SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q / A
AMENDMENT NO.1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to______
Commission file number 0-16487
INLAND RESOURCES INC.
---------------------
(Exact name of Registrant as specified in its charter)
Washington 91-1307042
- ------------------------------- ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
410 17th Street, Suite 700, Denver, Colorado 80202
- -------------------------------------------- -----
(Address of Principal Executive Offices) (ZIP Code)
Registrant's Telephone Number, Including Area Code: (303) 893-0102
(Former name, address and fiscal year, if changed,
since last report) ___________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of common stock, par value $.001 per share, outstanding as of
November 1, 2001: 2,897,732
1
PART 1. FINANCIAL INFORMATION
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(In thousands)
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,554 $ 848
Accounts receivable and accrued sales 5,003 5,284
Inventory 1,016 835
Fair market value of derivative instruments 2,076 -
Other current assets 167 381
---------- ----------
Total current assets 11,816 7,348
---------- ----------
Property and equipment, at cost:
Oil and gas properties (successful efforts method) 200,274 183,959
Accumulated depletion, depreciation and amortization (41,336) (35,004)
---------- ----------
158,938 148,955
Other property and equipment, net 2,273 1,997
Other long-term assets 2,490 1,765
---------- ----------
Total assets $ 175,517 $ 160,065
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,568 $ 2,141
Accrued expenses 3,757 3,391
---------- ----------
Total current liabilities 7,325 5,532
---------- ----------
Long-term secured debt 83,000 83,500
Senior subordinated unsecured debt including accrued interest 5,089 -
Subordinated unsecured debt including accrued interest 100,729 -
Junior subordinated unsecured debt including accrued interest 5,089 -
---------- ----------
Total long term liabilities 193,907 83,500
---------- ----------
Commitments
Mandatorily redeemable preferred stock:
Series D stock, 10,757,747 shares issued and outstanding at December
31, 2000, liquidation preference of $80.7 million - 68,273
Accrued preferred series D dividends - 11,994
Series E stock, 121,973 shares issued and outstanding at December 31,
2000, liquidation preference of $12.2 million - 9,120
Accrued preferred series E dividends - 1,856
Stockholders' deficit:
Common stock, par value $.001; 25,000,000 shares authorized,
2,897,732 issued and outstanding 3 3
Additional paid-in capital 42,109 51,157
Comprehensive income 1,945 -
Accumulated deficit (69,772) (71,370)
---------- ----------
Total stockholders' deficit (25,715) (20,210)
---------- ----------
Total liabilities and stockholders' deficit $ 175,517 $ 160,065
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements
2
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(In thousands except earnings per share)
(Unaudited)
Three Months ended Nine Months ended
September 30, September 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
-------------- ------------- ------------ -----------
(As Restated) (As Restated)
(See Note 3) (See Note 3)
Revenues:
Oil and gas sales $ 8,103 $ 7,444 $ 24,844 $ 20,529
Operating expenses:
Lease operating expenses 2,263 1,836 6,493 5,149
Production taxes 201 135 618 473
Exploration 61 62 121 121
Depletion, depreciation and amortization 2,467 2,010 6,782 5,749
General and administrative, net 339 763 1,385 1,462
--------- --------- ---------- ----------
Total operating expenses 5,331 4,806 15,399 12,954
--------- --------- ---------- ----------
Operating income 2,772 2,638 9,455 7,575
Interest expense (3,594) (2,213) (7,531) (6,231)
Unrealized derivative gain due to time value 323 - 86 -
Interest and other income 189 34 232 39
--------- --------- ---------- ----------
Net income (loss) from continuing operations before
cumulative effect of change in accounting principle (310) 459 2,232 1,383
Cumulative effect of change in accounting principle - - 45 -
--------- --------- ---------- ----------
Net income (loss) from continuing operations (310) 459 2,277 1,383
Discontinued operations - (250) - (250)
--------- --------- ---------- ----------
Net income (loss) (310) 209 1,599 1,133
Accrued preferred Series D dividends (906) (2,433) (6,342) (7,299)
Accrued preferred Series E dividends (140) (376) (980) (1,129)
Accretion of preferred Series D discount (435) (1,575) (3,318) (4,725)
Accretion of preferred Series E discount (70) (225) (535) (675)
Excess carrying value of preferred over redemption
consideration 1,449 - 1,449 -
--------- --------- ---------- ----------
Net income(loss) attributable to common stockholders $ (412) $ (4,400) $ (7,499) $ (12,695)
========= ========= ========== ==========
Net income (loss) from continuing operations $ (310) $ 459 $ 2,277 $ 1,383
Comprehensive income from change in fair value
of derivative contracts - - 1,945 -
Discontinued operations - (250) - (250)
--------- --------- ---------- ----------
Comprehensive income (loss) $ (310) $ 209 $ 4,222 $ 1,133
========= ========= ========== ==========
Basic and diluted net income (loss) per share from
continuing operations before cumulative effect of
change in accounting principle $ (.14) $ (1.43) $ (2.59) $ (4.29)
Cumulative effect of change in accounting principle - - .02 -
Discontinued operations - (0.09) - (0.09)
--------- --------- ---------- ----------
Basic and diluted net income (loss) per share $ (.14) $ (1.52) $ (2.57) $ (4.38)
========= ========= ========== ==========
Basic and diluted weighted average common shares
outstanding 2,898 2,898 2,898 2,898
========= ========= ========== ==========
Dividends per common share NONE NONE NONE NONE
========= ========= ========== ==========
The accompanying notes are an integral part of the consolidated
financial statements
3
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(In thousands)
(Unaudited)
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $ 2,277 $ 1,133
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 6,782 5,749
Amortization of debt issue costs 496 360
Loss on sale of assets - 51
Cumulative effect of accounting change (45) -
Noncash changes related to derivatives (86) -
Interest expense converted to debt 1,938 -
Effect of changes in current assets and liabilities:
Accounts receivable 281 (2,549)
Inventory (181) 281
Other assets 292 101
Accounts payable and accrued expenses 1,793 (1,137)
--------- --------
Net cash provided by operating activities 13,547 3,989
--------- --------
Cash flows from investing activities:
Development expenditures and equipment purchases (16,952) (10,436)
--------- --------
Net cash used by investing activities (16,952) (10,436)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 10,000 4,585
Retirement of preferred stock (2,000) -
Payments of long-term debt (500) -
Debt issuance costs (1,389) -
--------- --------
Net cash provided by financing activities 6,111 4,585
--------- --------
Net cash and cash equivalents provided (used) by continuing
operations 2,706 (1,862)
Net cash and cash equivalents provided by discontinued operations - 1,917
Cash and cash equivalents at beginning of period 848 1,018
--------- --------
Cash and cash equivalents at end of period $ 3,554 $ 1,073
========= ========
Supplemental Disclosure of Cash Flow Information:
Conversion of Preferred Stock to Debt $ 98,969 $ -
========= ========
The accompanying notes are an integral part of the consolidated
financial statements
4
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY ORGANIZATION:
Inland Resources Inc. (the "Company") is an independent energy company with
substantially all of its producing and nonproducing oil and gas property
interests located in the Monument Butte Field within the Uinta Basin of
Northeastern Utah (the "Field").
