Other costs and expenses . . . . . . . . . . . . . . 1,342 1,621 2,852 2,174 7,989
------- ------ ------ ------ ------
2,719 3,275 4,317 4,099 14,410
------- ------ ------ ------ ------
Income before income taxes . . . . . . . . . . . . . 5,968 6,040 4,204 4,414 20,626
Provision for income taxes . . . . . . . . . . . . . 2,884 3,038 2,560 1,533 10,015
------- ------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . $ 3,084 $ 3,002 $ 1,644 $ 2,881 $10,611
======= ====== ======= ====== ======
Net income, per share . . . . . . . . . . . . . . . . $ 0.19 $ 0.19 $ 0.10 $ 0.17 $ 0.65
======= ====== ======= ====== ======
Average daily gross oil production--Khalda . . . . . 31,372 30,415 31,260 30,746 30,947
Average oil price--Egypt . . . . . . . . . . . . . $ 16.83 $ 17.79 $ 15.86 $ 17.06 $ 16.88
NOTE 3 -- CAPITAL STOCK AND OPTIONS:
Capital Stock - Two-for-one splits of the number of shares of Common
Stock outstanding were effective in January and September 1995. All references
in the accompanying financial statements and notes to the number of common
shares and per share amounts have been restated to reflect the splits.
A total of 20,000,000 shares of $0.01 par value Common Stock are
authorized. As of December 31, 1995 there were 16,961,920 shares of Common
Stock issued, of which 16,189,756
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were outstanding, and 1,914,000 shares of Common Stock were reserved for
issuance upon exercise of the options described below. As of December 31, 1994
there were 16,961,920 shares of Common Stock issued, of which 15,708,196 were
outstanding, and 1,342,000 shares of Common Stock were reserved for issuance
upon exercise of the options described below.
A total of 5,000,000 shares of $0.01 par value preferred stock are
authorized, none of which were outstanding at December 31, 1994 or 1995.
In November 1995 the Company sold 606,060 shares of its Common Stock
to the International Finance Corporation ("IFC"), an affiliate of the World
Bank, at the then current market price of $16.50 per share. The shares sold to
IFC were treasury shares previously acquired by the Company at an average price
of $7.37 per share.
In conjunction with the March 1994 secondary public offering by a
selling shareholder of 30% of the Company's Common Stock, the Company purchased
515,204 shares of its Common Stock at $6.74 per share. Also during 1994, the
Company purchased 738,520 shares of its Common Stock in open market
transactions at an average price of $7.29 per share. During 1995 the Company
purchased 152,500 shares of its Common Stock in open market transactions at an
average price of $10.71 per share. Shares purchased are held as treasury stock
unless and until reissued.
Stock Options - The 1990 Employee Stock Option Plan, as amended
("Employee Stock Option Plan") and the 1990 Nonemployee Director Stock Option
Plan, as amended ("Director Stock Option Plan"), were established April 9,
1990. The Employee Stock Option Plan authorizes the grant of options to
purchase Common Stock to employees of the Company. The exercise price of the
options granted may not be less than the fair market value on the date of the
grant. At December 31, 1994 and 1995 shares of Common Stock reserved for
issuance pursuant to the Employee Stock Option Plan totaled 1,074,000 and
1,670,000, respectively.
The Director Stock Option Plan authorizes the grant of options to
purchase 12,000 shares of Common Stock to each director of the Company, who is
not otherwise an employee of the Company, upon election to the Board of
Directors. The Plan also provides that each nonemployee director of the
Company be granted additional options covering a sufficient number of shares of
Common Stock, so that after such grant such nonemployee director would hold in
the aggregate, including all options previously granted to such nonemployee
director that remain unexercised, options covering at least 12,000 shares of
Common Stock. The exercise price of options granted is the closing price of
the shares of Common Stock on the date of the grant of such options. At
December 31, 1994 and 1995 shares of Common Stock reserved for issuance
pursuant to the Director Stock Option Plan totaled 268,000 and 244,000,
respectively.
