1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Amendment No. 1 to Form 8-K
filed June 15, 2001
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 4, 2001
DENBURY RESOURCES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
1-12935 75-2815171
(Commission File Number) (I.R.S. Employer
Identification No.)
5100 TENNYSON PARKWAY
SUITE 3000
PLANO, TEXAS 75024
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (972) 673-2000
2
Denbury Resources Inc. ("Denbury" or the "Company") filed an 8-K on June
15, 2001 to report an agreement to acquire Matrix Oil and Gas, Inc ("Matrix").
Financial statements of Matrix and pro forma information were not available at
that time and are filed herewith under Item 7. On July 10, 2001, Denbury
consummated the merger with Matrix.
ITEM 5. OTHER ITEMS
In accordance with the terms of the merger agreement between Denbury and Matrix,
Mr. David B. Miller joined Denbury's Board of Directors, increasing Denbury's
board to nine members. Mr. Miller is a Managing Director and co-founder of
EnCap Investments L.L.C., which is now a wholly owned subsidiary of El Paso
Corporation (NYSE: EPG). As a result of the transaction, EnCap becomes Denbury's
second largest shareholder, holding 3.9 million shares of Denbury common stock,
or 7.5% of Denbury's post-closing 52.8 million shares outstanding. Prior to the
formation of EnCap in 1988, Mr. Miller held executive positions with PMC Reserve
Acquisition Company, MAZE Exploration Inc., and Republic National Bank of
Dallas. Mr. Miller, age 51, also serves on the board of directors of 3TEC Energy
Corporation and two other EnCap portfolio companies.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired:
MATRIX OIL AND GAS, INC.
Year End Financial Statements:
Matrix Oil and Gas, Inc. audited balance sheet and
related statement of income, stockholders' equity, and
cash flows, corresponding notes to the financial
statements and Report of Accountants' for the year
ended December 31, 2000.
Interim Financial Statements:
Matrix Oil and Gas, Inc. unaudited balance sheet and
related statement of income and cash flows,
corresponding notes to the financial statements and
review report of independent public accountants for the
three months ended March 31, 2001.
(b) Unaudited pro forma results of operations of Denbury Resources
Inc. for the year ended December 31, 2000 and three months
ended March 31, 2001 as if the acquisition had occurred at the
beginning of the respective period and a pro forma balance
sheet as of March 31, 2001.
(c) Exhibits:
Exhibit No. Description
(2)* Agreement and Plan of Merger and
Reorganization by and among Denbury
Resources Inc., Denbury Offshore, Inc.,
Matrix Oil and Gas, Inc. and its
shareholders, dated as of June 4, 2001.
Schedules and Exhibits to Merger Agreement:
** Matrix Disclosure Schedule
** Exhibit A
** Exhibit B
** Exhibit 7.01(b)
** Exhibit 7.01(f)
** Exhibit 7.15
** Exhibit 7.15.1
(23)*** Consent of Arthur Andersen LLP
* Previously filed with this Form 8-K filed on June 15, 2001.
** These schedules and exhibits have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. Denbury will
3
furnish supplementally a copy of any omitted schedule or exhibit to the
Commission upon request.
*** Filed herewith.
SIGNATURES
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.
DENBURY RESOURCES INC.
(Registrant)
Date: July 24, 2001 By: /s/ PHIL RYKHOEK
---------------------------------
Phil Rykhoek
Chief Financial Officer
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF
DIRECTORS OF MATRIX OIL & GAS, INC.
We have audited the accompanying balance sheet of Matrix Oil & Gas, Inc. (a
Louisiana corporation) as of December 31, 2000 and the related statements of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides 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 Matrix Oil & Gas, Inc. as of
December 31, 2000 and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
New Orleans, Louisiana
March 16, 2001 (except with respect to Note 13, as to which the date is
June 22, 2001).
5
MATRIX OIL & GAS, INC.
BALANCE SHEET
ASSETS
DECEMBER 31,
2000
-------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,019,520
Accounts receivable 11,097,949
Prepaid expenses 100,000
-------------
Total current assets 13,217,469
-------------
OIL AND GAS PROPERTIES-SUCCESSFUL EFFORTS METHOD:
Leasehold cost 68,597,487
Platform, facility and well cost 52,292,542
-------------
120,890,029
Less: Accumulated depreciation, depletion and amortization (27,666,788)
-------------
Total oil and gas properties 93,223,241
-------------
OTHER DEPRECIABLE ASSETS AND LAND:
Land 76,274
Office equipment and furniture 229,314
Computer software 58,993
-------------
364,581
Less: Accumulated depreciation and amortization (153,357)
-------------
211,224
-------------
OTHER ASSETS:
Operator and pipeline bonds 1,881,463
Restricted cash - plug and abandonment obligations 2,598,924
-------------
Total other assets 4,480,387
-------------
TOTAL ASSETS $ 111,132,321
=============
The accompanying notes are an integral part of this statement.
6
MATRIX OIL & GAS, INC.
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
2000
-------------
CURRENT LIABILITIES:
Account payable and accrued liabilities $ 12,209,307
Amounts due to other owners 2,141,079
Unexpended well cost advances 592,317
Current portion of long-term debt 8,659,328
-------------
Total current liabilities 23,602,031
-------------
LONG-TERM DEBT:
Long-term portion of bank debt 17,000,000
-------------
Total long-term debt 17,000,000
-------------
DEFERRED LIABILITIES:
Estimated plug and abandonment cost 4,604,117
Deferred tax liability 13,962,346
-------------
Total deferred liabilities 18,566,463
-------------
MANDATORILY REDEEMABLE PREFERRED STOCK 30,819,210
-------------
STOCKHOLDERS' EQUITY:
Common stock, no par, 10,000,000 shares authorized, 2,156,000 shares
issued and outstanding 19,572,839
Note receivable from stockholders, weighted average interest rate of
6.93 %, including accrued interest (640,949)
Retained earnings 2,212,727
-------------
TOTAL STOCKHOLDERS' EQUITY 21,144,617
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 111,132,321
=============
The accompanying notes are an integral part of this statement.
7
MATRIX OIL & GAS, INC.
STATEMENT OF INCOME
YEAR ENDED
DECEMBER
2000
-------------
REVENUES:
Oil and gas sales, net of royalties $ 30,568,901
-------------
OPERATING EXPENSES:
Lease operating expenses 5,017,447
Workover expenses 1,184,763
Non-productive geophysical costs 3,195
Depreciation, depletion and amortization 10,866,700
Plug and abandonment provision 1,285,174
Non-productive well costs 12,010
-------------
Total cost of operations 18,369,289
-------------
Gross profit from operations 12,199,612
-------------
GENERAL AND ADMINISTRATIVE EXPENSES 3,576,893
-------------
Total operating income 8,622,719
-------------
OTHER INCOME (EXPENSE):
Interest income 274,368
Interest expense (1,536,187)
Gain on sale of assets 281,397
Other income 258,375
-------------
Total other income (expense) (722,047)
-------------
NET INCOME BEFORE INCOME TAXES 7,900,672
Provision for income taxes (2,936,374)
-------------
NET INCOME 4,964,298
Dividends on preferred stock (2,267,210)
-------------
NET INCOME ATTRIBUTABLE TO COMMON STOCK $ 2,697,088
=============
The accompanying notes are an integral part of this statement.
