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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
|_| 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 0-9207
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2841597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5605 N. MACARTHUR BLVD., SUITE 400 75038
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (972) 753-6900
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of November 10, 1997 was 120,111,734.
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HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
September 30, 1997
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Condensed Balance Sheets.............................................. 4
Consolidated Condensed Statements of Operations.................................... 5
Consolidated Condensed Statements of Stockholders' Equity.......................... 6
Consolidated Condensed Statements of Cash Flow..................................... 7
Notes to Consolidated Condensed Financial Statements............................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 21
PART II. OTHER INFORMATION
Notes Concerning Other Information................................................. 28
SIGNATURES ................................................................................... 30
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PART I - FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------- ------------------
ASSETS
Current Assets:
Cash and temporary investments......................................... $ 9,855,000 $ 44,070,000
Cash in segregated accounts............................................ 37,662,000 65,973,000
Accounts receivable, net............................................... 2,058,000 2,635,000
Prepaid expenses and other current assets.............................. 263,000 219,000
----------------- ------------------
Total Current Assets.............................................. 49,838,000 112,897,000
Property and Equipment, net................................................. 70,035,000 91,604,000
Other Assets, net........................................................... 3,127,000 4,583,000
----------------- ------------------
$ 123,000,000 $ 209,084,000
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables......................................................... $ 1,272,000 $ 2,529,000
Accrued liabilities and other.......................................... 3,889,000 8,063,000
Revenues and royalties payable......................................... 900,000 817,000
----------------- ------------------
Total Current Liabilities......................................... 6,061,000 11,409,000
European Convertible Notes Payable.......................................... 38,600,000 57,930,000
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Common stock, $0.01 par value; 150,000,000 shares authorized;
93,862,266 and 117,704,784 shares issued, respectively............. 939,000 1,177,000
Additional paid-in capital............................................. 171,191,000 230,736,000
Retained deficit....................................................... (92,401,000) (92,168,000)
Treasury stock, 400,896 shares held at December 31, 1996............... (1,390,000) --
----------------- ------------------
Total Stockholders' Equity........................................ 78,339,000 139,745,000
----------------- ------------------
$ 123,000,000 $ 209,084,000
================= ==================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------------
1996 1997 1996 1997
--------------- ---------------- --------------- ---------------
Revenues:
Oil and gas operations................. $ 3,679,000 $ 3,508,000 $ 8,064,000 $ 10,352,000
Interest and other income.............. 436,000 1,492,000 982,000 2,926,000
--------------- ---------------- --------------- ---------------
4,115,000 5,000,000 9,046,000 13,278,000
--------------- ---------------- --------------- ---------------
Costs and Expenses:
Oil and gas operating expenses......... 1,342,000 1,522,000 2,942,000 4,008,000
General and administrative
expenses, net...................... 1,103,000 1,571,000 2,900,000 4,071,000
Depreciation and amortization.......... 1,141,000 1,282,000 2,397,000 3,612,000
Interest expense and other, net........ 484,000 587,000 990,000 1,435,000
--------------- ---------------- --------------- ---------------
4,070,000 4,962,000 9,229,000 13,126,000
--------------- ---------------- --------------- ---------------
Income (loss) before income taxes... 45,000 38,000 (183,000) 152,000
Income tax expense.......................... -- -- -- --
--------------- ---------------- --------------- ---------------
Net income (loss)................... $ 45,000 $ 38,000 $ (183,000) $ 152,000
=============== ================ =============== ===============
Income (loss) per common share:
Net income (loss)................... $ 0.00 $ 0.00 $ (0.00) $ 0.00
=============== ================ =============== ===============
Weighted average shares outstanding......... 92,270,516 117,383,551 83,378,170 108,390,892
=============== ================ =============== ===============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TREASURY STOCK
------------------ ------------------ ------------------ ------------------
Balance, December 31, 1995................. $ 759,000 $ 136,435,000 $ (92,047,000) $ (4,997,000)
Issuance of common stock, net............ 90,000 22,090,000 -- 3,607,000
Conversions of European notes payable.... 90,000 12,666,000 -- --
Equity adjustment from foreign currency
translation......................... -- -- (13,000) --
Net loss................................. -- -- (341,000) --
------------------ ------------------ ------------------ -----------------
Balance, December 31, 1996................. 939,000 171,191,000 (92,401,000) (1,390,000)
Issuance of common stock, net............ 62,000 13,736,000 -- --
Conversions of European notes payable.... 176,000 45,809,000 -- 1,390,000
Equity adjustment from foreign currency
translation......................... -- -- 81,000 --
Net income............................... -- -- 152,000 --
------------------ ------------------ ------------------ -----------------
Balance, September 30, 1997................ $ 1,177,000 $ 230,736,000 $ (92,168,000) $ --
================== ================== ================== =================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------
1996 1997
------------------ ------------------
Cash flows from operating activities:
Net income (loss).................................................... $ (183,000) $ 152,000
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization................................... 2,397,000 3,612,000
Loss on sales of assets and other............................... 19,000 --
Accretion of note payable....................................... 234,000 --
Amortization of European note issuance costs.................... 310,000 429,000
Change in assets and liabilities:
Increase in accounts receivable................................. (739,000) (366,000)
Increase in trade payables and other............................ 304,000 929,000
------------------ ------------------
Net cash provided by operating activities.................. 2,342,000 4,756,000
------------------ ------------------
Cash flows from investing activities:
Proceeds from sales of assets................................... 177,000 7,000
Investor advances............................................... 3,125,000 6,860,000
Capital expenditures, net...................................... (12,660,000) (18,617,000)
------------------ ------------------
Net cash used in investing activities...................... (9,358,000) (11,750,000)
------------------ ------------------
Cash flows from financing activities:
Transfers from segregated account cash.......................... 10,878,000 36,564,000
Proceeds from issuances of common stock, net of issuance costs.. 2,964,000 5,291,000
Repayments of notes payable and long-term obligations........... (1,258,000) --
Investment in segregated account cash, net...................... (611,000) (646,000)
------------------ ------------------
Net cash provided by financing activities.................. 11,973,000 41,209,000
------------------ ------------------
Net increase in cash and temporary investments......................... 4,957,000 34,215,000
Cash and temporary investments at beginning of period.................. 4,456,000 9,855,000
------------------ ------------------
Cash and temporary investments at end of period........................ $ 9,413,000 $ 44,070,000
================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................................... $ 206,000 $ 1,881,000
Income taxes...................................................... $ -- $ --
The accompanying Notes to Consolidated Financial Statements are
an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
(unaudited)
(1) MANAGEMENT'S REPRESENTATIONS
In the opinion of Harken Energy Corporation ("Harken"), the
accompanying unaudited consolidated condensed financial statements contain all
adjustments necessary to present fairly its financial position as of December
31, 1996 and September 30, 1997 and the results of its operations and changes in
its cash flows for all periods presented as of September 30, 1996 and 1997.