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information on the status of options is in the following table.
Employee Plan Director Plan
--------------------------- -----------------------------
Option Price Option Price
Shares Per Share Shares Per Share
------------ ------------- ------------ --------------
OUTSTANDING DECEMBER 31, 1993 . . . . . 42,000 $ 1.56 18,000 $ 1.56 - 8.75
Granted . . . . . . . . . . . . . . 740,000 $ 6.59 - 10.06 80,000 $ 6.13
Exercised . . . . . . . . . . . . . (8,000) $ 1.56 (12,000) $ 1.56
--------- --------
OUTSTANDING DECEMBER 31, 1994 . . . . . 774,000 $ 1.56 - 10.06 86,000 $ 6.13 - 8.75
Granted . . . . . . . . . . . . . . 300,000 $ 12.44 8,000 $ 14.44
Exercised . . . . . . . . . . . . . (4,000) $ 1.56 (24,000) $ 6.13 - 8.75
Cancelled . . . . . . . . . . . . . (7,000) $ 6.59 - 12.44 --
--------- --------
OUTSTANDING DECEMBER 31, 1995 . . . . . 1,063,000 $ 1.56 - 12.44 70,000 $ 6.13 - 14.44
========= ========
Exercisable at:
December 31, 1994 . . . . . . . . . 34,000 $ 1.56 2,000 $ 8.75
December 31, 1995 . . . . . . . . . 400,000 $ 1.56 - 10.06 20,000 $ 6.13
Director Compensation Plan - During the third quarter of 1995 the
Board of Directors adopted a Nonemployee Director Compensation Plan (the
"Director Plan"). The Director Plan, which is subject to shareholder approval,
provides for the grant of 1,500 shares of Common Stock to each nonemployee
director for each year that individual serves as a director since May 11, 1993.
The Common Stock granted is vested ratably over each year of service and would
be issuable to a director upon termination as a director, except in the event
of removal for cause. A total of approximately $0.4 million was recorded in
both Paid-in Capital and General and Administrative Expense in the accompanying
1995 financial statements.
NOTE 4 -- INCOME TAXES:
At December 31, 1995 the Company had net operating loss carryforwards
of approximately $172 million, subject to the significant limitations described
below. These amounts could be carried forward and would expire in varying
amounts from 1997 through 2004 if not utilized. Due to the limitations imposed
by the Tax Reform Act of 1986, the Company does not expect to be able to
utilize more than approximately $80 million of its net operating loss
carryforwards. However, the Company expects to generate future foreign tax
credits, which will be derived from Egyptian tax payments paid on the Company's
behalf by EGPC, sufficient to more than offset the future U.S. income taxes,
excluding alternative minimum taxes, on its operations. The Company expects to
pay future income taxes, excluding Egyptian income taxes paid on its behalf by
EGPC, equal to approximately 2% of its pretax income which represents U.S.
alternative minimum taxes.
In accordance with the Tax Reform Act of 1986, usage of net operating
loss carryforwards is subject to limitations in future years if certain
ownership changes occur. Such ownership changes have occurred. During the
period following the ownership change, the limitation is the sum of (i) an
annual amount (estimated to be approximately $4 million) determined by the
value of the Company immediately before the ownership change, adjusted to
reflect the increase in value resulting from the cancellation of indebtedness
resulting from the reorganization, multiplied by a statutorily determined
interest rate; and (ii) the amount of built-in gains realized during the
five-year period following the ownership change. The Company's built-in gain
is the amount by which the fair market value of its assets exceeded tax basis
at the time of the ownership change. The net operating loss carryforward and
the amount
11
12
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available for utilization are subject to review and possible adjustment by the
Internal Revenue Service.