8
MATRIX OIL & GAS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER
2000
-------------
PARTNERS' CAPITAL:
Beginning of year $ 21,150,478
Net income before reorganization 484,361
Distribution (5,550,000)
Reorganization (16,084,839)
-------------
End of year --
-------------
COMMON STOCK:
Beginning of year --
Reorganization 16,084,839
Cash contribution 10,000,000
Stock issued in acquisition 22,040,000
Preferred stock issued (28,552,000)
-------------
End of year 19,572,839
-------------
NOTES RECEIVABLE FROM STOCKHOLDERS:
Beginning of year --
Notes associated with stock issued in acquisition (735,306)
Forgiveness of notes 139,613
Interest accrued (45,256)
-------------
End of year (640,949)
-------------
RETAINED EARNINGS:
Beginning of year --
Net income after reorganization 4,479,937
Preferred stock dividend (2,267,210)
-------------
End of year 2,212,727
-------------
TOTAL STOCKHOLDERS' EQUITY $ 21,144,617
=============
The accompanying notes are an integral part of this statement.
9
MATRIX OIL & GAS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER
2000
-------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,964,298
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization - oil and gas assets 10,866,700
Depreciation and amortization of other assets 30,668
Plug and abandonment provision 1,285,174
Non-productive well costs 12,010
Gain on sale of assets (281,397)
Provision for deferred taxes 2,936,374
Changes in working capital and other accounts:
Accounts receivable and prepaid expenses (7,917,286)
Other assets (1,948,126)
Accounts payable and accrued liabilities 6,090,364
Amounts due to other owners 1,856,598
Unexpended well cost advances 206,229
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,101,606
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash cost of acquisition, net of cash received (3,050,236)
Proceeds from sale of oil and gas property and equipment 900,000
Oil and gas property and equipment costs (30,279,580)
Purchases of other depreciable assets and land (63,109)
-------------
NET CASH USED IN INVESTING ACTIVITIES (32,492,925)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 27,204,067
Principal payments on long-term debt (15,244,026)
Distributions paid to partners upon reorganization (5,550,000)
Capital contributions 10,000,000
-------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,410,041
-------------
NET INCREASE IN CASH 2,018,722
Cash and cash equivalents - beginning of year 798
-------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,019,520
=============
The accompanying notes are an integral part of this statement.
10
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
NOTE 1 - ORGANIZATION
Matrix Oil & Gas, Inc. (the Company), a Louisiana corporation, was organized on
February 28, 1992 as an independent oil and gas company primarily engaged in the
acquisition, exploration, development and operation of oil and gas properties in
the Gulf Coast Basin. The Company's business strategy focuses on the acquisition
of mature properties with established production histories and significant
exploration and development potential.
The consolidated financial statements for the period ended December 31, 2000
include the operations of the EnCap entities' (defined below) interests in
Matrix Energy-E Limited Partnership and Matrix Northstar L.P. for the entire
year, and the Company's interests for the period from March 28, 2000 through the
end of the year in these partnerships and in the properties it owned directly.
The Company's interests include the general partner's share of a third
partnership, Matrix Energy-T Limited Partnership, for the seven months ended
October 31, 2000 and working interests directly assigned out of that partnership
for the two months ended December 31, 2000.
In May 1995, the Company entered into agreements with Energy Capital Investment
Company PLC (EnCap) and EnCap managed entities (the EnCap entities) to form
Matrix Energy-E Limited Partnership and with an unrelated group of investors to
form Matrix Energy-T Limited Partnership (the Partnerships). In August 1998, the
Company formed a limited liability company, Matrix Northstar LLC (the LLC).
Shortly after formation, the LLC acquired an offshore property and formed Matrix
Northstar L.P. (the Limited Partnership) with the EnCap entities. This property
was transferred to the Limited Partnership.
The Company and EnCap completed a roll-up of certain property interests held in
certain limited partnerships. The roll-up was accomplished by way of a
multi-step transaction finalized on March 28, 2000. For financial reporting
purposes, these transactions have been treated as an acquisition of the Company
by the EnCap entities in return for a 40% interest in the Company. As a result,
purchase accounting has been applied to the Company interests acquired, which
included the Company's directly owned assets as well as its interests in the
Partnerships and the LLC.
In the roll-up:
o the EnCap entities assigned their interests in the Matrix
Energy-E Limited Partnership and Matrix Northstar L.P. for
$1.5 million in cash and as a partial consideration for
their purchase of Matrix preferred stock described below;
o the Matrix Energy-E Limited Partnership and Matrix Northstar
L.P., wholly-owned by Matrix as a result of the assignments
described above, terminated and assigned all their assets
and liabilities to Matrix;
o the EnCap entities purchased 60% of the outstanding common
stock of Matrix from its existing stockholders for $3.25
million in cash; and
o the EnCap entities purchased 2,855,200 shares of Matrix
preferred stock from Matrix for $28.55 million in cash and
the partnership interest described above.
After these transactions, EnCap and EnCap managed entities owned 60% of the
common stock of Matrix and 100% of the mandatorily redeemable preferred stock.
In addition, EnCap representatives now constitute a majority of the board of
directors of the Company.
In October 2000, Matrix Energy-T Limited Partnership proportionately distributed
all of its assets to the partners. Immediately after the distribution the Matrix
Energy-T Limited Partnership was dissolved.
11
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
The purchase price of the Company of approximately $25.3 million ($22,040,000 of
stock issued and $3,250,000 of cash paid) which was determined based upon the
estimated fair values of the assets and liabilities. Assets and liabilities
assumed in the transaction were as follows:
Oil and gas properties $ 44,859,000
Working capital (5,746,000)
Plug and abandonment liability (1,662,000)
Other assets 601,000
Deferred taxes (11,026,000)
Debt (2,471,000)
Shareholder note receivable 735,000
--------------
Total $ 25,290,000
==============
The accounting for the acquisition required various estimates in determining the
values of assets and liabilities. Such estimates are subject to change.
The following summarized unaudited pro forma income statement data reflects the
impact the transaction would have had on the Company's results of operations for
the year ended December 31, 2000 had the transaction occurred January 1, 2000.
These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the amounts which actually would
have resulted had the roll-up transaction occurred on January 1, 2000, or which
may result in the future.
Year Ended
Unaudited Pro forma Results December 31, 2000
--------------------------- --------------------
Revenues, net of royalties $ 32,254,781
Cost of operations (19,155,847)
General & administrative expenses (4,546,145)
Other expenses, net (762,368)
Provision for income taxes (2,895,398)
--------------------
Net Income $ 4,895,023
====================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and cash balances with maturities of three months or less.
Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, geological and geophysical costs and
costs of carrying and retaining unproved properties are expensed.
12
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment and a loss is recognized at the time of
impairment by providing an impairment allowance. Other unproved properties are
amortized based on the Company's experience of successful drilling and average
holding period. Capitalized costs of producing oil and gas properties, including
support equipment, are depreciated and depleted using the unit-of- production
method. As of December 31, 2000, the Company has no properties that it has
classified as unproved.