These adjustments represent normal recurring items.
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to these rules and
regulations, although Harken believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in Harken's Form 10-K for the year
ended December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
The results of operations for the nine month period ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
(2) ACQUISITIONS
Acquisition of EnerVest Properties -- On July 10, 1996 Harken, along
with Harken Exploration, a wholly-owned subsidiary, purchased working interests
in certain producing oil and gas properties located in the Magnolia region of
Arkansas and in the Carlsbad region of New Mexico (the "EnerVest Properties")
from EnerVest Acquisition-II Limited Partnership ("EnerVest"). The purchase
price of approximately $15,200,000, plus the assumption of certain operational
liabilities relating to these properties, was paid in the form of $5,000,000
cash paid at closing, 1,550,000 shares of Harken common stock which were issued
following closing, and 1,400,000 shares of Harken common stock which were issued
in March 1997. Harken also issued to EnerVest warrants to purchase, over a
period of three years from closing, 300,000 restricted shares of Harken common
stock at an exercise price of $2.75 per share.
Acquisition of Additional Four Corners Property Interests -- During the
second quarter of 1996, Harken acquired additional interests in its oil and gas
operations in the Four Corners area of Arizona, Utah and New Mexico (the "Four
Corners Properties") which resulted in Harken increasing its ownership in the
Navajo Reservation reserves, exploration acreage, development drilling locations
and the Aneth Gas Plant. The acquisition of the sellers' interest raised
Harken's total interest in the Four Corners Properties from
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approximately 82% to approximately 94% of Harken's total operated interest. The
consideration consisted of $338,000 cash plus the issuance of approximately
509,000 shares of restricted Harken common stock. Harken also assumed certain
liabilities of the seller relating to the property interests. On June 30, 1997,
Harken acquired the remaining operating interest in the Four Corners Properties
for approximately $450,000 cash. Harken also assumed certain liabilities of the
seller relating to the property interests.
Acquisition of Cal-T Properties -- On August 29, 1997 Harken, along
with Harken Exploration, purchased working interests in oil and gas properties
located in the panhandle region of Texas (the "Cal-T Properties"). The purchase
price of approximately $3,416,000 consisted primarily of 565,000 shares of
Harken common stock.
(3) MARKETABLE SECURITIES
Included within cash and temporary investments and cash in segregated
accounts at September 30, 1997 are certain investments in marketable debt
securities having maturities of sixty days or less. Harken management determines
the appropriate classification of such debt securities at the time of purchase
and reevaluates such designation as of each balance sheet date. Such debt
securities are classified as held-to-maturity as Harken has the positive intent
and ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest and other
income. Harken holds no securities which are classified as available-for-sale or
trading.
The following is a summary of held-to-maturity securities:
December 31, September 30,
1996 1997
----------------- -------------------
Cash and temporary investments:
Cost $ -- $ 11,251,000
Gross unrealized gains -- 32,000
Gross unrealized losses -- --
----------------- -------------------
Estimated fair value $ -- $ 11,283,000
================= ===================
Cash in segregated accounts:
Cost $ -- $ 65,612,000
Gross unrealized gains -- 357,000
Gross unrealized losses -- --
----------------- -------------------
Estimated fair value $ -- $ 65,969,000
================= ===================
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(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
December 31, September 30,
1996 1997
----------------- ------------------
Unevaluated oil and gas properties--
Unevaluated international properties $ 3,656,000 $ 8,042,000
Unevaluated domestic properties 6,610,000 6,707,000
Evaluated oil and gas properties--
Evaluated international properties 5,802,000 20,162,000
Evaluated domestic properties 60,188,000 66,106,000
Gas plant and other property 7,500,000 7,921,000
Less accumulated depreciation and amortization (13,721,000) (17,334,000)
----------------- ------------------
$ 70,035,000 $ 91,604,000
================= ==================
(5) COLOMBIAN OPERATIONS
Alcaravan Contract -- During the third quarter of 1992, Harken de
Colombia, Ltd., a wholly-owned subsidiary of Harken, was awarded the exclusive
right to explore for, develop and produce oil and gas throughout the Alcaravan
area of Colombia. The Alcaravan area is located in Colombia's Llanos Basin and
is located approximately 140 miles east of Santafe De Bogota. Harken and Empresa
Colombiana de Petroleos ("Ecopetrol") have entered into an Association Contract
(the "Alcaravan Contract") which currently covers approximately 210,000 acres.