Pretax financial reporting income for the years shown was taxable
under the following jurisdictions:
1993 1994 1995
--------- -------- --------
(In thousands)
U.S. . . . . . . . . . . . . . . $(1,445) $(1,520) $(2,456)
Egypt . . . . . . . . . . . . . 24,861 25,536 23,082
------ ------ ------
Total . . . . . . . . . . . . $23,416 $24,016 $20,626
====== ====== ======
Income from the Company's Egyptian operations is also taxable in the U.S., but
is not included in the amounts stated above for the U.S. The 1993, 1994 and
1995 financial reporting income for Egypt includes the revenue dedicated to
payment of foreign taxes of approximately $10.6 million, $10.9 million and $9.8
million, respectively.
The provision for income taxes for the years shown was comprised of
the following:
1993 1994 1995
-------- -------- ---------
(In thousands)
Current tax expense:
U.S. alternative minimum tax . . . . . $ 328 $ 259 $ 193
Foreign--Egyptian . . . . . . . . . . . 12,990 10,560 16,036
Deferred tax expense (benefit):
Foreign--Egyptian . . . . . . . . . . . (2,412) 306 (6,214)
------ ------ -------
Total provision . . . . . . . . . . . . . $ 10,906 $ 11,125 $ 10,015
======= ======== ========
The provision for income taxes for the years shown differs from the
amount of income tax determined by applying the U.S. statutory federal income
tax rate to pretax income as a result of the following differences:
1993 1994 1995
--------- -------- --------
Statutory U.S. tax rate . . . . . . . . . . . . . . . . . . . . 35.00% 35.00% 35.00%
Increase (decrease) in rate resulting from:
Egyptian tax on Egyptian earnings . . . . . . . . . . . . . 45.17% 45.24% 47.62%
Realization of net operating loss carryforward benefits . . (33.60%) (33.92%) (34.06%)
----- ----- -----
Effective tax rate . . . . . . . . . . . . . . . . . . . 46.57% 46.32% 48.56%
===== ===== =====
12
13
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred U.S. and Egyptian tax assets (liabilities) are comprised of
the following at the dates shown:
At December 31,
------------------------------------------------
1994 1995
---------------------- ---------------------
U.S. Egyptian U.S. Egyptian
--------- ---------- ---------- --------
(In thousands)
Depreciation, depletion and amortization . . . $ 1,774 $ (4,520) $ 3,138 $ (2,738)
Other capitalized expenses . . . . . . . . . . 169 -- 677 --
Net operating loss carryforwards . . . . . . . 63,394 -- 60,225 --
AMT carryover . . . . . . . . . . . . . . . . 2,709 -- 2,893 --
Concession agreement . . . . . . . . . . . . . -- (4,691) -- (259)
-------- ------- ------- -------
Gross deferred tax assets (liabilities) . . 68,046 (9,211) 66,933 (2,997)
Deferred tax asset valuation allowance . . . . (68,046) -- (66,933) --
-------- ------- ------- -------
Net deferred tax assets (liabilities) . . $ -- $ (9,211) $ -- $ (2,997)
======== ======= ======= =======
The change in the valuation allowance during 1994 and 1995 was a
decrease of $5 million and $1.1 million, respectively, resulting primarily from
the realization of net operating loss carryforwards. No benefit for the
remaining U.S. net operating loss carryforwards or the other U.S. deferred tax
assets has been recognized in the accompanying financial statements, as the
Company believes, based on its current operations, its current proved reserves
and existing income tax laws and regulations, no incremental future tax
benefits will be derived.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES:
Substantially all of the Company's operations and reserves are located
in Egypt and, therefore, are subject to certain risks relating to economic and
political stability in Egypt and the surrounding region. The Company is
exposed to certain risks due to its concentration of Egyptian operations, which
include possible changes in Egyptian laws, particularly relating to foreign
investments and taxation, renegotiation or modification of existing contracts
and expropriation. Adverse developments in Egypt and future changes in
Egyptian governmental regulations and policies could have a material adverse
effect on the Company. The Company does not insure against loss of production
or political risks. The carrying amount of identifiable assets (excluding
cash and cash equivalents in U.S. banks and intercompany balances) of the
Company's foreign operations at December 31, 1994 and 1995 totaled $29.4
million and $46.8 million (including approximately $19.9 million and $14
million related to receivables for payment of foreign taxes which are offset by
an equal amount of foreign tax liabilities), respectively.