2. BASIS OF PRESENTATION:
The preceding financial information has been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of the Company, includes all normal
and recurring adjustments necessary for a fair statement of the results of
each period shown. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
SEC rules and regulations. Management believes the disclosures made are
adequate to ensure that the financial information is not misleading, and
suggests that these financial statements be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
3 RESTATEMENT OF PRIOR PERIODS:
As described further in Note 5, on August 2, 2001, the Company's Series D
Preferred and Series E Preferred stock held by Inland Holdings LLC, a
company controlled by TCW Asset Management Company ("TCW") were exchanged
for an unsecured subordinated note due September 30, 2009 and $2 million in
cash from the Company. The note amount was for $98,968,964 and represented
the face value plus accrued dividends of the Series D Preferred stock as of
August 2, 2001. As a result of the exchange, the Company retired both the
Series D and Series E Preferred stock.
When recording the transaction discussed above, the Company originally
recorded additional accretion on the Series D and Series E Preferred stock
of $9,092,000 and $2,542,000, respectively, as decreases to additional
paid-in capital. In addition, due to the related party nature of the
transaction, the difference between the aggregate subordinated note balance
and $2 million cash paid to TCW and the aggregate liquidation value of the
Series D and Series E Preferred stock (including the additional accretion)
plus accrued dividends resulted in an increase to additional paid-in
capital of $13,083,000. Further, when calculating net income (loss)
attributable to common stockholders for the year ended December 31, 2001,
the Company included the $13,083,000 increase to additional paid-in capital
as a component of net income (loss) attributable to common stockholders,
but did not include the aggregate $11,634,000 decrease to additional
paid-in capital as a component of net income (loss) attributable to common
stockholders.
As a result, the Company has restated net income (loss) attributable to
common stockholders and net income (loss) attributable to common
stockholders per share for the three and nine months ended September 30,
2001 to reflect the reduction to the excess carrying value of the Series D
and Series E Preferred stock from $13,083,000 to $1,449,000.
In addition, in the first quarter of 2001, the Company recorded
compensation expense of $678,000 in connection with a repricing of stock
options on February 1, 2001. The Company reversed that expense in the
fourth quarter of 2001 when it determined that such expense had been
recorded in error. As a result, the Company has restated lease operating
expense, general and administrative expense, net income (loss) attributable
to common stockholders, basic and diluted net income (loss) per share from
continuing operations before cumulative effect of change in accounting
principle and basic and diluted net income (loss) per share for the nine
months ended September 30, 2001 to reflect the reversal of the compensation
expense.
5
The table below details the adjustments and restated balances for the
respective periods:
As
Originally As
Reported Adjustments Restated
---------- ----------- --------
(in thousands, except per share amounts)
For the three months ended September 30, 2001:
Excess carrying value of preferred
over redemption consideration $ 13,083 $(11,634) $ 1,449
========= ======== =======
Net income (loss) attributable to
common stockholders $ 11,222 $(11,634) $ (412)
========= ======== =======
Basic and diluted net income (loss)
per share from continuing
operations before cumulative
effect of change in accounting
principle $ 3.87 $ (4.01) $ (0.14)
========= ======== =======
Basic and diluted net income (loss)
per share $ 3.87 $ (4.01) $ (0.14)
========= ======== =======
For the nine months ended September 30, 2001:
Lease operating expense
General and administrative, net $ 6,913 $ (420) $ 6,493
========= ======== =======
$ 1,643 $ (258) $ 1,385
========= ======== =======
Excess carrying value of preferred
over redemption consideration $ 13,083 $(11,634) $ 1,449
========= ======== =======
Net income (loss) attributable to
common stockholders $ 3,507 $(10,956) $(7,449)
========= ======== =======
Basic and diluted net income (loss)
per share from continuing
operations before cumulative
effect of change in accounting
principle $ 1.19 $ (3.78) $ (2.59)
========= ======== =======
Basic and diluted net income (loss)
per share $ 1.21 $ (3.78) $ (2.57)
========= ======== =======
4. ACCOUNTING PRONOUNCEMENTS:
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") was issued, which establishes
accounting and reporting standards for derivative instruments and hedging
activity. SFAS No. 133 requires recognition of all derivative instruments
on the balance sheet as either assets or liabilities measured at fair
value. Changes in the derivative's fair value will be recognized currently
in earnings unless specific hedge accounting criteria are met. Gains and
losses on derivative hedging instruments must be recorded in either other
comprehensive income or current earnings, depending on the nature and
designation of the instrument. The impact of adopting SFAS No. 133 on
January 1, 2001 resulted in recording a current liability of $1,927,000 and
recording a cumulative effect of a change in accounting principle as
accumulated comprehensive loss in the equity section of $1,972,000 and
income recorded as a cumulative effect of a change in accounting principle
of $45,000. At September 30, 2001, the effect of SFAS No. 133 resulted in
the Company adjusting to a current asset of fair value of derivatives to
$2,076,000 and accumulated other comprehensive gain was adjusted to
$1,945,000 for all derivative instruments obtained by the Company through
the third quarter of 2001. The Company recorded a gain of $323,000 to the
statement of operations to reflect the current nature of the existing
hedging instruments as of September 30, 2001. All of the Company's hedging
contracts are with Enron North America Corp.
6
In June 2001, SFAS No. 141 "Business Combination" and SFAS No. 142
"Goodwill and Other Intangible Assets" were issued, which requires all
business combinations to be accounted for using the purchase method and
changes the treatment of goodwill created in a business combination. The
adoption of these two statements is not expected to have an impact on the
Company.