The Company provides for the estimated future abandonment cost of offshore wells
and facilities using the unit-of- production method. The accumulated provision
for future abandonment is reflected as a long-term liability. The Company's
share of unrecorded estimated total P&A liability was approximately $15,645,510
at December 31, 2000.
On the sale or retirement of a complete unit of proved property, the cost and
related accumulated depreciation, depletion and amortization are eliminated from
the property accounts and any resulting gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion and amortization with any resulting gain or
loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized taking into consideration the
amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Estimates
are used primarily when accounting for depreciation, depletion and amortization,
abandonment costs and contingencies.
Gas Production Revenues
The Company records as revenue only that portion of gas production sold and
allocable to its ownership interest in the related wells. Any gas production
proceeds received in excess of our ownership interest are reflected as a
liability in the accompanying financial statements. Such amounts represent
43,367 MMBtu net over deliveries as of December 31, 2000.
Accounts Receivable
In our capacity as operator for our co-venturers, the Company incurs drilling
and other costs that we bill to the respective parties based on their working
interests. The Company also receives payments for these billings and, in some
cases, for billings in advance of incurring costs. Accounts receivable at
December 31, 2000, includes $2,775,458 of amounts receivable from co-venturers.
Other Assets
Certain assets owned by the Company, consisting primarily of U.S. Treasury
securities with maturities ranging from five to twelve months, are pledged to
the Minerals Management Service or are restricted by contract securing the
future abandonment and restoration of platform and well sites. At December 31,
2000, the Company has recorded $1,881,463 (including accrued interest) of U. S.
Treasury securities. These securities yielded an average interest rate of
approximately 5.33% for 2000. The Company has recorded a liability to the former
limited partners of Matrix Energy-T Limited Partnership in the amount of
$313,156 representing the limited partners' share of the
13
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
securities held by the Company on behalf of the Partnership, prior to its
dissolution. The Company has established a trust account with Compass Bank for
future plug and abandonment obligations of West Delta 27. At December 31, 2000,
the trust account had a balance of $1,184,502. The Company has voluntarily
restricted $1,414,422 for future plug and abandonment obligations. At December
31, 2000, these funds were invested in overnight U.S. Treasury securities.
Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted SFAS No. 133 on January
1, 2001. SFAS No.133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded on the balance sheet as either an
asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Certain contracts that provide for the
purchase or sale of a commodity that will be delivered in quantities expected to
be used or sold by the Company over a reasonable period in the normal course of
business may qualify for exemption from the provisions of SFAS No. 133. The
Company's fixed-price forward sales agreements and costless collar contracts
cover the pricing of physical delivery of the Company's production in the normal
course of business and are not subject to the requirements of SFAS No. 133 as
the Company has designated these as normal sales. Therefore, the adoption of
SFAS No. 133 did not have a material impact on the Company's financial position
or results of operations. Note 10 - Commitments and Contingencies further
describes the hedging activities of the Company and their impact.
Fair Value of Financial Instruments
The fair value of the Company's accounts receivable, accounts payable and
operator's bonds approximates the book values at December 31, 2000, due to the
short-term nature of these instruments. The fair value of the Company's debt
approximates the book value because the debt bears interest at a floating rate.
Income Taxes
The Company follows the asset and liability method of accounting for deferred
income taxes prescribed by SFAS No. 109 "Accounting for Income Taxes". The
Company accounts for certain items differently for financial statement purposes
than for income tax purposes, primarily certain exploration, development and
abandonment costs and depreciation of lease and well equipment.
In March 2000, the Company's stockholders revoked the election to be taxed as a
Small Business Corporation under Section 1362 of the Internal Revenue Code. The
revocation was effective for the tax year beginning January 1, 2000.
NOTE 3 - LONG-TERM BANK DEBT
In March 2000, the Company entered into a reducing revolving line of credit
agreement with a bank, for which the initial borrowing base was $20.0 million
and borrowed $13.7 million to fund the transactions described in Note 1 and pay
off bank debt assumed from the Company. The borrowing base will be re-determined
by March 1 and September 1 of each year. As of March 16, 2001 the borrowing base
was $29,000,000 with quarterly scheduled reductions, unless redetermined, on the
last day of March, June, September and December of $3.0 million until December
2002. The remaining balance thereafter is due at maturity on March 31, 2003.
Unless redetermined, the borrowing base at the end of 2001 will be $17 million.
The balance in excess of $17 million as of December 31, 2000 is classified as a
current liability in the accompanying balance sheet. Principal payments are due
when the principal amount outstanding exceeds the borrowing base. The balance
outstanding at March 16, 2001 was $26,000,000.
14
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
The line of credit is secured by a mortgage on all of the Company's oil and gas
properties. Interest is payable quarterly at a tiered interest rate based on the
borrowing base usage as follows:
Borrowing Base Usage Bank Reference Rate Spread LIBOR Spread
-------------------- -------------------------- ------------
50% or less -0- 150 Basis points
51% thru 75% -0- 175 Basis points
76% or higher 25 Basis points 200 Basis points
The company may elect the Bank Reference Rate or LIBOR rate (9.75% And 8.59% At
December 31, 2000 respectively) for each draw effective for periods of up to six
months, at which time the Company may re-elect the then current Bank Reference
Rate or LIBOR for additional terms up to six months or repay the related draw.
At December 31, 2000 amounts outstanding under the Bank Reference Rate and the
LIBOR rate were $-0- and $25,659,328, respectively.
NOTE 4 - INCOME TAXES
At December 31, the Company has the following deferred tax assets and
liabilities:
Temporary differences:
Oil and gas properties $(16,203,650)
Abandonment and other 1,611,440
Net operating loss carryforwards 629,864
------------
Net deferred tax liability $(13,962,346)
============
For tax reporting purposes, operating loss carryforwards totaled $1.8 million at
December 31, 2000. If not utilized, such carryforwards will expire in 2021.
Recognition of a deferred tax asset associated with these carryforwards is
dependent upon the Company's evaluation that it is more likely than not that the
asset will ultimately be realized.
The provision for income taxes at the Company's expected effective tax rate
differed from the provision for income taxes at the federal statutory rate as
follows:
Statutory rate $2,686,228
State taxes 250,146
----------
Effective rate $2,936,374
==========
NOTE 5 - CAPITALIZATION
The authorized capital stock of the Company consists of 14,000,000 shares of
stock consisting of 10,000,000 shares of no par value common stock (Common
Stock) of which 2,156,000 shares are outstanding and 4,000,000 shares of Series
A 10% Cumulative Redeemable Preferred Stock (the Preferred Stock) with a stated
value of $10 per share, of which 3,081,921 shares are outstanding. Each share of
the Company's Common Stock and Preferred Stock are subject to various
restrictions on transfer, repurchase options and other agreements between the
Company and the stockholders.
The holders of Preferred Stock are entitled to receive preferential dividends.
Dividends are compounded quarterly and accrue on each outstanding share of
Preferred Stock at the rate of 10% per annum of the stated value. Dividends are
payable semi-annually, in arrears, on June 30 and December 31 of each year.