Egypt retains the right of requisition of production from Egyptian
concessions and cancellation of the concession agreements upon the occurrence
of specific events, including a national emergency due to war, imminent
expectation of war or internal causes, unauthorized assignment of interests in
the concession, the concession holder being adjudicated bankrupt by a court of
competent jurisdiction and intentional extraction of any mineral not authorized
by the concession agreement. Requisition or cancellation of the Company's
concession agreements as a result of the foregoing or for any other reasons
would have a material adverse effect on the Company.
A portion of the Company's operating revenues represents the sale of
crude oil produced from Egyptian concessions and allocated to the Company for
reimbursement of operating, development and exploration costs. These costs are
subject to review and approval by EGPC.
13
14
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management does not expect the amount of costs rejected for reimbursement by
EGPC to have a material adverse effect on the Company's financial position or
results of operations.
Various lawsuits are pending against the Company. Management is of
the opinion, based on advice of independent legal counsel, that the ultimate
outcome of all pending litigation is highly unlikely to have a material effect
on the financial position or results of operations of the Company.
The Company is committed, under certain circumstances, to pay $1.8
million pursuant to various employment contracts with certain key employees.
NOTE 6 -- SALES TO MAJOR CUSTOMERS:
Sales to EGPC accounted for 96%, 99% and 100% of the Company's
consolidated oil and gas revenues in 1993, 1994 and 1995, respectively.
NOTE 7 -- SUBSEQUENT EVENTS:
In January 1996 the Company completed the initial stages of project
financing for the Qarun Concession development and borrowed the first $12.5
million installment of what will ultimately become a $50 million loan facility.
This financing was arranged by the International Finance Corporation, an
affiliate of the World Bank. The loan will be secured by the stock and assets
of the Company's wholly-owned subsidiary, Phoenix Resources Company of Qarun,
and prior to the completion of the development project the loan will be
guaranteed by the Company. Interest payments will commence June 15, 1996 and
will be payable semi-annually at a rate equal to the London Inter-Bank Offered
Rate plus 2- 3/8% to 3%. Semi-annual principal payments commence June 15, 1998
and continue through 2002.
During February 1996 the Company purchased 100,000 shares of its
Common Stock in open market transactions at a price of $19.00 per share. All
such shares are held as treasury stock.
14
15
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
The information in this section is based on engineering estimates of
oil and gas reserves, using the methods and assumptions prescribed by the SEC
for such calculations. Assumed sales prices of hydrocarbons were, as required,
those prices in effect at the respective dates indicated, with no effect given
to price changes which have occurred since those dates or to potential
increases or decreases in prices. The estimation of oil and gas reserves is
not an exact science. Estimates of economically recoverable oil and gas
reserves and of the future net revenues from those reserves depend on a number
of assumptions, all of which may, and frequently do, vary materially from
actual results.
EGPC is required to pay, on behalf of the Company, all Egyptian
government royalties and the Company's Egyptian income taxes from its share of
production. The reserve information presented in the following tables includes
reserves attributable to such tax payments on behalf of the Company by EGPC and
the related deductions for Egyptian income taxes and, accordingly, the reserve
information shown for 1993 and 1994 has been restated from amounts previously
reported.
The value of proved natural gas quantities shown in the table below
has been reduced to account for the currently limited access to natural gas
markets.
Net proved reserves of crude oil and natural gas of the Company were
estimated as of December 31, 1993, 1994 and 1995 by independent petroleum
engineers, Netherland, Sewell & Associates, Inc., of Dallas, Texas.