Additionally, SFAS No. 143 "Accounting for Asset Retirement Obligations"
was issued in July 2001. This standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related
long-lived asset. The asset is then depreciated over the estimated useful
life. The present value of the retirement obligation is adjusted each
reporting period. The Company has not yet determined the impact of adopting
this statement on January 1, 2003.
In August 2001, SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued that established a single accounting model,
based on the framework of SFAS No. 121 ("Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), for the
long-lived assets to be disposed of by sale. The statement is effective for
fiscal years beginning after December 15, 2001 and the Company does not
expect any significant impact upon adoption.
5. SOLVation INC. FINANCING AND RESTRUCTURING:
On August 2, 2001, the Company closed two subordinated debt transactions
totaling $10 million in aggregate with SOLVation Inc. ("SOLVation"), a
company affiliated with Smith Management LLC, and entered into other
restructuring transactions as described below. The first of the two debt
transactions with SOLVation was the issuance of a $5 million unsecured
senior subordinated note to SOLVation due July 1, 2007. The interest rate
is 11% per annum compounded quarterly. The interest payment is payable in
arrears in cash subject to the approval from the senior bank group and
accumulates if not paid in cash. The Company is not required to make any
principal payments prior to the July 1, 2007 maturity date. However, the
Company is required to make payments of principal and interest in the same
amounts as any principal payment or interest payments on the TCW
subordinated debt (described below). Prior to the July 1, 2007 maturity
date, subject to the bank subordination agreement, the Company may prepay
the senior subordinated note in whole or in part with no penalty.
The Company also issued a second $5 million unsecured junior subordinated
note to SOLVation. The interest rate is 11% per annum compounded quarterly.
The maturity date is the earlier of (i) 120 days after payment in full of
the TCW subordinated debt or (ii) March 31, 2010. Interest is payable in
arrears in cash subject to the approval from the senior bank group and
accumulates if not paid in cash. The Company is not required to make any
principal payments prior to the March 31, 2010 maturity date. Prior to the
March 31, 2010 maturity date, subject to both bank and subordination
agreements, the Company may prepay the junior subordinated note in whole or
in part with no penalty. A portion of the proceeds from the senior and
junior subordinated notes was used to fund a $2 million payment to TCW and
other Company working capital needs.
In conjunction with the issuance of the two subordinated notes to
SOLVation, the Series D Preferred and Series E Preferred stock held by
Inland Holdings LLC, a company controlled by TCW Asset Management Company
("TCW") were exchanged for an unsecured subordinated note due September 30,
2009 and $2 million in cash from the Company. The note amount was for
$98,968,964 that represented the face value plus accrued dividends of the
Series D Preferred stock as of August 2, 2001. The interest rate is 11% per
annum compounded quarterly. Interest shall be payable in arrears in cash
subject to the approval from the senior bank group and accumulates if not
paid in cash. Interest payments will be made quarterly, commencing on the
earlier of September 30, 2005 or the end of the first calendar quarter
after the senior bank debt has been reduced to $40 million or less, subject
to both bank and senior subordination agreements. Beginning the earlier of
two years prior to the maturity date or the first December 30 after the
repayment in full of the senior bank debt, subject to both bank and senior
subordination agreements, the Company will make equal annual principal
payments of one third of the aggregate principal amount of the TCW
subordinated note. Any unpaid principal or interest amounts are due in full
on the September 30, 2009 maturity date. Prior to the September 30, 2009
maturity date, subject to both bank and senior subordination agreements,
the Company may prepay the TCW subordinated note in whole or in part with
no penalty. As a result of the exchange, the Company retired both the
Series D and Series E Preferred stock. Due to the related party nature of
this transaction, the difference between the aggregate subordinated note
balance and $2 million cash paid to TCW and the aggregate lcarrying value
of the Series D and E preferred stock plus accrued dividends was recorded
as an increase to additional paid-in capital of $1,449,000.
7
As part of this restructuring, TCW also sold to Hampton, a company
affiliated with Smith Management LLC, 1,455,390 shares of their common
stock in the Company (consequently, Hampton now controls approximately 80%
of the issued and outstanding shares of the Company) terminated any
existing option rights to the Company's common stock, and relinquished the
right to elect four persons to the Company's Board of Directors. However,
TCW has the right to nominate one person to the Company's Board. Remaining
board members will be nominated by the Company's shareholders. As long as
Hampton or its affiliates own at least a majority of the common stock of
the Company, Hampton has agreed with TCW that Hampton will have the right
to appoint at least two members to the board.
6. FORTIS CREDIT AGREEMENT:
On September 21, 1999, the Company entered into the Fortis Credit Agreement
which was further amended on January 31, 2000, March 20, 2000, September
30, 2000, November 14, 2000, March 29, 2001 and on August 2, 2001. The
outstanding principal balance at September 30, 2001 was $83 million. A
letter of credit of $500,000 was issued by one of the Company's senior
banks to secure additional crude hedges contracts for the Company. All
borrowings under the Fortis Credit Agreement are due on June 30, 2007, or
potentially earlier if the borrowing base is determined to be insufficient.
The revolving termination date is June 30, 2004 at which time the loan
converts into a term loan payable in twelve (12) equal quarterly
installments of principal, with accrued interest, beginning September 30,
2004. The borrowing base is calculated as the collateral value of proved
reserves and is subject to redetermination on or before March 31, 2002 and
with subsequent determinations to be made on each subsequent October 1 and
April 1. Upon redetermination, if the borrowing base is lower than the
outstanding principal balance then drawn, the Company must immediately pay
the difference. Interest accrues, at the Company's option, at either (i) 2%
above the prime rate or (ii) at various rates above the LIBOR rate. The
LIBOR rates will be determined by the senior debt to EBITDA ratios starting
August 2, 2001. If the senior debt to EBITDA ratio is greater than 4.00 to
1.00, the rate is 3.25% above the LIBOR rate; if the senior debt to EBITDA
ratio is equal or less than 4.00 to 1.00 but greater than 3.00 to 1.00, the
rate is 2.75% above the LIBOR rate; if the senior debt to EBITDA ratio is
less than 3.00 to 1.00 the rate is 2.25% above the LIBOR rate. At September
30, 2001, all amounts were borrowed under the LIBOR option at an interest
rate of 6.27% through February 22, 2002. The Fortis Credit Agreement has
covenants that restrict the payment of cash dividends, borrowings, sale of
assets, loans to others, investments, merger activity and hedging contracts
without the prior consent of the lenders and requires the Company to
maintain certain net worth, interest coverage, debt coverage and working
capital ratios. The Fortis Credit Agreement is secured by a first lien on
substantially all assets of the Company.