At the end of each of the first six years of the Alcaravan Contract, Harken has
the option to withdraw from the Alcaravan Contract or to commit to the next
year's work requirements. If during the initial six years of the Alcaravan
Contract, Harken discovers one or more fields capable of producing oil or gas in
quantities that are economically exploitable and Ecopetrol agrees that such
field is economically exploitable (a "commercial discovery"), the term of the
Alcaravan Contract will be extended for a period of 22 years from the date of
such commercial discovery. Harken has completed all work requirements for the
first three years of the Alcaravan Contract.
Upon a discovery of a field capable of commercial production, and upon
commencement of production from that commercial field, Ecopetrol will reimburse
Harken for 50% of Harken's successful well costs expended up to the point of
declaration of a commercial discovery. Production from the field following a
commercial discovery will be allocated as follows: Ecopetrol, on behalf of the
Colombian government, will receive a 20% royalty interest in all production and
all production (after royalty payments) will be allocated 50% to Ecopetrol and
50% to Harken until cumulative production in such field reaches 60 million
barrels of oil, after which Ecopetrol's share of production will progressively
increase and Harken's share will progressively decrease until cumulative
production from the field reaches 150 million barrels of oil, and thereafter all
production will be allocated 70% to Ecopetrol and 30% to Harken. If more than
one commercially declared field is discovered on the Alcaravan area, the
production sharing percentages applicable to the field with the greatest
cumulative production will be applied to all fields within the
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Alcaravan area. After declaration of a commercial discovery, Harken and
Ecopetrol will be responsible for all future development costs and operating
expenses in direct proportion to their interest in production.
Harken spudded the Estero #1 exploratory well located on the Palo
Blanco prospect within the Alcaravan area in early February 1997, and drilled to
a depth of 8,608 feet to test the Carbonera, Mirador, Guadalupe, Gacheta and
Ubaque formations. Initial production testing of the Ubaque formation of the
Estero #1 well, produced with an electric submersible pump, indicated a rate of
4,116 barrels of oil per day. This production rate was limited by the capacity
of the submersible pump and surface storage facilities at the location. Harken
is currently investigating potential methods to efficiently produce this field,
including possible pipeline connections and trucking arrangements. Harken
currently plans to initiate production by trucking operations late in the fourth
quarter of 1997.
Harken de Colombia, Ltd. has entered into an operating agreement (the
"Rochester Agreement") with Rochester Energy Corporation ("Rochester", a
Canadian corporation) pursuant to which Rochester has paid 331/3% of the
aggregate costs of the Estero #1 well, and 25% of the aggregate costs related to
the second well to be drilled on the Palo Blanco prospect, the Estero #3, and
the initial well to be drilled on the Anteojos prospect, the Canacabare #1. In
exchange, Rochester, upon its full performance, will acquire a beneficial
interest equal to 25% of the interest held by Harken de Colombia, Ltd. in these
wells. The Estero #3 well and the Canacabare #1 well are scheduled to begin
drilling during the fourth quarter of 1997 or early 1998.
Harken de Colombia, Ltd. has entered into a financing agreement ("the
Parkcrest Financing Agreement") with Parkcrest Explorations, Ltd. ("Parkcrest",
a Canadian corporation) which covers the Palo Blanco prospect and included
options on additional prospects, all located within the Alcaravan Contract area.
Under the terms of the Parkcrest Financing Agreement, Parkcrest paid a project
fee of $250,000 to Harken and prepaid 331/3% of the estimated drilling and
completion costs of the Estero #1 well and 25% of the aggregate costs of the
Estero #3 well to be drilled on the Palo Blanco prospect in exchange for a
beneficial interest equal to 25% of the interest held by Harken de Colombia,
Ltd. in these wells.
Bocachico Contract -- In January 1994, Harken de Colombia, Ltd. signed
its second Association Contract (the "Bocachico Contract") with Ecopetrol,
covering the Bocachico Contract area. Under the Bocachico Contract, Harken has
acquired the exclusive rights to conduct exploration activities and drilling on
this area, which covers approximately 192,000 acres in the Middle Magdalena
Valley of Central Colombia. During the initial six year term of the Bocachico
Contract, if Harken makes a commercial discovery on one or more prospect areas
in the contract area, the contract covering such prospect area(s) will be
further extended for a period of 22 years from the date of any commercial
discovery of oil and/or gas. The production sharing arrangements under the
Bocachico Contract are substantially similar to those under the Alcaravan
Contract. Harken has completed all work requirements for the first three years
of the Bocachico Contract. Harken has committed to drill an additional well on
the Bocachico Contract acreage thereby extending the Bocachico Contract into the
fourth year.
Harken spudded its first well on this Bocachico Contract area, named
the Torcaz #2 well, in July 1996. This well was completed and initially tested
at the rate of 635 barrels per day. Harken encountered numerous mechanical
problems with the down-hole submersible electric pump compounded by apparent
reservoir formation damage which may have occurred in the completion process. As
of early October 1997, Harken was able to recomplete Torcaz #2, using techniques
that Harken proved to be successful on Torcaz #3, and eliminate the formation
damage, flow restrictions and sand production problems encountered in the
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original Torcaz #2 wellbore. The recompleted Torcaz #2 produced at initial test
rates in excess of 650 barrels per day.
In late April 1997, Harken began drilling operations on the Torcaz #3
well, located on the Rio Negro prospect in the Bocachico Contract area. This
well initially tested at a rate of 643 barrels per day. Harken is currently in
the process of evaluating trucking arrangements for the potential sale of test
production during late 1997 for both the recompleted Torcaz #2 and Torcaz #3
wells. Harken is also in the process of acquiring approximately 500 kilometers
of new seismic data to further evaluate portions of both the Bocachico and
Cambulos Contract areas.