Dividends accrue whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. The dividends are
payable in cash, or, with proper notification, additional shares of Preferred
Stock in lieu of cash. The number of shares issued for dividends will be
determined using the stated value of the Preferred
15
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
Stock. All Preferred Stock dividends accrued during 2000 were paid in-kind
through the issuance of additional preferred shares.
The Company may, at its option and with proper notification, elect to redeem
outstanding shares of the Preferred Stock in multiples of not less than
$1,000,000. The redemption price per share for the Preferred Stock shall be the
stated value per share plus all accrued and unpaid dividends.
On the earlier of March 27, 2007 or upon the consummation of a qualified public
offering or qualified sale, the Company is required to redeem all Preferred
Shares for cash at a redemption price equal to the stated value per share plus
all accrued and unpaid dividends. In the event the Company has insufficient
funds to initially redeem all shares, then the Company is required to use the
maximum amount of funds available to redeem the remaining shares at such time
funds become available.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company, as operator of the Partnerships' oil and gas properties, receives
revenues and pays costs and expenses associated with the properties and then
allocates such activity as appropriate to the respective working interest and
royalty owners. During the year ended December 31, 2000, the Partnerships paid
producing and drilling overhead fees of $354,106 to the Company.
NOTE 7 - KEY EMPLOYEE STOCK OPTION PLAN
The Company established the Matrix Oil & Gas, Inc. 2000 Long-Term Incentive Plan
(the Plan) in March 2000. All employees of the Company are eligible to
participate in the Plan. The Board of Directors (the Board) determines employee
eligibility and grant size, from time to time, at their sole discretion in
accordance with the Plan and the administrative rules and regulations, if any,
established by the Board. The maximum number of shares available for grant under
the Plan may not exceed 380,469 shares. Awards may be in the form of stock
options or common stock. The Plan may be terminated at any time by the Board,
however previous awards would still remain outstanding upon termination. In
2000, stock options were granted for all shares available under the Plan, at an
exercise price of $19.10 per share and a term of seven years; none had been
exercised as of December 31, 2000. The options granted under the Plan vest
ratably in six-month intervals over a period of four years.
Statement of Financial Accounting Standards No. 123 encourages, but does not
require, the adoption of a fair value based method of accounting for employee
stock options. Entities electing to continue to measure compensation costs using
the intrinsic value based method of accounting prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees" must make pro forma disclosures of
net income as if the fair value based method of accounting had been applied for
options granted beginning in fiscal 1996. The Company continues to account for
its employee stock options in accordance with the provisions of APB Opinion 25.
If the compensation cost for stock-based compensation plans had been determined
under the provisions of SFAS No. 123, the Company's 2000 net income attributable
to common stock would have been $2,442,843.
The pro forma compensation expense was calculated using an option expected life
of 4.5 years, a risk-free interest rate of 7% and an expected dividend yield on
common stock of zero. The estimated fair value of each option granted during
2000 was $5.48. As of December 31, 2000, 47,559 options were exercisable.
16
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
NOTE 8 - INCENTIVE COMPENSATION AGREEMENT
The Company agreed to pay certain eligible employees an incentive compensation
bonus equal to $2,000,000 in the aggregate (the Bonus) if certain financial
performance criteria were achieved on periodic calculation dates. The
Bonus is one-time only in nature. The Company recorded a $1,000,000 liability
related to this bonus as of December 31, 2000, based on the financial
performance achieved ratably as of that date and management's expectation that
the bonus will be earned by June 30, 2001.
NOTE 9 - PROFIT SHARING 401(K) PLAN
Eligible employees of the Company may participate in the Company's Profit
Sharing 401(k) Plan (the 401(k) Plan). A participant may contribute to the
401(k) Plan by electing to defer between 1% and 15% of annual compensation. The
elective deferral contributions and earnings are 100% vested. The Company may
contribute to each participating employee in the 401(k) Plan a company matched
contribution of an amount to be determined each year, credited at the end of the
fiscal year to all eligible employees. All matching contributions, plus related
earnings, are vested at the rate of 20% per year beginning after one year of
service. The Company recorded $80,635 of matching contributions in general and
administrative expenses related to the 401(k) Plan in 2000.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
During 1999 and 2000, the Company entered into forward sales agreements and
costless collars whereby a specified volume of gas was priced for delivery
during certain defined periods in 2000 through 2001. These agreements obligate
the seller to deliver the contracted volumes during the specified periods and
the purchasers are obligated to pay for such gas at the prices specified in the
forward sales agreements in the month following the month of delivery.
The total volume delivered under these forward sales agreements and costless
collars during 2000 was approximately 4,116,000 MMBtu at an average price of
$2.51 per MMBtu. Oil and gas sales in 2000 include a reduction of revenue of
$10,317,472 related to these forward sales agreements.
As of December 31, 2000, the total volume sold forward from January 2001 through
December 2001 is approximately 3,764,000 MMBtu. Of this total, 786,000 MMBtu
were sold at an average price of $2.42 per MMBtu. The remaining 2,978,000 MMBtu
were sold subject to costless collars. This gas will be sold at market prices
within specified price ranges. These agreements provide for the Company to
receive market pricing from the purchaser unless the market price is less than a
specified minimum price (the floor price) or greater than a specified maximum
price (the cap price). If the market price is less than the floor price, the
Company would receive the floor price. If the market price exceeds the cap
price, the Company would receive the cap price. The lowest floor price in any
one of these agreements is $2.47 per MMBtu and the highest floor price is $5.45
per MMBtu. The lowest cap price in any one of these agreements is $3.25 per
MMBtu and the highest cap price is $6.94 per MMBtu. As of December 31, 2000, the
unrealized loss on these existing forward sales agreements and costless collar
contracts is $8,581,634, using NYMEX forward prices at December 31, 2000 ranging
from $9.978 per MMBtu in January 2001 to $5.50 per MMBtu in December 2001.
The Company is contingently liable for any recourse debts or other liabilities
which might result from the Partnerships' operations. The Company's management
is not aware of the existence of any such liabilities which would have a
material effect on the future operations of the Company.
In the normal course of its business affairs and operations, the Company is
subject to possible loss contingencies arising from federal, state and local
environmental, health and safety laws and regulations and third party
litigation. There are no matters, which, in the opinion of management, will have
a material adverse effect on the Company's financial position or results of
operations.
17
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
NOTE 11 - ACQUISITION
In September 2000, the Company purchased a 100% interest in South Marsh Island
49 Field (offshore Louisiana) for approximately $5.0 million.
NOTE 12 - SUPPLEMENTAL INFORMATION (UNAUDITED)
The Company's reserve engineers prepared an estimate of the December 31, 2000
proved reserve information presented below. Proved reserves are estimated
quantities of crude oil and natural gas which, based on geological and
engineering data, are estimated to be reasonably recoverable in future years and
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those which are expected to be recovered through existing
wells with existing equipment and operating methods. Because of the inherent
uncertainties and the limited nature of reservoir data, such estimates are
subject to change as additional information becomes available. All of the
reserves are located in the United States.