8
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation:
RESULTS OF OPERATIONS:
Three Month Periods Ended September 30, 2001 and 2000:
Oil and Gas Sales. Crude oil and natural gas sales for the quarter
ended September 30, 2001 increased $659,000, or 9% from the previous year. As
shown in the table below, the higher variance was caused by higher crude oil and
natural gas volumes and lower hedging losses. The Company operates and is in
control of over 99% of its oil and gas production. Crude oil sales as a
percentage of total oil and gas sales were 82% and 83% in the third quarter of
2001 and 2000, respectively. Crude oil will continue to be the predominant
product produced from the Field.
The Company has entered into crude oil price protection agreements to reduce its
exposure to market price fluctuations. Although hedging activities do not affect
the Company's actual sales price for crude oil in the Field, the financial
impact of hedging transactions is reported as an adjustment to crude oil revenue
in the period in which the related oil is sold. Crude oil sales were decreased
by $.9 million and $1.89 million during the third quarters of 2001 and 2000,
respectively, to recognize hedging contract settlement losses. See Item 3
"Quantitative and Qualitative Disclosures About Market Risk."
Three Months Ended September 30, 2001 Three Months Ended September 30, 2000
---------------------------------------- -----------------------------------------
Net Volume Average Sales Net Volume Average Sales
(Bbls or Mcfs) Price (in 000's) (Bbls or Mcfs) Price (in 000's)
-------------- ----- ---------- -------------- ----- ----------
Crude Oil Sales 322,097 $ 22.78 $ 7,336 277,039 $ 27.99 $ 7,753
Natural Gas Sales 672,603 $ 2.44 1,641 631,261 $ 2.51 1,585
Hedging loss (874) (1,894)
--------- ---------
Total $ 8,103 $ 7,444
========= =========
Lease Operating Expenses. Lease operating expense for the quarter ended
September 30, 2001 increased $427,000 or 23% from the previous year third
quarter. Lease operating expense per BOE increased from $4.80 per BOE sold in
the third quarter of 2000 to $5.21 in 2001. The increase in lease operating
expenses is due to substantially higher costs of materials and labor, due to
increased demand for products, services and employees in the Monument Butte
region and neighboring areas.
Production Taxes. Production taxes as a percentage of sales were 2.2%
and 1.4% during the third quarter of 2001 and 2000, respectively. Production tax
expense consists of estimates of the Company's yearly effective tax rate for
Utah state severance tax and production ad valorem tax. Changes in sales prices,
tax rates, tax exemptions and the timing, location and results of drilling
activities can all affect the Company's actual effective tax rate.
Exploration. Exploration expense represents the Company's cost to
retain unproved acreage.
Depletion, Depreciation and Amortization. Depletion, depreciation and
amortization for the quarter ended September 30, 2001 increased $457,000, or
23%, from the previous year third quarter. The increase resulted from increased
sales volumes and a higher average depletion rate. Depletion, which is based on
the units-of-production method, comprises the majority of the total charge. The
depletion rate is a function of capitalized costs and related underlying proved
reserves in the periods presented. The Company's depletion rate was $5.32 per
BOE sold during the third quarter of 2001 compared to $4.86 per BOE sold during
the third quarter of 2000.
9
The Company increased its depletion rate for the third quarter based on the
Company's mid year oil and gas reserve estimates and the increased capital
expenditures for the 2001 year.
General and Administrative, Net. General and administrative expense for
the quarter ended September 30, 2001 decreased $424,000 or 56% from the previous
year third quarter. The $424,000 lower net general and administrative expenses
between the two periods was caused primarily by the elimination of $330,000 of
expenses due to unsuccessful Big West merger in 2000. The total of operator fees
and reimbursements were $1.9 million and $1.4 million during the third quarters
of 2001 and 2000, respectively. Gross general and administrative expense was
$2.3 million and $2.2 million during the third quarter of 2001 and 2000,
respectively.
Interest Expense. Interest expense for the quarter ended September 30,
2001 increased $1.4 million from the previous year third quarter. The $1.4
million increase in interest expense resulted from the new issuance of the
subordinated debt of $109 million for the period August 2 through September 30,
2001 offset by the reduction from the senior debt interest expense of $529,000.
The $529,000 lower senior debt interest expense was due to lower interest rates
during the third quarter of 2001 from the previous third quarter. Borrowings for
the senior debt during the third quarter of 2001 and 2000 were recorded at
effective interest rates of 7.4% and 10.0%, respectively. The subordinated debt
interest rates for all three classes are 11% per annum.
Other Income. Other income primarily represents interest earned on cash
balances.
Income Taxes. During the third quarter of 2001 and 2000, no income tax
provision or benefit was recognized due to net operating losses incurred and the
establishment of a full valuation allowance.
Accrued Preferred Series D Stock Dividends. The Company's Preferred
Series D Stock accrues dividends at 11.25% compounded quarterly. For the period
July 1, 2001 through August 1, 2001 the dividend amount was $906,000. As
discussed under Note 4 to the Consolidated Financial Statements, the Company's
Preferred Series D Stock was cancelled in exchange for the TCW subordinated
notes and $2 million on August 2, 2001.
Accrued Preferred Series E Stock Dividends. The Company's Preferred
Series E Stock accrues dividends at 11.5% compounded quarterly. For the period
July 1, 2001 through August 1, 2001 the dividend amount was $140,000. As
discussed under Note 4 to the Consolidated Financial Statements, the Company's
Preferred Series E Stock was cancelled on August 2, 2001.
Accretion of Preferred Series D Stock Discount. The Company's Preferred
Series D Stock was initially recorded on the financial statements at a discount
of $20.2 million and is being accreted to face value ($80.7 million) over the
original minimum mandatory redemption period which started on April 1, 2002 and
ended on April 1, 2004. The amount of the accretion for the period July 1, 2001
through August 1, 2001 was $435,000. As discussed under Note 4 to the
Consolidated Financial Statements, the Company's Preferred Series D Stock was
cancelled in exchange for TCW subordinated notes and $2 million on August 2,
2001.
Accretion of Preferred Series E Stock Discount. The Company's Preferred
Series E Stock was initially recorded on the financial statements at a discount
of $4.2 million and is being accreted to face value ($12.2 million) over the
period to the original minimum mandatory redemption date of April 1, 2004. The
amount of the accretion for the period July 1, 2001 through August 1, 2001 was
$70,000. As discussed under Note 4 to the Consolidated Financial Statements, the
Company's Preferred Series E Stock was cancelled on August 2, 2001.