Cambulos Contract -- In September 1995, Harken de Colombia, Ltd. signed
an additional Association Contract (the "Cambulos Contract") with Ecopetrol,
covering the Cambulos Contract area. Under the Cambulos Contract, Harken has
acquired the exclusive rights to conduct exploration activities in the Cambulos
Contract area, which covers approximately 300,000 acres in the Middle Magdalena
Valley of Central Colombia.
Harken is currently conducting the obligatory work program required
during the first two years of the Cambulos Association contract which consist of
the reprocessing of 400 km of existing seismic data and the acquisition of new
seismic data. During each of the third through the sixth contract years, Harken
may elect to continue the contract by committing to the drilling of at least one
exploratory well during each contract year.
If during the initial six years of the Cambulos Contract, Harken
discovers a field capable of commercial production of oil or gas, the term of
the Cambulos Contract will be extended for a period of 22 years from the date of
such commercial discovery. Upon a commercial discovery and at the initiation of
production from the commercial field, Harken will be reimbursed by Ecopetrol for
50% of all seismic costs and dry well costs incurred prior to the point at which
a declaration of a commercial discovery is made in addition to being reimbursed
for 50% of its successful direct exploratory well costs expended up to the point
of declaration of a commercial discovery. Production from a commercial discovery
will be allocated as follows: Ecopetrol, on behalf of the Colombian government,
will receive a 20% royalty interest in all production, and all production (after
royalty payments) will be allocated 50% to Ecopetrol and 50% to Harken until
cumulative production from all fields in the Cambulos acreage reaches 60 million
barrels of oil, after which Ecopetrol's share of production will increase
progressively to 75% and Harken's share will decrease progressively to 25%
determined by a formula based on Harken's recovery of its total expenditures
under the Cambulos Contract. After a declaration of a commercial discovery,
Harken and Ecopetrol will be responsible for all future development costs and
operating expenses in direct proportion to their interest in production.
Harken is also in the process of acquiring approximately 500 kilometers
of new seismic data to further evaluate portions of both the Bocachico and
Cambulos Contract areas.
Bolivar Contract -- In May 1996, Harken de Colombia, Ltd. signed an
additional Association Contract (the "Bolivar Contract") with Ecopetrol,
covering the Bolivar Contract area. Under the Bolivar Contract, Harken has
acquired the exclusive rights to conduct exploration activities in the Bolivar
Contract area, which covers approximately 250,000 acres in the Northern Middle
Magdalena Valley of Central Colombia.
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During the first two years of the Bolivar Contract, Harken's work
program will consist of preparing an engineering study of the Buturama and
Totumal fields located on and adjacent to this acreage, the reprocessing of 350
kilometers of existing seismic data and the acquisition of 100 kilometers of new
seismic data on this contract area. During each of the third through the sixth
contract years, Harken may elect to continue the contract by committing to the
drilling of at least one exploratory well during each contract year. The
production sharing arrangements under the Bolivar Contract are substantially
similar to those under the Cambulos Contract.
Harken plans to horizontally drill a three well exploratory program on
the Bolivar Contract area in which Harken intends to keep 100% of the ownership
interest. Catalina #1 will be the first horizontal wellbore drilled in a
vertically fractured reservoir in Colombia. On November 10, 1997, Harken
announced that it had begun drilling operations on the Catalina #1 in the
Bolivar Contract area.
(6) DEVELOPMENT FINANCE AGREEMENTS
Rio Negro Development Finance Agreement -- In October 1995, Harken
entered into a Development Finance Agreement (the "Rio Negro Development Finance
Agreement") with Arbco Associates L.P., Offense Group Associates L.P., Kayne
Anderson Nontraditional Investments L.P. and Opportunity Associates L.P.
(collectively, the "Rio Negro Investors"), pursuant to which the Rio Negro
Investors agreed to provide up to $3,500,000 to Harken to finance drilling on
the Rio Negro prospect in the Bocachico Contract area in exchange for the right
to receive future payments from Harken equal to 40% of the net profits that
Harken de Colombia, Ltd. may derive from the sale of oil and gas produced from
the Rio Negro prospect (the "Rio Negro Participation"). See Note 5 -- Colombian
Operations for further discussion of the Rio Negro prospect and the Bocachico
Contract area.
In March 1997, Harken and the Rio Negro Investors entered into a
Conversion Agreement whereby Harken purchased 75% of the Rio Negro Participation
relating to the Rio Negro Development Finance Agreement in exchange for 900,000
restricted shares of Harken common stock which were issued within 30 days
following closing. From the remaining 25% of the Rio Negro Participation
retained, the Rio Negro Investors have the right to receive 10% of the net
profits that Harken de Colombia, Ltd. may derive from the sale of oil and gas
produced from the Rio Negro prospect.
Palo Blanco Development Finance Agreements -- In June 1996, Harken,
along with Harken de Colombia, Ltd., entered into separate Development Finance
Agreements with two investors. Under the terms of the agreements, the two
investors agreed to provide an aggregate of $2,500,000 to finance the drilling
of a well on the Palo Blanco prospect in the Alcaravan Association Contract
area. See Note 5 - Colombian Operations for further discussion of the Alcaravan
Association Contract. In return for the $2,500,000, the investors were initially
granted a beneficial interest in 40% of the net profits from the Palo Blanco
prospect which might have been received by Harken de Colombia, Ltd. In 1996, the
investors exercised their rights under the agreement to convert one-half of
their beneficial interest into 599,988 shares of restricted Harken common stock.
During the first quarter of 1997, the investors exercised their right to convert
the remaining portion of their beneficial interest into an additional 599,988
shares of restricted Harken common stock.