Estimated Quantities of Reserves
YEAR ENDED DECEMBER 31, 2000
--------------------------------------
OIL GAS
(MBBL) (MMCF)
------------------- -----------------
Balance at beginning of year 841,125 30,486,345
Production (110,837) (7,322,579)
Acquisitions of minerals in place 250,913 40,977,094
Sale of minerals in place (3,213) (887,000)
Revisions due to price changes (435) 24,572
Revisions of estimates 60,857 7,231,300
Extensions and discoveries 2,261 1,131,409
------------------- -----------------
Balance at end of year 1,040,671 71,641,141
=================== =================
Proved Developed Reserves
Balance at beginning of year 757,013 20,425,851
Balance at end of year 936,604 47,999,564
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Natural Gas Reserves
The following tables present the Company's standardized measure of discounted
future net cash flows ("Standardized Measure") and changes therein related to
proved oil and gas reserves and were computed using reserve valuations based on
regulations prescribed by the SEC.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future income taxes
were reduced by estimated future production and development costs based on year-
end costs to determine pre-tax cash inflows. Future income taxes were computed
by applying the statutory tax rate to the excess of pre-tax cost inflows over
the Company's tax basis in the associated proved oil and natural gas properties.
Future net cash inflows after income taxes were discounted using a 10% annual
discount rate to arrive at the Standardized Measure.
The following year-end oil and natural gas prices were used in the Standardized
Measure. These prices were adjusted by field to arrive at the appropriate net
price.
Oil (NYMEX) $26.80
Natural gas (NYMEX Henry Hub) 9.78
Natural gas prices have declined significantly since year-end.
18
MATRIX OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
DECEMBER 31, 2000
-----------------
Future cash inflows $ 716,059,473
Future production and development costs (138,599,176)
Future income tax expense (197,409,626)
-------------
Future net cash flows 380,050,671
10% annual discount for estimating timing of cash flows (80,812,458)
-------------
Standardized Measure of Discounted Future Net Cash Flows $ 299,238,213
=============
The following table sets forth an analysis of changes in the Standardized
Measure of Discounted Future Cash Flow from proved oil and natural gas reserves:
YEAR ENDED
DECEMBER 31, 2000
-----------------
Beginning of year $ 26,542,032
Sales of oil and natural gas produced, net of production costs (24,366,691)
Net changes in sales prices, revisions and other 140,329,705
Extensions and discoveries 9,170,905
Acquisition of minerals in place 268,766,478
Sale of minerals in place (811,544)
Previously estimated development costs incurred 22,112,251
Change in quantity estimates 3,793,014
Accretion of discount 2,744,767
Net change in income taxes (149,042,704)
-----------------
End of year $ 299,238,213
=================
Costs incurred in oil and natural gas activities for the year ended December 31,
2000 were as follows:
Property acquisition costs $ 8,462,338
Exploration costs 1,284,001
Development costs 20,548,446
-------------------
Total costs incurred $ 30,294,785
===================
NOTE 13 - SALE OF MATRIX OIL AND GAS, INC.
In June 2001, the Company announced plans to merge into a wholly-owned
subsidiary of Denbury Resources Inc.("Denbury"), a publicly traded company, in
exchange for cash, stock and the redemption of Matrix's preferred stock and
repayment of outstanding bank debt. Under the terms of the transaction, Denbury
would acquire all outstanding shares of Matrix common stock in exchange for
6,569,930 shares of Denbury's common stock and $30.8 million cash. Denbury would
also pay cash of $7.3 million to Matrix option holders for the difference
between $14.098 (or the purchase price per share) and the strike price of the
options. The total value of the transaction is estimated to be approximately
$158 million.
19
ACCOUNTANTS' REVIEW REPORT
To the Stockholders and Board of
Directors of Matrix Oil & Gas, Inc.:
We have reviewed the accompanying condensed balance sheet of Matrix Oil & Gas,
Inc. (a Louisiana corporation) as of March 31, 2001, and the related condensed
statements of income and cash flows for the three month period then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of the Company.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with auditing standards generally accepted in the United
States, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above in order for them to be in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
New Orleans, Louisiana
June 22, 2001
20
MATRIX OIL & GAS, INC.
CONDENSED BALANCE SHEET
ASSETS
MARCH 31, 2001
--------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,350,548
Accounts receivable 13,684,720
Prepaid expenses 50,000
-------------
Total current assets 16,085,268
-------------
OIL AND GAS PROPERTIES-SUCCESSFUL EFFORTS METHOD:
Leasehold cost 68,866,492
Platform, facility and well cost 67,681,055
-------------
136,547,547
Less: Accumulated depreciation, depletion and amortization (33,658,606)
-------------
Net oil and natural gas properties 102,888,941
-------------
OTHER DEPRECIABLE ASSETS AND LAND:
Land 76,274
Office equipment and furniture 240,481
Computer software 82,788
-------------
399,543
Less: Accumulated depreciation and amortization (163,581)
-------------
235,962
-------------
OTHER ASSETS:
Operator and pipeline bonds 3,323,353
Restricted cash - plug and abandonment obligations 1,330,905
-------------
Total other assets 4,654,258
-------------
TOTAL ASSETS $ 123,864,429
=============
The accompanying notes are an integral part of this statement.
21
MATRIX OIL & GAS, INC.
CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 2001
----------------
CURRENT LIABILITIES:
Account payable and accrued liabilities $ 14,220,119
Amounts due to other owners 1,551,266
Unexpended well cost advances 2,744,868
Current portion of long-term debt 9,000,000
----------------
Total current liabilities 27,516,253
----------------
LONG-TERM DEBT:
Long-term portion of bank debt 14,000,000
----------------
Total long-term debt 14,000,000
----------------
DEFERRED LIABILITIES:
Estimated plug and abandonment cost 5,047,098
Deferred tax liability 18,054,790
----------------
Total deferred liabilities 23,101,888
----------------
MANDATORILY REDEEMABLE PREFERRED STOCK 31,589,680
----------------
STOCKHOLDERS' EQUITY:
Common stock, no par, 10,000,000 shares
authorized, 2,156,000 shares issued and outstanding 19,572,839
Note receivable from stockholders, weighted average
interest rate of 6.93%, including accrued interest (608,732)
Retained earnings 8,692,501
----------------
TOTAL STOCKHOLDERS' EQUITY 27,656,608
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 123,864,429
================
The accompanying notes are an integral part of this statement.
22
MATRIX OIL & GAS, INC.
CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED
MARCH 31, 2001
------------------
REVENUES:
Oil and gas sales, net of royalties $ 22,316,995
-----------------
OPERATING EXPENSES:
Lease operating expenses 1,950,188
Workover expenses 556,508
Depreciation, depletion and amortization 5,991,819
Plug and abandonment provision 442,981
Non-productive well costs 1,826
-----------------
Total cost of operations 8,943,322
-----------------
Gross profit from operations 13,373,673
-----------------
GENERAL AND ADMINISTRATIVE EXPENSES 1,277,973
-----------------
Total operating income 12,095,700
-----------------
OTHER INCOME (EXPENSE):
Interest income 130,955
Interest expense (533,939)
Other income (28)
-----------------
Total other income (expense) (403,012)
-----------------
NET INCOME BEFORE INCOME TAXES 11,692,688
Provision for income taxes (4,442,444)
-----------------
NET INCOME 7,250,244
Dividends on preferred stock (770,470)
-----------------
NET INCOME ATTRIBUTABLE TO COMMON STOCK $ 6,479,774
=================
The accompanying notes a an integral part of this statement.