Nine Month Periods Ended September 30, 2001 and 2000:
Oil and Gas Sales. Crude oil and natural gas sales for the nine months
ended September 30, 2001 increased $4.3 million, or 21% from the previous year.
As shown in the table below, higher crude oil and gas sales volumes and average
natural gas prices caused the higher variance. The Company averaged 5,200 gross
barrels (3,331 net) and 4,180 gross (2,931 net) of crude oil sales per day
during the first nine months of years 2001 and 2000, respectively. Crude oil
sales as a percentage of total oil and gas sales were 78% and 85% during the
nine months of 2001 and 2000, respectively. The higher gross crude oil sales
reflect the continued drilling program in the Field. Crude oil will continue to
be the predominant product produced from the Field.
10
The Company has entered into price protection agreements to hedge against
volatility in crude oil prices. Although hedging activities do not affect the
Company's actual sales price for crude oil in the Field, the financial impact of
hedging transactions is reported as an adjustment to crude oil revenue in the
period in which the related oil is sold. Crude oil sales were decreased by $3.2
million and $4.2 million for the first nine months of 2001 and 2000,
respectively, to recognize hedging contract settlement losses. See Item 3
"Quantitative and Qualitative Disclosures About Market Risk."
Nine Months Ended September 30, 2001 Nine Months Ended September 30, 2000
--------------------------------------- ---------------------------------------
Net Volume Average Sales Net Volume Average Sales
(Bbls or Mcfs) Price (in 000's) (Bbls or Mcfs) Price (in 000's)
-------------- ----- ---------- -------------- ----- ----------
Crude Oil Sales 909,509 $ 23.99 $ 21,816 800,032 $ 26.17 $ 20,934
Natural Gas Sales 1,821,787 $ 3.40 6,194 1,749,450 $ 2.18 3,808
Hedging Loss (3,166) (4,213)
-------- ---------
Total $ 24,844 $ 20,529
======== =========
Lease Operating Expenses. Lease operating expenses for the nine months
of year 2001 increased $1.3 million or 26% from the previous year period. The
increase in lease operating expenses are due to substantially higher labor
costs, overhead fees and other Field operating expenses such as repairs and
maintenance and fuel. Lease operating expenses per BOE increased from $4.72 per
BOE sold in the nine months of 2000 to $5.35 per BOE sold in 2001. The increase
of $.68 on a BOE basis is primarily due to the increase lease operating expenses
as described above.
Production Taxes. Production taxes as a percentage of sales were 2.2%
and 1.9% during the nine months of 2001 and 2000, respectively. Production tax
expense consists of estimates of the Company's yearly effective tax rate for
Utah state severance tax and production ad valorem tax. Changes in sales prices,
tax rates, tax exemptions and the timing, location and results of drilling
activities can all affect the Company's actual effective tax rate.
Exploration. Exploration expense represents the Company's cost to
retain unproved acreage.
Depletion, Depreciation and Amortization. Depletion, depreciation and
amortization for the nine month period ended September 30, 2001 increased 18%,
or $1,033,000, from the comparable previous year period. The increase resulted
from increased sales volumes and a higher average depletion rate. Depletion,
which is based on the units-of-production method, comprises the majority of the
total charge. The depletion rate is a function of capitalized costs and related
underlying proved reserves in the periods presented. The Company's depletion
rate was $5.32 per BOE sold during the initial nine months of 2001 compared to
an average of $4.86 per BOE sold during the same period in 2000. The Company
increased its depletion rate for the third quarter based on the Company's mid
year oil and gas reserve estimates and the increased capital expenditures for
the 2001 year.
General and Administrative, Net. General and administrative expense for
the nine months ended September 30, 2001 decreased $77,000 or 5% from the
comparable previous year period. General and administrative expense is reported
net of operator fees and reimbursements which were $5.4 million and $4.1 million
during the initial nine months of 2001 and 2000, respectively. Gross general and
administrative expense was $6.7 million during the nine months of 2001 and $5.6
million for the same period in 2000. The higher gross general and administrative
expenses of $1.1 million are primarily due to n increased salary and benefit
expenses of $884,000 for the nine months ended September 30, 2001 from the
comparable previous year period.
Interest Expense. Interest expense for the nine month period ended
September 30, 2001 increased $1.3 million from the comparable prior year period.
The $1.3 million increase in interest expense resulted from the new issuance of
the subordinated debt of $109 million of interest for the period August 2
through September 30, 2001 offset by the reduction from the senior debt interest
expense of $733,000. The $733,000 lower senior debt interest expense was due to
lower interest rates during the third quarter of 2001 from the comparable prior
year period. Borrowings of the senior debt during the first nine months of 2001
and 2000 were recorded at an effective interest rate of 8.0% and 10.0%,
respectively. The subordinated debt interest rates for all three classes are 11%
per annum.
Other Income. Other income primarily represents interest earned on cash
balances.
11
Income Taxes. During the first half of 2001 and 2000, no income tax
provision or benefit was recognized due to net operating losses incurred and the
reversal and recording of a full valuation allowance.
Accrued Preferred Series D Stock Dividends. Inland's Preferred Series D
Stock accrues dividends at 11.25% compounded quarterly. For the period January
1, 2001 through August 1, 2001 the dividend amount was $6,342,000. As discussed
under Note 5 to the Consolidated Financial Statements, the Company's Preferred
Series D Stock was cancelled in exchange for TCW subordinated notes and $2
million on August 2, 2001.
Accrued Preferred Series E Stock Dividends. Inland's Preferred Series E
Stock accrues dividends at 11.5% compounded quarterly. For the period January 1,
2001 through August 1, 2001 the dividend amount was $980,000. As discussed under
Note 5 to the Consolidated Financial Statements, the Company's Preferred Series
E Stock was cancelled on August 2, 2001.
Accretion of Preferred Series D Stock Discount. Inland's Preferred
Series D Stock was initially recorded on the financial statements at a discount
of $20.2 million in September 1999 and is being accreted to face value ($80.7
million) over the original minimum mandatory redemption period which started on
October 1, 2001 and ended on October 1, 2003. The amount of the accretion for
the period January 1, 2001 through August 1, 2001 was $3,318,000. As discussed
under Note 5 to the Consolidated Financial Statements, the Company's Preferred
Series D Stock was cancelled in exchange for TCW subordinated notes and $2
million on August 2, 2001.