EnCap Development Finance Agreement -- In October 1997, Harken entered
into a Development Finance Agreement (the "EnCap Development Finance Agreement")
with EnCap Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P.,
BOCP Energy Partners, L.P. and Energy Capital Investment Company PLC
(collectively the "EnCap Investors"), pursuant to which the EnCap Investors
provided $25
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million (the "Payment Amount"), less a 2% investment banking fee, to Harken to
finance the drilling of the initial wells on three unexplored oil and gas
prospects in the Middle Magdalena Basin of Colombia. As part of the transaction,
Harken issued 150,000 shares of Harken common stock to the EnCap Investors. The
three well exploratory program contemplates the drilling of one prospect on
Harken's Bocachico Contract area and the drilling of two prospects on Harken's
Cambulos Contract area. See Note 5 -- Colombian Operations for further
discussion of the Bocachico and Cambulos Contract areas. In exchange, the EnCap
Investors received the right to receive future payments from Harken equal to 5%
of the net profits that Harken de Colombia, Ltd. may derive from the sale of oil
and gas produced from each of the three prospects if the planned drilling on the
prospect is successful (the "EnCap Participation"). Pursuant to the EnCap
Development Finance Agreement, Harken is obligated to drill each of the three
wells prior to October 2000.
Pursuant to the EnCap Development Finance Agreement, the EnCap
Investors have the right, for a period of two years beginning in October 1998,
to convert all or part of the EnCap Participation into shares of Harken common
stock. The number of shares of Harken common stock to be issued upon conversion
of the EnCap Participation will be equal to the quotient of (i) the Payment
Amount (less any distributions made in respect of the EnCap Participation) plus
an amount equal to 15% interest per annum on the net Payment Amount compounded
monthly (the "Invested Amount"), divided by (ii) the market price of Harken
common stock at the time of conversion. During the same two year period, Harken
also has the right to convert the EnCap Participation into shares of Harken
common stock with the number of shares of Harken common stock to be issued to be
equal to the quotient of (i) the Payment Amount (less any distribution made in
respect of the EnCap Participation) plus an amount equal to 25% interest per
annum on the net Payment Amount compounded monthly, divided by (ii) the market
price of Harken common stock at the time of conversion. Harken can also elect to
pay cash upon any conversion of the EnCap Participation in lieu of issuing
Harken common stock. The EnCap Development Finance Agreement also provides for
additional shares of Harken common stock to be issued by Harken in the event of
a conversion to the extent that the EnCap Investors do not, under certain
circumstances, realize the Invested Amount from the sale of shares of Harken
common stock issued at the conversion. See Note 11 -- Related Party Transactions
for a discussion of the relationship between Harken and the EnCap Investors.
(7) EUROPEAN CONVERTIBLE NOTES PAYABLE
8% European Notes -- During the second quarter of 1995, Harken issued
to qualified purchasers a total of $15 million in 8% Senior Convertible Notes
(the "8% European Notes") which were to mature in May 1998. Interest on these
notes was payable semi-annually in May and November of each year to maturity or
until the 8% European Notes were converted. Such 8% European Notes were
convertible at any time by the holders into shares of Harken common stock at a
conversion price of $1.50 per share ("the 8% European Note Conversion Price").
In connection with the sale and issuance of the 8% European Notes, Harken paid
approximately $1,750,000 from the 8% European Note proceeds for commissions and
issuance costs. Between September 30, 1995 and July 31, 1996, all holders of
these 8% European Notes exercised their conversion options and Harken issued an
aggregate total of 9,999,975 shares of Harken common stock pursuant to these
conversions.
6 1/2% European Notes -- On July 30, 1996, Harken issued to qualified
purchasers a total of $40 million in 6 1/2% Senior Convertible Notes (the "6
1/2% European Notes") which were to mature on July 30, 2000. In connection with
the sale and issuance of the 6 1/2% European Notes, Harken paid approximately
$3,142,000 from the 6 1/2% European Note proceeds for commissions and issuance
costs. Interest incurred on these notes was payable semi-annually in January and
July of each year to maturity or until the 6 1/2%
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European Notes were converted. Such 6 1/2% European Notes were convertible at
any time by the holders into shares of Harken common stock at a conversion price
of $2.50 per share ("the 6 1/2% European Note Conversion Price"). The 6 1/2%
European Notes were also convertible by Harken into shares of Harken common
stock after one year following issuance, if for any period of thirty consecutive
days commencing on or after November 28, 1996, the closing price of Harken
common stock for each trading day during such period shall have equaled or
exceeded 135% of the 6 1/2% European Note Conversion Price (or $3.375 per share
of Harken common stock).
During the last half of 1996, holders of 6 1/2% European Notes totaling
$1,400,000 exercised their conversion option and such holders were issued
560,000 shares of Harken common stock. During the first six months of 1997,
holders of 6 1/2% European Notes totaling $19,300,000 exercised their conversion
option and such holders were issued 7,720,000 shares of Harken common stock. In
February 1997, Harken met the market price criteria necessary to call for
mandatory conversion of the 6 1/2% European Notes and on June 2, 1997 formally
called the 6 1/2% European Notes for conversion on July 31, 1997. On July 31,
1997, Harken converted the remaining 6 1/2% European Notes into 7,720,000 shares
of Harken common stock.
5 1/2% European Notes -- On June 11, 1997, Harken issued to qualified
purchasers a total of $70 million in 5 1/2% Senior Convertible Notes ( the "5
1/2% European Notes") which mature on June 10, 2002. In connection with the sale
and issuance of the 5 1/2% European Notes, Harken paid approximately $5,174,000
from the 5 1/2% European Notes proceeds for commissions and issuance costs.