VALUES OF RESERVES (UNAUDITED)
Future Net Revenues (In thousands)
------------------------------------------------------------------------
Total Present Value
(Undiscounted) (Discounted at 10%)
At December 31, At December 31,
---------------------------------- ------------------------------------
1993 1994 1995 1993 1994 1995
-------- -------- --------- ----------- -------- --------
Proved Developed
Producing:
United States . . . . $ 971 $ -- $ -- $ 849 $ -- $ --
Egypt . . . . . . . . 49,978 52,168 63,579 38,402 41,769 52,361
------- ------- ------- ------- ------- -------
Subtotal . . . . . . 50,949 52,168 63,579 39,251 41,769 52,361
------- ------- ------- ------- ------- -------
Proved Developed
Nonproducing:
Egypt . . . . . . . . 17,112 18,930 27,915 10,519 10,748 17,487
------- ------- ------- ------- ------- -------
Proved Undeveloped:
Egypt . . . . . . . . 27,973 77,602 111,840 5,012 27,522 59,511
------- ------- ------- ------- ------- -------
Total Proved Reserves:
United States . . . . 971 -- -- 849 -- --
Egypt . . . . . . . . 95,063 148,700 203,334 53,933 80,039 129,359
------- ------- ------- ------- ------- -------
TOTAL PROVED RESERVES . . . $ 96,034 $ 148,700 $ 203,334 $ 54,782 $ 80,039 $ 129,359
======= ======= ======= ======= ======= ========
Assumed Egyptian
Oil Price . . . . . . $ 13.47 $ 15.73 $ 17.97 $ 13.47 $ 15.73 $ 17.97
15
16
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
RESERVE QUANTITY INFORMATION (UNAUDITED)
Oil and gas quantities for Egypt include reserves attributable to the
Company's rights to recover past and future costs, which quantities vary with
price assumptions and cost estimates. In accordance with SEC requirements, the
assumed Egyptian oil price for estimates made as of December 31, 1993, 1994 and
1995 was $13.47, $15.73 and $17.97, respectively. Oil includes oil and gas
condensate and is stated in thousands of barrels; gas is stated in millions of
cubic feet and includes all gas produced, whether or not sold.
U.S. EGYPT TOTAL
-------------- ---------------- -----------------
OIL GAS OIL GAS OIL GAS
------ ------ ------- ------- ------ ------
YEAR ENDED DECEMBER 31, 1993
Proved Reserves:
----------------
Beginning balance . . . . . . . . 38 235 13,353 24,022 13,391 24,257
Revisions of previous estimates . 42 45 1,769 6,484 1,811 6,529
Extensions, discoveries and
other additions . . . . . . . . -- -- 911 8,252 911 8,252
Production . . . . . . . . . . . (25) (171) (1,819) (1,442) (1,844) (1,613)
------ ------ ------ ------ ------ ------
Ending balance . . . . . . . . 55 109 14,214 37,316 14,269 37,425
====== ====== ====== ====== ====== ======
Proved Developed Reserves:
--------------------------
Beginning balance . . . . . . . . 38 235 8,906 3,935 8,944 4,170
====== ====== ====== ====== ====== ======
Ending balance . . . . . . . . . 55 109 11,157 5,771 11,212 5,880
====== ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1994
Proved Reserves:
----------------
Beginning balance . . . . . . . . 55 109 14,214 37,316 14,269 37,425
Revisions of previous estimates . (43) (89) (979) (3,914) (1,022) (4,003)
Extensions, discoveries and
other additions . . . . . . . . -- -- 8,785 1,057 8,785 1,057
Production . . . . . . . . . . . (4) (18) (1,981) (1,793) (1,985) (1,811)
Sales of reserves in place . . . (8) (2) -- -- (8) (2)
----- ---- ------ ------- ------ ------
Ending balance . . . . . . . . -- -- 20,039 32,666 20,039 32,666
====== ====== ====== ====== ====== ======
Proved Developed Reserves:
-------------------------
Beginning balance . . . . . . . . 55 109 11,157 5,771 11,212 5,880
====== ====== ====== ====== ====== ======
Ending balance . . . . . . . . . -- -- 8,998 4,110 8,998 4,110
====== ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1995
Proved Reserves:
----------------
Beginning balance . . . . . . . . -- -- 20,039 32,666 20,039 32,666
Revisions of previous estimates . -- -- (1,025) (9,771) (1,025) (9,771)
Extensions, discoveries and
other additions . . . . . . . . -- -- 8,699 4,810 8,699 4,810
Production . . . . . . . . . . . -- -- (1,995) (1,796) (1,995) (1,796)
------ ------ ------ ------ ------ ------