Accretion of Preferred Series E Stock Discount. Inland's Preferred
Series E Stock was initially recorded on the financial statements at a discount
of $4.2 million in September 1999 and is being accreted to face value ($12.2
million) over the period to the original minimum mandatory redemption date of
October 1, 2003. The amount of the accretion for the period January 1, 2001
through August 1, 2001 was $535,000. As discussed under Note 5 to the
Consolidated Financial Statements, the Company's Preferred Series E Stock was
cancelled on August 2, 2001.
LIQUIDITY AND CAPITAL RESOURCES
FORTIS CREDIT AND SUBORDINATED DEBT AGREEMENTS
Effective September 21, 1999, the Company entered into the Fortis
Credit Agreement with the senior bank group, the current members of which are
Fortis Capital Corp. and U.S. Bank National Association. At September 30, 2001,
the Company had advanced funds of $83 million. A $500,000 irrevocable letter of
credit was issued by one of the senior banks to secure crude oil hedging
contracts. The borrowing base as of September 30, 2001 is $83.5 million. The
borrowing base is calculated as the collateral value of proved reserves and is
subject to redetermination on or before March 31, 2002 and with subsequent
determinations to be made on each subsequent October 1 and April 1. If the
borrowing base is lower than the outstanding principal balance then drawn, the
Company must immediately pay the difference.
In conjunction with SOLVation financing, the Fortis Credit Agreement
with the senior bank group was amended to change the maturity date to June 30,
2007 from April 1, 2002, or potentially earlier if the borrowing base is
determined to be insufficient. Interest accrues under the Fortis Credit
Agreement, at the Company's option, at either (i) 2% above the prime rate or
(ii) at various rates above the LIBOR rate. The LIBOR rates will be determined
by the senior debt to EBITDA ratios starting August 2, 2001. If the senior debt
to EBITDA ratio is greater than 4.00 to 1.00, the rate is 3.25% above the LIBOR
rate; if the senior debt to EBITDA ratio is equal to or less than 4.00 to 1.00
but greater than 3.00 to 1.00, the rate is 2.75% above the LIBOR rate; if the
senior debt to EBITDA ratio is less than 3.00 to 1.00, the rate is 2.25% above
the LIBOR rate. As of September 30, 2001, all amounts were borrowed under the
LIBOR option at an interest rate of 6.27% through February 22, 2001. The
revolving termination date is June 30, 2004 at which time the loan converts into
a term loan payable in 12 equal quarterly installments of principal, with
accrued interest, beginning September 30, 2004. The Fortis Credit Agreement has
covenants that restrict the payment of cash dividends, borrowings, sale of
assets, loans to others, investments, merger activity and hedging contracts
without the prior consent of the lenders and requires the Company to maintain
certain net worth, interest coverage and working capital ratios. The Company was
in compliance of its bank covenants as September 30, 2001. The Fortis Credit
Agreement is secured by a first lien on substantially all assets of the Company.
12
On August 2, 2001, the Company closed two subordinated debt
transactions totaling $10 million with SOLVation. The Company used $2 million of
the $10 million proceeds before financing costs and expenses, in conjunction
with the TCW subordinated debt, to retire the Series D and E Preferred stock.
The remaining $8 million will be used as working capital. The SOLVation
financing costs and expenses is approximately $1.4 million as of September 30,
2001.
First of the notes issued to SOLVation was a $5 million unsecured
senior subordinated note to SOLVation due July 1, 2007. The interest payment is
payable in arrears in cash subject to the approval from the senior bank group.
The Company is not required to make any principal payments prior to the July 1,
2007 maturity date. However, the Company is required to make payments of
principal and interest in the same amounts as any principal payment or interest
payments on the TCW subordinated debt. The Company also issued another $5
million unsecured junior subordinated note to SOLVation. The maturity date is
the earlier of (i) 120 days after payment in full of the TCW subordinated debt
or (ii) March 31, 2010. The interest payment shall be payable in arrears in cash
subject to the approval from the senior bank group and accumulates if not paid
in cash. The Company is not required to make any principal payments prior to the
March 31, 2010 maturity date.
In conjunction with the issuance of the two subordinated notes, the
Series D Preferred and Series E Preferred stock held by TCW were exchanged for
an unsecured subordinated note due September 30, 2009 and $2 million in cash
from the Company. The note amount was for $98,968,964 that represented the face
value plus accrued dividends of the Series D Preferred stock as of August 2,
2001. The interest payment is payable in arrears in cash subject to the approval
from the senior bank group and accumulates if not paid in cash. Interest
payments will be made quarterly, commencing on the earlier of September 30, 2005
or the end of the first calendar quarter after the senior bank debt has been
reduced to $40 million or less, subject to both bank and senior subordination
agreements. Beginning the earlier of two years prior to the maturity date or the
first December 30 after the repayment in full of the senior bank debt, subject
to both bank and senior subordination agreements, the Company will make equal
annual principal payments of one third of the aggregate principal amount of the
subordinated note. Any unpaid principal or interest amounts are due in full on
the September 30, 2009 maturity date.
CASH FLOW AND CAPITAL PROJECTS
During the first nine months of 2001, the Company used its cash from
operations of $13.5 million plus the net proceeds from the SOLVation financing
of $6.6 million to continue development of the Field. For the 2001 nine month
period, the Company paid $5 million in interest to its senior bank borrowings.
Field development in the first nine months of 2001 consisted of drilling 35
wells, completing 14 capital workover projects and converting 22 wells to water
injection along with the continued extension of the gas gathering and water
delivery infrastructures.
The Company's revised net capital budget for development of the Field in
year 2001 is $23.0 million. The Company plans to drill between 48 to 52 wells
and convert 35 wells to water injection. Based upon the SOLVation financing, the
Company believes that cash on hand along with future cash to be generated from
operations will be sufficient to implement its development plans for the next
year and service its debt. The level of capital expenditures is largely
discretionary, and the amount of funds devoted to any particular activity may
increase or decrease significantly depending on available opportunities,
commodity prices, operating cash flows and development results, among other
items.