23
MATRIX OIL & GAS, INC.
CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31, 2001
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,250,244
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization - oil and gas assets 5,991,819
Depreciation and amortization of other assets 10,224
Plug and abandonment provision 442,981
Provision for deferred taxes 4,092,444
Other 32,225
Changes in working capital and other accounts:
Accounts receivable and prepaid expenses (2,536,771)
Other assets (173,871)
Accounts payable and accrued liabilities 2,010,812
Amounts due to other owners (589,813)
Unexpended well cost advances 2,152,551
-------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,682,845
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property and equipment costs (15,657,516)
Purchases of other depreciable assets and land (34,962)
-------------------
NET CASH USED IN INVESTING ACTIVITIES (15,692,478)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (2,659,339)
-------------------
NET CASH USED IN FINANCING ACTIVITIES (2,659,339)
-------------------
NET INCREASE IN CASH 331,028
Cash and cash equivalents - beginning of period 2,019,520
-------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,350,548
===================
The accompanying notes are an integral part of this statement.
24
MATRIX OIL & GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 2001
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying condensed financial statements of Matrix Oil and Gas, Inc. (the
"Company" or "Matrix") have been prepared in accordance with accounting
principles generally accepted in the United States of America and pursuant to
the rules and regulations of the Securities and Exchange Commission. These
financial statements and notes thereto should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 2000.
Accounting measures at interim dates inherently involve greater reliance on
estimates than at year end and the results of operations for the interim period
shown in this report are not necessarily indicative of results to be expected
for the full fiscal year. In the opinion of management of Matrix, the
accompanying unaudited condensed financial statements include all adjustments
(of a normal recurring nature) necessary to present fairly the Company's
financial position as of March 31, 2001 and the results of its operations and
cash flows for the three months ended March 31, 2001.
NOTE 2 - SALE OF MATRIX OIL AND GAS, INC.
In June 2001, the Company announced plans to merge into a wholly-owned
subsidiary of Denbury Resources Inc.("Denbury"), a publicly traded company, in
exchange for cash, stock and the redemption of Matrix's preferred stock and
repayment of outstanding bank debt. Under the terms of the transaction, Denbury
would acquire all outstanding shares of Matrix common stock in exchange for
6,569,930 shares of Denbury's common stock and $30.8 million cash. Denbury would
also pay cash of $7.3 million to Matrix option holders for the difference
between $14.098 (or the purchase price per share) and the strike price of the
options. The total value of the transaction is estimated to be approximately
$158 million.
NOTE 3 - NATURAL GAS DELIVERY CONTRACTS
In February 2001, the Company entered into a costless collar with a floor price
of $5.00 per MMBtu and a ceiling of $7.25 per MMBtu for delivery of 2,000 MMBtu
per day of gas from its South Marsh Island Field from March 2001 through August
2001. The contract is based on the Inside FERC Transco Station 65 index.
NOTE 4 -ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted SFAS No. 133 on January
1, 2001. SFAS No.133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded on the balance sheet as either an
asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Certain contracts that provide for the
purchase or sale of a commodity that will be delivered in quantities expected to
be used or sold by the Company over a reasonable period in the normal course of
business may qualify for exemption from the provisions of SFAS No. 133. The
Company's fixed-price forward sales agreements and costless collar contracts
cover the pricing of physical delivery of the Company's production in the normal
course of business and are not subject to the requirements of SFAS No. 133 as
the Company has designated these as normal sales. Therefore, the adoption of
SFAS No. 133 did not have a material impact on the Company's financial position
or results of operations.
25
MATRIX OIL & GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 2001
NOTE 5 - INCENTIVE COMPENSATION AGREEMENT
The Company agreed to pay certain eligible employees an incentive compensation
bonus equal to $2 million in the aggregate (the Bonus) if certain financial
performance criteria were achieved on periodic calculation dates. The Company
has recorded $1.5 million in accrued liabilities for this bonus ($500,000 of
which is included in general and administrative expenses for the three-month
period ended March 31, 2001) as of March 31, 2001, based on the financial
performance achieved ratably as of that date and management's expectation that
the bonus would be earned by June 30, 2001. In connection with the merger
described in Note 2, Denbury agreed to pay the entire $2 million in incentive
compensation available under the agreement.
26
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statements of income for the
year ended December 31, 2000 and the three months ended March 31, 2001 and the
unaudited pro forma consolidated balance sheet as of March 31, 2001
(collectively, the "Pro Forma Financial Statements") are based on the historical
consolidated financial statements of Denbury and the historical pro forma data
for Matrix, adjusted to give effect to the Matrix acquisition and this offering
and the application of the estimated net proceeds therefrom.
On March 28, 2000, entities affiliated with Energy Capital Investment
Company PLC, or "EnCap" (collectively, Matrix's largest shareholder),
contributed their interests in two partnerships and cash to Matrix, the general
partner, in exchange for preferred stock of Matrix and cash. In the same
transaction, EnCap also purchased approximately 60% of the outstanding Matrix
common stock from the existing shareholders for cash. Matrix's income statement
for the year ended December 31, 2000 includes twelve months of operations
attributed to the substantial majority interest of EnCap in these two
partnerships. Matrix's income statement for 2000 also includes nine months of
operations from Matrix's minority interest (from the date of the reverse
acquisition forward) in these same two partnerships and in a third partnership
managed by Matrix. The roll-up adjustments in the following Unaudited Pro Forma
Consolidated Statements of Income for the year ended December 31, 2000 include
additional adjustments to give effect to this reverse acquisition transaction as
if it had occurred on January 1, 2000.
The Unaudited Pro Forma Consolidated Statements of Income for the year
ended December 31, 2000 and the three months ended March 31, 2001 give pro forma
effect to the Matrix acquisition, this offering and the application of the
estimated net proceeds therefrom as if they had occurred as of January 1, 2000.
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to these
transactions as if they had occurred on March 31, 2001. The pro forma
adjustments are described in the accompanying notes and are based upon available
information and certain assumptions that we believe are reasonable.
The Unaudited Pro Forma Financial Statements reflect savings resulting from
Matrix employee terminations that were identified and communicated prior to the
closing of the Matrix acquisition. The Unaudited Pro Forma Financial Statements
do not include an adjustment to eliminate $1.0 million in one-time performance
based bonuses accrued by Matrix for the year ended December 31, 2000 and
$500,000 of bonuses accrued by Matrix for the three months ended March 31, 2001.
The Unaudited Pro Forma Financial Statements do not purport to represent
what Denbury's results of operations or financial condition would actually have
been had the transactions in fact occurred on such dates or to project its
results of operations or financial condition for any future date or period. The
Unaudited Pro Forma Financial Statements should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements included herein.