Interest incurred on these notes is payable semi-annually in June and December
of each year to maturity or until the 5 1/2% European Notes are converted. Such
5 1/2% European Notes are convertible into shares of Harken common stock at an
initial conversion price of $5.00 per share, subject to adjustment in certain
circumstances ("the 5 1/2% European Note Conversion Price"). A five percent
premium on the number of shares of Harken common stock issuable on conversion
will be payable to holders converting the 5 1/2% European Notes prior to
December 11, 1997. The 5 1/2% European Notes are also convertible by Harken into
shares of Harken common stock after one year following issuance, if for any
period of thirty consecutive days commencing on or after June 11, 1997, the
average of the closing prices of Harken common stock for each trading day during
such thirty day period shall have equaled or exceeded 130% of the 5 1/2%
European Note Conversion Price (or $6.50 per share of Harken common stock). In
October 1997, Harken met the market price criteria necessary to call for
mandatory conversion of the 5 1/2% European Notes. As of November 10, 1997,
holders of 5 1/2% European Notes totaling $22,740,000 have exercised their
conversion option and such holders were issued 4,775,400 shares of Harken common
stock. The 5 1/2% European Notes are listed on the Luxembourg Stock Exchange.
Upon closing, all proceeds from the sale of each of the European Notes
issuances were each initially paid to a Trustee under the terms of a Trust
Indenture covering each issue and held in separate interest bearing Trust
accounts (the "Segregated Accounts") to be maintained for Harken's benefit,
until the Trustee is presented with evidence of sufficient asset value, as
defined in the Trust Indenture, held by Harken to permit an advance of a portion
of the proceeds. Until all of the 5 1/2% European Notes are converted, Harken
must maintain an Asset Value Coverage Ratio equal to or greater than 1:1 which
is calculated as the ratio of (i) the sum of (x) 100% of the aggregate amount of
Harken's cash on deposit in the Segregated Accounts plus (y) 50% of the net
present value of Harken's domestic unencumbered total proved reserves plus (z)
25% of the net present value of Harken's Colombian total proved reserves to (ii)
the aggregate outstanding principal amount of the 5 1/2% European Notes. Upon a
conversion, any proceeds attributable to the 5 1/2% European Notes converted
which remain in the Segregated Accounts may be withdrawn by Harken without
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regard to the asset value then existing. Harken is in compliance with the Asset
Value Coverage Ratio at September 30, 1997.
The 5 1/2% European Notes were sold strictly to non-U.S. purchasers in
the form of bearer instruments in $10,000 and $50,000 increments. The 5 1/2%
European Notes and the Harken common stock issuable upon conversion of the 5
1/2% European Notes have been or will be issued without registration under the
United States Securities Act of 1933 (the "Securities Act") pursuant to an
exemption contained in Regulation S promulgated under the Securities Act.
Commissions and issuance costs associated with the European Notes are
deferred and are included in Other Assets and are amortized to interest expense
over the period until conversion or maturity of the European Notes. As European
Notes are converted to Harken common stock, a pro-rata portion of these deferred
costs are charged to Additional Paid-In Capital.
All Segregated Account cash related to the 6 1/2% European Notes is
reflected as a current asset at December 31, 1996 as Harken had the intent and
ability to convert all outstanding 6 1/2% European Notes to Harken common stock
prior to December 31, 1997. During March 1997, Harken transferred approximately
$15.3 million of 6 1/2% European Note proceeds from the Segregated Accounts to
Harken's operating cash account due to the conversions of the 6 1/2% European
Notes. On July 31, 1997, Harken transferred the remaining approximately $21.3
million of 6 1/2% European Notes proceeds from the Segregated Accounts to
Harken's operating cash account. All Segregated Account cash related to the 5
1/2% European Notes is reflected as a current asset at September 30, 1997 as all
such cash is available according to the Trust Indenture. As of November 12,
1997, no 5 1/2% European Notes proceeds have been transferred from the
Segregated Accounts. The initial cash proceeds from the issuance of the European
Notes are not included in the Statement of Cash Flows because the proceeds are
not considered to be cash equivalents. Transfers of proceeds from the Segregated
Accounts are included in cash flows from financing activities in the
accompanying consolidated statements of cash flows.
(8) STOCKHOLDERS' EQUITY
Common Stock -- Harken currently has authorized 150,000,000 shares of
$.01 par common stock. At December 31, 1996 and September 30, 1997, Harken had
issued 93,862,266 and 117,704,784 shares, respectively. Harken held 400,896
shares as treasury stock at a cost of $1,390,000 at December 31, 1996.
Acquisition of Additional Four Corners Property Interests -- In April
1996, Harken acquired an additional interest in the Four Corners Properties in
exchange for, among other consideration, 509,000 restricted shares of Harken
common stock. See Note 2 -- Acquisitions for further discussion.
Issuance of European Convertible Notes Payable -- At December 31, 1995,
$2,450,000 of the 8% European Notes had been converted into 1,633,327 shares of
Harken common stock. In 1996, all of the remaining outstanding 8% European Notes
were converted into 8,366,648 additional shares of Harken common stock. In
connection with the issuance of the 8% European Notes, Harken issued to the
placement agents for the 8% European Notes warrants to purchase one million
shares of Harken common stock at any time on or before May 11, 1999 at an
exercise price of $1.50 per share. As of November 1, 1997 all but approximately
37,000 of these warrants had been exercised for shares of Harken common stock.