INFLATION AND CHANGES IN PRICES
The Company's revenues and the value of its oil and gas properties have been and
will be affected by changes in oil and gas prices. The Company's ability to
borrow from traditional lending sources and to obtain additional capital on
attractive terms is also substantially dependent on oil and gas prices. Oil and
gas prices are subject to significant seasonal and other fluctuations that are
beyond the Company's ability to control or predict. Although certain of the
Company's costs and expenses are affected by the level of inflation, inflation
did not have a significant effect on the Company's results of operations during
2000. However, the Company's costs and expenses have been significantly
increased for 2001 from the 2000 year due to higher labor and third party
contract costs.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including statements of the Company's and
management's expectation, intentions, plans and beliefs, including those
contained in or implied by Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Notes to Consolidated Financial
Statements, are forward-looking
13
statements, within the meaning of Section 21E of the Securities Exchange Act of
1934, that are subject to certain events, risk and uncertainties that may be
outside the Company's control. These forward-looking statements include
statements of management's plans and objectives for the Company's future
operations and statements of future economic performance, information regarding
drilling schedules, expected or planned production or transportation capacity,
future production levels of fields, marketing of crude oil and natural gas, the
Company's capital budget and future capital requirements, credit facilities, the
Company's meeting its future capital needs, the Company's realization of its
deferred tax assets, the level of future expenditures for environmental costs
and the outcome of regulatory and litigation matters, and the assumptions
described in this report underlying such forward-looking statements. Actual
results and developments could differ materially from those expressed in or
implied by such statements due to a number of factors, including, without
limitation, those described in the context of such forward-looking statements,
fluctuations in the price of crude oil and natural gas, the success rate of
exploration efforts, timeliness of development activities, risk incident to the
drilling and completion for oil and gas wells, future production and development
costs, the strength and financial resources of the Company's competitors, the
Company's ability to find and retain skilled personnel, climatic conditions, the
results of financing efforts, the political and economic climate in which the
Company conducts operations and the risk factors described from time to time in
the Company's other documents and reports filed with the SEC.
14
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk:
Market risk generally represents the risk that losses may occur in the value of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices.
Interest Rate Risk. The Company is exposed to market risk due to the
floating interest rate under the Fortis Credit Agreement. See Item 2. -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." All borrowings under the Fortis
Credit Agreement are due and payable in 12 equal quarterly installments of
principal with accrued interest, beginning September 30, 2004. As of September
30, 2001, the Fortis Credit Agreement had a principal balance of $83 million
locked in at an interest rate of 6.27% through February 22, 2002. Assuming the
principal is paid according to the terms of the loan, an increase in interest
rates could result in an increase in interest expense on the existing principal
balance for the remaining term of the loan, as shown by the following chart:
---------------------------------------------------
Increase in Interest Expense
---------------------------------------------------
1% increase in interest 2% increase in interest
rates rates
- -----------------------------------------------------------------------------------
October 1, 2001 through
December 31, 2001 $ - $ -
- -----------------------------------------------------------------------------------
Year 2002 $ 708,000 $ 1,416,000
- -----------------------------------------------------------------------------------
Year 2003 $ 830,000 $ 1,660,000
- -----------------------------------------------------------------------------------
Year 2004 $ 813,000 $ 1,625,000
- -----------------------------------------------------------------------------------
Year 2005 $ 588,000 $ 1,176,000
- -----------------------------------------------------------------------------------
Year 2006 $ 311,000 $ 623,000
- -----------------------------------------------------------------------------------
January 1, 2007 through
June 30, 2007 $ 156,000 $ 311,000
- -----------------------------------------------------------------------------------
Commodity Risks. The Company hedges a portion of its crude oil
production to reduce its exposure to market price fluctuations. The Company uses
various financial instruments whereby monthly settlements are based on
differences between the prices specified in the instruments and the settlement
prices of certain futures contracts quoted on the NYMEX index. Gains or losses
on hedging activities are recognized as an adjustment to crude oil sales in the
period in which the hedged production is sold.
The Company has entered into various contracts in the form of swaps or collars
to hedge crude oil production with Enron North America Corp during calendar
years 2001, 2002 and 2003. The potential gains or (losses) on these contracts
subsequent to September 30, 2001 based on a hypothetical average market price of
equivalent product are as follows:
15
-----------------------------------------------------------------------------------------------
Average NYMEX Per Barrel Market Price for the Contract Period
-----------------------------------------------------------------------------------------------
$ 16.00 $ 18.00 $ 20.00 $ 22.00 $ 24.00 $ 26.00
- ---------------------------------------------------------------------------------------------------------------------------
October-December 2001 $ 2,253,000 $ 1,713,000 $ 1,173,000 $ 723,000 $ 214,000 $ (83,000)
- ---------------------------------------------------------------------------------------------------------------------------
Year 2002 $ 9,164,000 $ 7,004,000 $ 4,844,000 $ 2,684,000 $ 704,000 $ (1,207,000)
- ---------------------------------------------------------------------------------------------------------------------------
Year 2003 $ 5,041,000 $ 3,601,000 $ 2,161,000 $ 721,000 $ (719,000) $ (2,159,000)
- ---------------------------------------------------------------------------------------------------------------------------
16
PART II. OTHER INFORMATION
INLAND RESOURCES INC.
Items 1, 2, 3, 4 and 5 are omitted from this report as inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
The following documents are filed as part of this Quarterly Report on Form 10-Q.
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Amended and Restated Articles of Incorporation, as amended through
December 14, 1999 (filed as Exhibit 3.1 to Inland's Current Report on
Form 8-K dated September 21, 1999, and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of the Company through August 2, 2002
(filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated
August 2, 2001, and incorporated herein by reference).
4.1 Sixth Amendment to Second Amended and Restated Credit Agreement dated
July 31, 2001, between the Company, Inland Production Company
("Production"), Fortis Capital Corp. and U.S. Bank National Association
(without exhibits or schedules)(filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated August 2, 2001, and incorporated
herein by reference).
10.1 Common Stock Purchase Agreement dated August 2, 2001 by and between
Inland Holdings, LLC ("Inland Holdings") and Hampton Investments LLC
("Hampton Investments")(without exhibits or schedules)(filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated August 2, 2001,
and incorporated herein by reference).
10.2 Contribution Agreement dated August 2, 2001 by and among Park Hampton
Holdings LLC ("Hampton Holdings"), Pengo Securities Corp. ("Pengo"),
Smith Energy Partnership ("SEP"), the five individuals and Hampton
Investments (filed as Exhibit 10.2 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
10.3 Series E Preferred Stock Purchase Agreement dated as of August 2, 2001
by and between Hampton Investments and Inland Holdings (without
exhibits or schedules)(filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K dated August 2, 2001, and incorporated herein by
reference).