27
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
MATRIX MATRIX PRO MATRIX PRO FORMA
ROLL-UP FORMA FOR ACQUISITION FOR MATRIX
DENBURY MATRIX ADJUSTMENTS(1) ROLL-UP ADJUSTMENTS(2) ACQUISITION
--------- --------- -------------- --------- -------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Oil, natural gas and related product
sales ...................................... $ 179,372 $ 30,569 $ 1,686 $ 32,255 $ -- $ 211,627
Interest and other ........................... 2,279 814 34 848 (281)(a) 2,846
--------- --------- --------- --------- --------- ---------
Total revenues ...................... 181,651 31,383 1,720 33,103 (281) 214,473
--------- --------- --------- --------- --------- ---------
Expenses:
Lease operating costs ........................ 38,676 5,803 405 6,208 596 (b) 45,480
Production taxes ............................. 8,051 399 12 411 -- 8,462
Exploration costs ............................ -- 15 4 19 (19)(c) --
General and administrative ................... 8,055 3,577 969 4,546 (1,035)(d) 11,566
Depreciation, depletion and
amortization ............................. 36,214 12,152 366 12,518 9,074 (e) 57,806
Interest ..................................... 15,255 1,536 74 1,610 6,763 (f) 23,628
Franchise taxes .............................. 467 -- -- -- -- 467
--------- --------- --------- --------- --------- ---------
Total expenses ...................... 106,718 23,482 1,830 25,312 15,379 147,409
--------- --------- --------- --------- --------- ---------
Income before income taxes ...................... 74,933 7,901 (110) 7,791 (15,660) 67,064
--------- --------- --------- --------- --------- ---------
Provision (benefit) for income taxes:
Current ..................................... 558 -- -- -- -- 558
Deferred .................................... (67,852) 2,937 (41) 2,896 (5,925)(g) (70,881)
--------- --------- --------- --------- --------- ---------
Total .................................... (67,294) 2,937 (41) 2,896 (5,925) (70,323)
--------- --------- --------- --------- --------- ---------
Net income ...................................... $ 142,227 $ 4,964 $ (69) $ 4,895 $ (9,735) $ 137,387
========= ========= ========= ========= ========= =========
Matrix preferred stock dividends ................ -- 2,267 -- 2,267 (2,267)(h) --
--------- --------- --------- --------- --------- ---------
Net income attributable to common
stock ....................................... $ 142,227 $ 2,697 $ (69) $ 2,628 $ (7,468) $ 137,387
========= ========= ========= ========= ========= =========
Net income per common share:
Basic ........................................ $ 3.10 -- -- -- -- $ 2.62
Diluted ...................................... 3.07 -- -- -- -- 2.60
Weighted average common shares outstanding:
Basic ........................................ 45,823 -- -- -- 6,570 (i) 52,393
Diluted ...................................... 46,352 -- -- -- 6,570 (i) 52,922
See Notes to Unaudited Pro Forma Consolidated Financial Data
28
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------
HISTORICAL MATRIX PRO FORMA FOR
----------------------------- ACQUISITION MATRIX
DENBURY MATRIX ADJUSTMENTS(2) ACQUISITIONS
------------- ------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Oil, natural gas and related product
sales ....................................... $ 78,315 $ 22,317 $ -- $ 100,632
CO(2) sales ................................... 859 -- -- 859
Interest and other ............................ 6 131 -- 137
------------- ------------- ---------------- ----------------
Total revenues ....................... 79,180 22,448 -- 101,628
------------- ------------- ---------------- ----------------
Expenses:
Lease operating costs ......................... 12,528 2,338 252 (b) 15,118
Production taxes .............................. 2,608 169 -- 2,777
Exploration costs ............................. -- 2 (2)(c) --
General and administrative .................... 2,401 1,278 (368)(d) 3,311
Depreciation, depletion and
amortization ................................. 12,345 6,435 2,094 (e) 20,874
Interest ...................................... 4,663 534 1,535 (f) 6,732
Franchise taxes ............................... 275 -- -- 275
Fair value loss on hedging contracts .......... 3,140 -- -- 3,140
------------- ------------- ---------------- ----------------
Total expenses ....................... 37,960 10,756 3,511 52,227
------------- ------------- ---------------- ----------------
Income before income taxes ....................... 41,220 11,692 (3,511) 49,401
------------- ------------- ---------------- ----------------
Provision (benefit) for income taxes:
Current ...................................... 2,000 350 -- 2,350
Deferred ..................................... 13,251 4,092 (1,415)(g) 15,928
------------- ------------- ---------------- ----------------
Total ..................................... 15,251 4,442 (1,415) 18,278
------------- ------------- ---------------- ----------------
Net income ....................................... $ 25,969 $ 7,250 $ (2,096) $ 31,123
============= ============= ================ ================
Matrix preferred stock dividends ................. -- 770 (770)(h) --
------------- ------------- ---------------- ----------------
Net income attributable to common stock .......... $ 25,969 $ 6,480 $ (1,326) $ 31,123
============= ============= ================ ================
Net income per common share:
Basic ......................................... $ 0.56 -- -- $ 0.59
Diluted ....................................... 0.55 -- -- 0.58
Weighted average common shares outstanding:
Basic ......................................... 46,012 -- 6,570(i) 52,582
Diluted ....................................... 47,261 -- 6,570(i) 53,831
See Notes to Unaudited Pro Forma Consolidated Financial Data
29
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2001
-------------------------------------------------------------------------
HISTORICAL MATRIX PRO FORMA
------------------------------ ACQUISITION MATRIX
DENBURY MATRIX ADJUSTMENTS(2) ACQUISITION
------------- ------------- ---------------- ----------------
(in thousands, except per share amounts)
ASSETS:
Current assets
Cash and cash equivalents .......................... $ 26,521 $ 2,351 $ (3,805)(i) $ 25,067
Accrued production receivable ...................... 32,042 13,685 -- 45,727
Trade and other receivables ........................ 13,550 -- -- 13,550
Other current assets ............................... 2,356 50 -- 2,406
Deferred tax asset ................................. 32,202 -- -- 32,202
------------- ------------- ---------------- ----------------
Total current assets .......................... 106,671 16,086 (3,805) 118,952
------------- ------------- ---------------- ----------------
Property and equipment
Oil and natural gas properties ..................... 771,315 102,889 88,651 (i) 962,855
CO(2) assets ....................................... 41,835 -- -- 41,835
Unevaluated oil and gas properties ................. 16,730 -- 30,000 (i) 46,730
Less accumulated depreciation and depletion ........ (464,102) -- -- (464,102)
------------- ------------- ---------------- ----------------
Net property and equipment .................... 365,778 102,889 118,651 587,318
------------- ------------- ---------------- ----------------
Other assets .......................................... 11,377 4,890 -- 16,267
------------- ------------- ---------------- ----------------
Noncurrent deferred tax asset ......................... 22,170 -- -- 22,170
------------- ------------- ---------------- ----------------
TOTAL ASSETS ............................. $ 505,996 $ 123,865 $ 114,846 $ 744,707
============= ============= ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable and accrued liabilities ........... $ 39,759 $ 16,965 $ -- $ 56,724
Oil and gas production payable ..................... 12,460 1,551 -- 14,011
Current portion of long-term debt .................. -- 9,000 (9,000)(i) --
------------- ------------- ---------------- ----------------
Total current liabilities ................ 52,219 27,516 (9,000) 70,735
------------- ------------- ---------------- ----------------
Long-term liabilities
Bank debt .......................................... 81,870 14,000 81,000 (i) 176,870
9% Senior Subordinated Notes due 2008 .............. 125,000 -- -- 125,000
Provision for site reclamation costs ............... 3,053 5,047 (5,047)(i) 3,053
Deferred income taxes and other .................... 662 18,055 47,945 (i) 66,662
------------- ------------- ---------------- ----------------
Total long-term liabilities .............. 210,585 37,102 123,898 371,585
------------- ------------- ---------------- ----------------
Mandatorily redeemable preferred stock ................ -- 31,590 (31,590)(i) --
------------- ------------- ---------------- ----------------
Stockholders' equity
Common stock ....................................... 46 19,573 (19,566)(i) 53
Notes receivable from stockholders ................. -- (609) 609 (i) --
Paid-in capital in excess of par ................... 330,007 -- 59,188 (i) 389,195
Retained earnings (accumulated deficit) ............ (87,251) 8,693 (8,693)(i) (87,251)
Accumulated other comprehensive income ............. 390 -- -- 390
------------- ------------- ---------------- ----------------
Total stockholders' equity ............... 243,192 27,657 31,538 302,387
------------- ------------- ---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 505,996 $ 123,865 $ 114,846 $ 744,707
============= ============= ================ ================
See Notes to Unaudited Pro Forma Consolidated Financial Data
30
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA
(1) On March 28, 2000, entities affiliated with EnCap (collectively,
Matrix's largest shareholder) contributed their interests in two
partnerships and cash to Matrix, the general partner, in exchange for
preferred stock of Matrix and cash. In the same transaction, EnCap also
purchased approximately 60% of the outstanding Matrix common stock from
the existing shareholders for cash. These pro forma roll-up adjustments
reflect the impact of this reverse acquisition as if it had occurred as
of January 1, 2000. See Footnote 1 to the Matrix financial statements
for the year ended December 31, 2000.