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In July 1996, Harken issued to qualified purchasers a total of $40
million in 6 1/2% European Notes which were to mature on July 30, 2000. The 6
1/2% European Notes were convertible under certain terms into approximately
16,000,000 shares of Harken common stock. During the last half of 1996, holders
of 6 1/2% European Notes totaling $1,400,000 exercised their conversion option
and such holders were issued 560,000 shares of Harken common stock. During the
first six months of 1997, holders of 6 1/2% European Notes totaling an
additional $19,300,000 exercised their conversion option and such holders were
issued 7,720,000 shares of Harken common stock, a portion of which had been held
as treasury shares. In February 1997, Harken met the market price criteria
necessary to call for mandatory conversion of the 6 1/2% European Notes (see
Note 7 -- European Convertible Notes Payable for further discussion), and on
July 31, 1997, Harken converted the remaining $19,300,000 balance of the 6 1/2%
European Notes into 7,720,000 shares of Harken common stock.
In connection with the issuance of the 6 1/2% European Notes, Harken
issued to the placement agents for the 6 1/2% European Notes warrants to
purchase 1,280,000 shares of Harken common stock at any time on or before July
31, 1999 at an exercise price of $2.50 per share. In July 1997, approximately
492,000 of these warrants were exercised for shares of Harken common stock.
In June 1997, Harken issued to qualified purchasers a total of $70
million in 5 1/2% European Notes which mature on June 11, 2002. The 5 1/2%
European Notes are convertible under certain terms into a maximum of
approximately 14,700,000 shares of Harken common stock. In connection with the
issuance of the 5 1/2% European Notes, Harken issued to the placement agents for
the 5 1/2% European Notes warrants to purchase 1,120,000 shares of Harken common
stock at any time after December 11, 1997 and on or before December 11, 1999 at
an exercise price of $5.00 per share. Prior to September 30, 1997, holders of 5
1/2% European Notes totaling $12,070,000 exercised their conversion option and
such holders were issued 2,534,700 shares of Harken common stock. Subsequent to
September 30, 1997 and as of November 10, 1997, holders of 5 1/2% European Notes
totaling an additional $10,670,000 have exercised their conversion option and
such holders were issued 2,240,700 shares of Harken common stock.
Private Placements of Common Stock -- In March 1996, Harken received
$1,289,000 related to the sale of 1,040,000 shares of Harken common stock
previously held as treasury stock. In connection with certain of these
placements, Harken issued to certain financial advisors warrants to purchase an
aggregate total of 410,000 shares of Harken common stock at an average exercise
price of $1.71 per share. During 1997, these warrants were exercised for shares
of Harken common stock.
Acquisition of EnerVest Properties -- On July 10, 1996, Harken
Exploration acquired the EnerVest Properties for a purchase price valued at
approximately $15,200,000 and the assumption of certain operational liabilities
relating to these properties. See Note 2 -- Acquisitions for further discussion.
As partial consideration for the properties, Harken issued 1,550,000 in shares
of Harken common stock issued after closing. Pursuant to a Resolution and
Settlement Agreement in March 1997, Harken issued an additional 1,400,000 shares
of common stock as final consideration for the properties. Harken also issued to
EnerVest warrants to purchase, for a period of three years from closing, 300,000
restricted shares of Harken common stock at an exercise price of $2.75 per
share. During the third quarter of 1997, the holder exercised warrants to
purchase 100,000 shares of Harken common stock
Acquisition of Cal-T Properties -- In August 1997, Harken acquired
working interests in the Cal-T Properties in exchange for 565,000 shares of
Harken common stock. See Note 2 -- Acquisitions for further discussion.
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Rio Negro Development Finance Agreement -- In March 1997, Harken and
the Rio Negro Investors entered into a Conversion Agreement whereby Harken
purchased 75% of the Participation relating to the Rio Negro Development Finance
Agreement for 900,000 restricted shares of Harken common stock. These shares
were issued in April 1997. See Note 6 -- Development Finance Agreements for
further discussion of the Rio Negro Development Finance Agreement.
Palo Blanco Development Finance Agreements -- In June 1996, Harken,
along with Harken de Colombia, Ltd., entered into two separate Development
Finance Agreements with two investors. In 1996, the investors exercised their
rights under the agreements to convert one-half of their beneficial interest
into 599,988 shares of restricted Harken common stock, and during the first
quarter of 1997, exercised their rights to convert the remaining portion of
their beneficial interest into 599,988 shares of restricted Harken common stock.
See Note 6 -- Development Finance Agreements for further discussion.
EnCap Development Finance Agreement -- In October 1997, Harken and the
EnCap Investors entered into a Development Finance Agreement under which the
EnCap Investors advanced approximately $25 million to finance the drilling of
three wells in the Middle Magdalena Basin of Colombia. Pursuant to the EnCap
Development Finance Agreement, both Harken and the EnCap Investors have the
right under certain circumstances to convert all or part of the EnCap
Participation into shares of Harken common stock. Harken also issued 150,000
shares of Harken common stock to the EnCap Investors. See Note 6 -- Development
Finance Agreements for further discussion of the EnCap Development Finance
Agreement and Note -- 11 Related Party Transactions for further discussion of
the EnCap Investors.
(9) PER SHARE DATA
Per share data is based on the weighted average number of common shares
outstanding during each period. Common stock equivalents, contingently issuable
shares and other potentially dilutive securities are not included in the
computation of earnings per share if the effect of inclusion would be
antidilutive. For purposes of calculating earnings per share, the unconverted
European Convertible Notes discussed above are considered not to be common stock
equivalents.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS
128") which will be adopted in December 1997. Under SFAS 128, weighted average
shares outstanding under basic and diluted earnings per share calculations would
not have been materially different for either the three month or nine month
period ended September 30, 1997.