10.4 Termination Agreement dated as of August 2, 2001 by and between Hampton
Investments and Inland (without exhibits or schedules)(filed as Exhibit
10.4 to the Company's Current Report on Form 8-K dated August 2, 2001,
and incorporated herein by reference).
10.5 Exchange and Note Issuance Agreement dated August 2, 2001 by and among
Inland, Production and Inland Holdings (without exhibits or
schedules)(filed as Exhibit 10.5 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
10.6 Termination Agreement dated as of August 2, 2001 by and among Inland
and Inland Holdings (without exhibits or schedules)(filed as Exhibit
10.6 to the Company's Current Report on Form 8-K dated August 2, 2001,
and incorporated herein by reference).
10.7 Amended and Restated Registration Rights Agreement dated as of August
2, 2001 by and among Inland, Inland Holdings and Hampton Investments
(without exhibits or schedules)(filed as Exhibit 10.7 to the Company's
Current Report on Form 8-K dated August 2, 2001, and incorporated
herein by reference).
17
10.8 Amended and Restated Shareholders Agreement dated as of August 2, 2001
by and among Inland, Inland Holdings and Hampton Investments (without
exhibits or schedules)(filed as Exhibit 10.8 to the Company's Current
Report on Form 8-K dated August 2, 2001, and incorporated herein by
reference).
10.9 Senior Subordinated Note Purchase Agreement dated as of August 2, 2001
by and among Inland, Production and SOLVation (without exhibits or
schedules)(filed as Exhibit 10.9 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
10.10 Junior Subordinated Note Purchase Agreement dated as of August 2, 2001
by and among Inland, Production and SOLVation (without exhibits or
schedules)(filed as Exhibit 10.10 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
*99.3 Certification of Chief Executive Officer pursuant to section 1350 as
adopted pursuant to sections 302 and 906 of the Sarbanes-Oxley Act of
2002.
*99.4 Certification of Chief Financial Officer pursuant to section 1350 as
adopted pursuant to sections 302 and 906 of the Sarbanes-Oxley Act of
2002.
- ---------------------
(b) Reports on Form 8-K:
None.
* Filed Herewith
18
INLAND RESOURCES INC.
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.
INLAND RESOURCES INC.
(Registrant)
Date: February 3, 2003 By: /s/ Marc MacAluso
-----------------
Marc MacAluso
Chief Executive Officer and Chief
Operating Officer
Date: February 3, 2003 By: /s/ Bill I. Pennington
----------------------
Bill I. Pennington
Chief Financial Officer, Secretary
and Treasurer (Principal Accounting
Officer)
19
CERTIFICATION
I, Marc MacAluso, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Inland Resources
Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 3, 2003 /s/ Marc MacAluso,
------------------
Marc MacAluso, Chief Executive Officer
CERTIFICATION
I, Bill I. Pennington, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Inland Resources
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 3, 2003 /s/ Bill I. Pennington
-------------------------------------------
Bill I. Pennington, Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Amended and Restated Articles of Incorporation, as amended through
December 14, 1999 (filed as Exhibit 3.1 to Inland's Current Report on
Form 8-K dated September 21, 1999, and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of the Company through August 2, 2002
(filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated
August 2, 2001, and incorporated herein by reference).
4.1 Sixth Amendment to Second Amended and Restated Credit Agreement dated
July 31, 2001, between the Company, Inland Production Company
("Production"), Fortis Capital Corp. and U.S. Bank National Association
(without exhibits or schedules)(filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated August 2, 2001, and incorporated
herein by reference).
10.1 Common Stock Purchase Agreement dated August 2, 2001 by and between
Inland Holdings, LLC ("Inland Holdings") and Hampton Investments LLC
("Hampton Investments")(without exhibits or schedules)(filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated August 2, 2001,
and incorporated herein by reference).
10.2 Contribution Agreement dated August 2, 2001 by and among Park Hampton
Holdings LLC ("Hampton Holdings"), Pengo Securities Corp. ("Pengo"),
Smith Energy Partnership ("SEP"), the five individuals and Hampton
Investments (filed as Exhibit 10.2 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
10.3 Series E Preferred Stock Purchase Agreement dated as of August 2, 2001
by and between Hampton Investments and Inland Holdings (without
exhibits or schedules)(filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K dated August 2, 2001, and incorporated herein by
reference).
10.4 Termination Agreement dated as of August 2, 2001 by and between Hampton
Investments and Inland (without exhibits or schedules)(filed as Exhibit
10.4 to the Company's Current Report on Form 8-K dated August 2, 2001,
and incorporated herein by reference).
10.5 Exchange and Note Issuance Agreement dated August 2, 2001 by and among
Inland, Production and Inland Holdings (without exhibits or
schedules)(filed as Exhibit 10.5 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
10.6 Termination Agreement dated as of August 2, 2001 by and among Inland
and Inland Holdings (without exhibits or schedules)(filed as Exhibit
10.6 to the Company's Current Report on Form 8-K dated August 2, 2001,
and incorporated herein by reference).
10.7 Amended and Restated Registration Rights Agreement dated as of August
2, 2001 by and among Inland, Inland Holdings and Hampton Investments
(without exhibits or schedules)(filed as Exhibit 10.7 to the Company's
Current Report on Form 8-K dated August 2, 2001, and incorporated
herein by reference).
10.8 Amended and Restated Shareholders Agreement dated as of August 2, 2001
by and among Inland, Inland Holdings and Hampton Investments (without
exhibits or schedules)(filed as Exhibit 10.8 to the Company's Current
Report on Form 8-K dated August 2, 2001, and incorporated herein by
reference).
10.9 Senior Subordinated Note Purchase Agreement dated as of August 2, 2001
by and among Inland, Production and SOLVation (without exhibits or
schedules)(filed as Exhibit 10.9 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
10.10 Junior Subordinated Note Purchase Agreement dated as of August 2, 2001
by and among Inland, Production and SOLVation (without exhibits or
schedules)(filed as Exhibit 10.10 to the Company's Current Report on
Form 8-K dated August 2, 2001, and incorporated herein by reference).
*99.3 Certification of Chief Executive Officer pursuant to section 1350 as
adopted pursuant to sections 302 and 906 of the Sarbanes-Oxley Act of
2002.
*99.4 Certification of Chief Financial Officer pursuant to section 1350 as
adopted pursuant to sections 302 and 906 of the Sarbanes-Oxley Act of
2002.
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(b) Reports on Form 8-K:
None.
* Filed Herewith