(2) Matrix acquisition adjustments:
(a) Reflects the capitalization of the gain on property sale that is
recorded as other income under successful efforts accounting used
by Matrix which would be a reduction of capital cost under full
cost accounting used by Denbury.
(b) Reflects the reclassification of Matrix's working interest portion
of operator's overhead recovery, from a reduction of lease
operating costs to a reduction of general and administrative
expense, in order to conform with the classification of such items
by us in our financial statements.
(c) Reflects the reclassification of geological and geophysical related
costs that are expensed as exploration costs under successful
efforts accounting used by Matrix which would be capitalized under
full cost accounting used by Denbury.
(d) Reflects a decrease of $439,000 and $116,000 for the year ended
December 31, 2000 and the three months ended March 31, 2001,
respectively, to reflect savings from the merger as a result of
Matrix employee terminations that were identified and
communicated prior to the July 10, 2001 closing date of the
Matrix acquisition. Also reflects the reclassification of
Matrix's working interest portion of operator's overhead recovery
as discussed in (2)(b).
Included in Matrix's financial statements for the year ended
December 31, 2000 and three months ended March 31, 2001 is $1.0
million and $500,000, respectively, of bonus related costs that are
non-recurring and relate to a one-time performance based bonus plan
that was in addition to Matrix's normal bonuses. The respective
additional bonus expense would not have been incurred if Denbury
had acquired Matrix on January 1, 2000. A pro forma adjustment to
eliminate this additional bonus expense has not been reflected in
the unaudited pro forma consolidated statements of income for the
year ended December 31, 2000 and three months ended March 31, 2001.
(e) Reflects the incremental increase in depreciation, depletion and
amortization ("DD&A") as a result of applying full cost accounting
used by Denbury rather than successful efforts accounting used by
Matrix.
DD&A has been computed using the unit of production method and
reflects our increased investment in oil and natural gas properties
using purchase accounting for the merger, which investment excludes
$30.0 million of the Matrix acquisition purchase price which we
intend to initially classify as unevaluated properties. The June
30, 2001 estimated proved reserves prepared by DeGolyer and
MacNaughton for the Matrix acquisition were used in computing the
DD&A rate.
31
(f) Reflects a net increase in interest expense for the period
presented to reflect $95.0 million of additional debt under
our bank credit facility at an assumed annual interest rate of 8.5%
and 8.4% for the year ended December 31, 2000 and the three months
ended March 31, 2001, respectively, that would have been required
to fund the Matrix acquisition had it occurred as of January 1,
2000 and the repayment of $23.0 million of Matrix bank debt.
(g) Reflects an estimated combined tax provision of 37% for the year
ended December 31, 2000 and the three months ended March 31, 2001.
(h) Reflects the elimination of dividends on Matrix preferred stock as
a result of the redemption of such preferred stock, together with
accumulated dividends, in the acquisition.
(i) Reflects pro forma adjustments to Matrix's March 31, 2001 balance
sheet as if the acquisition had occurred as of March 31, 2001.
The preliminary purchase price has been calculated as follows (in
thousands):
Issuance of 6,569,930 shares of Denbury common stock.................. $ 59,200
Redemption of Matrix's preferred stock and accumulated dividends...... 32,500
Retirement of Matrix's bank debt...................................... 23,100
Net cash paid to Matrix common shareholders........................... 30,200
Purchase of Matrix stock options...................................... 7,300
Severance payments.................................................... 600
Transaction related costs............................................. 5,100
---------------
Total......................................................... $ 158,000
===============
The preliminary purchase price was allocated to assets and
liabilities based on fair values. We do not expect the purchase
price or its allocation to change materially from the preliminary
amounts. The purchase price was allocated to Matrix's assets and
liabilities as follows (in thousands):
Oil and gas properties............................. $ 126,041
Unevaluated oil and gas properties................. 30,000
Other assets....................................... 4,890
Net working capital items.......................... (2,931)
-------------
Total.......................................... $ 158,000
=============
In addition to the above purchase price allocation, we have
recorded an additional $66.0 million as oil and natural gas
properties to reflect the differences between the carryover tax
basis of the properties acquired and the purchase price. This $66.0
million has been recorded to oil and gas properties and deferred
taxes and will be amortized along with our other oil and gas
properties under the units of production method.
At March 31, 2001, Matrix's balance sheet reflected an accrual for
future site reclamation costs of approximately $5.0 million. We did
not allocate any of the purchase price to these costs under
purchase accounting. Our current estimate of the future reclamation
costs of the Matrix oil and gas properties is approximately $20.4
million, which under our accounting practices, will be recorded as
a component of DD&A each period.
32
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
(2)* Agreement and Plan of Merger and
Reorganization by and among Denbury
Resources Inc., Denbury Offshore, Inc.,
Matrix Oil and Gas, Inc. and its
shareholders, dated as of June 4, 2001.
Schedules and Exhibits to Merger Agreement:
** Matrix Disclosure Schedule
** Exhibit A
** Exhibit B
** Exhibit 7.01(b)
** Exhibit 7.01(f)
** Exhibit 7.15
** Exhibit 7.15.1
(23)*** Consent of Arthur Andersen LLP
* Previously filed with this Form 8-K filed on June 15, 2001.
** These schedules and exhibits have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. Denbury will furnish supplementally a copy of any
omitted schedule or exhibit to the Commission upon request.
*** Filed herewith.