Ending balance . . . . . . . . -- -- 25,718 25,909 25,718 25,909
====== ====== ====== ====== ====== ======
Proved Developed Reserves:
-------------------------
Beginning balance . . . . . . . . -- -- 8,998 4,110 8,998 4,110
====== ====== ====== ====== ====== ======
Ending balance . . . . . . . . . -- -- 9,555 6,317 9,555 6,317
====== ====== ====== ====== ====== ======
16
17
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(In thousands)
EGYPT
-------
DECEMBER 31, 1994
Proved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,620
Unproved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004
------
18,624
Accumulated DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,984
------
Net capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,640
======
DECEMBER 31, 1995
Proved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,948
Unproved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894
------
40,842
Accumulated DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,746
------
Net capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,096
======
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
(In thousands)
U.S. EGYPT TOTAL
------ ------ -------
YEAR ENDED DECEMBER 31, 1993
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ 59 $ 2,941 $ 3,000
Development costs . . . . . . . . . . . . . . . . . . . . . . 35 (13) 22
YEAR ENDED DECEMBER 31, 1994
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ -- $ 4,059 $ 4,059
Development costs . . . . . . . . . . . . . . . . . . . . . . -- 244 244
YEAR ENDED DECEMBER 31, 1995
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . $ -- $ 408 $ 408
Exploration costs . . . . . . . . . . . . . . . . . . . . . . -- 12,861 12,861
Development costs . . . . . . . . . . . . . . . . . . . . . . -- 8,949 8,949
17
18
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED)
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves was calculated based on prices and economic
conditions in effect at each respective year-end. The standardized measure of
discounted future net cash flows should not necessarily be equated with the
fair market value of the Company's oil and gas reserves.
U.S. EGYPT TOTAL
---------- --------- ----------
(In thousands)
DECEMBER 31, 1993
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ 1,131 $ 227,891 $ 229,022
Future production and development costs . . . . . . . . . . . . (160) (76,491) (76,651)
Future Egyptian income tax expense . . . . . . . . . . . . . . -- (56,337) (56,337)
------- -------- ---------
Future net cash flows . . . . . . . . . . . . . . . . . . . 971 95,063 96,034
10% annual discount for estimated timing of net cash flow . . . (122) (41,130) (41,252)
------- -------- ---------
Standardized measure of discounted future net cash flows . . $ 849 $ 53,933 $ 54,782
======= ======== =========
DECEMBER 31, 1994
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ -- $ 372,285 $ 372,285
Future production and development costs . . . . . . . . . . . . -- (134,192) (134,192)
Future Egyptian income tax expense . . . . . . . . . . . . . . -- (89,393) (89,393)
------- -------- ---------
Future net cash flows . . . . . . . . . . . . . . . . . . . -- 148,700 148,700
10% annual discount for estimated timing of net cash flow . . . -- (68,661) (68,661)
------- -------- ---------
Standardized measure of discounted future net cash flows . . $ -- $ 80,039 $ 80,039
======= ======== =========
DECEMBER 31, 1995
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ -- $ 516,193 $ 516,193
Future production and development costs . . . . . . . . . . . . -- (180,725) (180,725)
Future Egyptian income tax expense . . . . . . . . . . . . . . -- (132,134) (132,134)
------- -------- --------
Future net cash flows . . . . . . . . . . . . . . . . . . . -- 203,334 203,334
10% annual discount for estimated timing of net cash flow . . . -- (73,975) (73,975)
------- --------- ---------
Standardized measure of discounted future net cash flows . . $ -- $ 129,359 $ 129,359
======= ======== =========
Following are the principal sources of changes in the standardized
measure of discounted future net cash flows during the years shown:
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
---------- --------- --------
(In thousands)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 73,524 $ 54,782 $ 80,039
Sales and transfers, net of production costs . . . . . . . . . (16,461) (16,555) (17,012)
Net changes in sales prices, net of production costs . . . . . (21,181) 22,425 26,831
Extensions, discoveries and improved recovery,
net of future production and development costs . . . . . . . 5,015 22,048 48,250
Changes in estimated future development costs . . . . . . . . . (2,080) -- (16,971)
Accrued development costs incurred in the current year . . . . -- -- 4,142
Revisions of quantity estimates . . . . . . . . . . . . . . . . 10,447 (6,556) (7,831)
Accretion of discount . . . . . . . . . . . . . . . . . . . . . 7,353 5,393 8,004
Changes in production rates (timing) and other . . . . . . . . (1,835) (1,498) 3,907
------- ------- --------
Ending balance . . . . . . . . . . . . . . . . . . . . . . $ 54,782 $ 80,039 $ 129,359
======= ======= ========
In the tables above, no U.S. income tax expense is provided due to the
utilization of net operating loss carryforwards, the availability of future
foreign tax credits and the insignificance of alternative minimum tax. Changes
in future Egyptian income taxes and the equal and offsetting amount of changes
in future cash inflows have been excluded.
18
19
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES
(EXCLUDING CORPORATE OVERHEAD AND INTEREST)
(In thousands)
U.S. EGYPT TOTAL
-------- -------- --------
YEAR ENDED DECEMBER 31, 1993
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 839 $ 21,463 $ 22,302
Revenues dedicated to foreign tax liability . . . . . . -- 10,578 10,578
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . 839 32,041 32,880
Production costs . . . . . . . . . . . . . . . . . . . . (228) (5,613) (5,841)
Depreciation, depletion and amortization . . . . . . . . (533) (1,361) (1,894)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,578) (10,578)
------- ------- -------
Results of operations from producing activities . . . . $ 78 $ 14,489 $ 14,567
======= ======= ========
YEAR ENDED DECEMBER 31, 1994
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 108 $ 21,748 $ 21,856
Revenues dedicated to foreign tax liability . . . . . . -- 10,866 10,866
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . 108 32,614 32,722
Production costs . . . . . . . . . . . . . . . . . . . . (120) (5,181) (5,301)
Depreciation, depletion and amortization . . . . . . . . (212) (1,966) (2,178)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,866) (10,866)
------- ------- -------
Results of operations from producing activities . . . . $ (224) $ 14,601 $ 14,377
======= ======= ========
YEAR ENDED DECEMBER 31, 1995
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ -- $ 23,433 $ 23,433
Revenues dedicated to foreign tax liability . . . . . . -- 9,822 9,822
------- ------- -------
Operating revenues . . . . . . . . . . . . . . . . . . -- 33,255 33,255
Production costs . . . . . . . . . . . . . . . . . . . . -- (6,421) (6,421)
Depreciation, depletion and amortization . . . . . . . . -- (5,768) (5,768)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (9,822) (9,822)
------- ------- -------
Results of operations from producing activities . . . . $ -- $ 11,244 $ 11,244
======= ======= =======
In the tables above, no U.S. income tax expense is provided due to the
utilization of net operating loss carryforward, the availability of future
foreign tax credits and the insignificance of alternative minimum tax.
20
SCHEDULE II
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Balance at Balance
Beginning at End
of Year Additions Deductions of Year
---------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts .. $ 88 $ -- $ 88 $ --
Deferred tax asset valuation
allowance ...................... 76,574 -- 3,498 $ 73,076
YEAR ENDED DECEMBER 31, 1994
Deferred tax asset valuation
allowance ...................... $ 73,076 $ -- $ 5,030 $ 68,046
YEAR ENDED DECEMBER 31, 1995
Deferred tax asset valuation
allowance ..................... $ 68,046 $ -- $ 1,113 $ 66,933
S-1