(10) INCOME TAXES
At September 30, 1997, Harken had available, for federal income tax
reporting purposes, net operating loss (NOL) carryforward for regular tax
purposes of approximately $66,000,000 which expires in 1997 through 2012,
alternative minimum tax NOL carryforward of approximately $55,000,000 which
expires in 1997 through 2011, investment tax credit carryforward of
approximately $842,000 which expires in 1997 through 2002, statutory depletion
carryforward of approximately $1,803,000 which does not have an expiration date,
and a net capital loss carryforward of approximately $12,415,000 which expires
in 2007 through 2011. Approximately $16,000,000 of the net operating loss
carryforward has been acquired with the purchase of subsidiaries and must be
used to offset future income from profitable operations within those
subsidiaries.
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Total deferred tax liabilities, relating primarily to property and
equipment, as of September 30, 1997, computed under the provisions of the
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes", were approximately $2,720,000. Total deferred tax assets, primarily
related to the net operating loss carryforward, were approximately $22,171,000
as of September 30, 1997. The total net deferred tax asset is offset by the
valuation allowance of approximately $19,451,000 at September 30, 1997.
(11) RELATED PARTY TRANSACTIONS
In June 1997, Harken added a new director to its Board of Directors.
The new director is also a managing director of EnCap Investments L.C.
("EnCap"). EnCap has historically provided financial consulting and investment
banking services to Harken.
In connection with the June 1997 placement of the 5 1/2% European
Notes, EnCap received as a financial consulting fee a warrant to purchase 50,000
shares of Harken common stock at any time after December 11, 1997 and on or
before December 11, 1999 at an exercise price of $5.00 per share.
As described in Note 6 -- Development Finance Agreements, in October
1997, Harken entered into a Development Finance Agreement with the EnCap
Investors. EnCap serves as the general partner of three of the EnCap Investors
and the new Harken director serves as a director of the fourth EnCap Investor.
In connection with the EnCap Development Finance Agreement, EnCap received an
investment banking fee of $500,000.
(12) COMMITMENTS AND CONTINGENCIES
The Aneth Gas Plant facility, of which Harken Southwest Corporation
("HSW", a wholly-owned subsidiary) is a co-owner, was in operation for many
years prior to HSW's becoming an owner. The operations at the Aneth Gas Plant
previously used open, unlined drip pits for storage of various waste products.
The present plant owners, including HSW, have replaced all of the open ground
pits currently being used with steel tanks. The plant owners are currently in
the process of closing the open ground pits.
Texaco, the plant's operator, received a letter from the EPA dated July
21, 1991 and a subsequent letter dated June 8, 1992, in which the EPA requested
certain information in order to determine if there had been at the Aneth Gas
Plant the release of hazardous substances into the environment. Texaco has
advised HSW that certain information was supplied to the EPA pursuant to this
request. Subsequently, core samples in and around certain pit areas were taken
by the EPA and Texaco jointly and a Phase II environmental investigation was
undertaken. A closure plan has been approved by the EPA and is in progress.
The prior owner of the Aneth Gas Plant facility, El Paso Natural Gas,
has agreed to accept financial responsibility for a portion of the remediation
work. Texaco and the other current plant owners, including HSW, have entered
into a formal agreement with the prior owner to allocate costs between
remediation work that is mandated by the EPA and other remediation work that is
determined to be carried out by the parties. The prior owner will bear
approximately 86% of the costs of mandated remediation as well as certain other
related expenses. The prior owner will not be responsible for other remediation
work that does not fall within the mandated category. At this time, however, it
is impossible for HSW to accurately estimate the costs of the cleanup at the
Aneth Gas Plant facility or the amount of such total costs the indemnification
from the prior owner will cover for the mandated remediation work. Harken has
accrued a contingency reserve of $239,000 at September 30, 1997 for management's
best estimate of its share of remediation expenditures.
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Harken has accrued approximately $1,606,000 at September 30, 1997
relating to other operational or regulatory contingent liabilities related to
Harken's domestic operations. Harken and its subsidiaries currently are involved
in various lawsuits and other contingencies, including the guarantee of certain
lease obligations of a former subsidiary, which in management's opinion, will
not result in significant loss exposure to Harken.
Search Acquisition Corp., a wholly-owned subsidiary of Harken, has been
named as a defendant in a lawsuit by certain parties. On February 28, 1996, the
court granted Search Acquisition's motion for summary judgment. Petrochemical
has appealed the decision of the trial court to the Texas Fifth District Court
of Appeals. Although the ultimate outcome of this litigation is uncertain,
Harken believes that any liability to Harken as a result of this litigation will
not have a material adverse effect on Harken's financial condition.
The exploration, development and production of oil and gas are subject
to various Navajo, federal and state laws and regulations designed to protect
the environment. Compliance with these regulations is part of Harken's
day-to-day operating procedures. Infrequently, accidental discharge of such
materials as oil, natural gas or drilling fluids can occur and such accidents
can require material expenditures to correct. Harken maintains levels of
insurance customary in the industry to limit its financial exposure. Management
is unaware of any material capital expenditures required for environmental
control during the next fiscal year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Certain statements included in the accompanying condensed financial
statements and in the following discussion and analysis of financial condition
and results of operations, including statements of Harken management's current
expectations, intentions, plans and beliefs, are forward-looking statements, as
defined in Section 21D of the Securities Exchange Act of 1934, and are dependent
on certain events, risks and uncertainties that may be outside of Harken's
control. These forward-looking statements include statements of management's
plans and objectives for Harken's future operations and statements of future
economic performance, information regarding Colombian drilling schedules,
expected or planned production capabilities, Harken's capital budget and future
capital expenditures and the sufficiency and availability of capital resources
needed to fund such future capital expenditures. Actual results and developments
could differ materially from those expressed in or implied by such statements
due to a number of factors, including general economic conditions; the timing of
environmental and other necessary administrative permits; the impact of the
activities of OPEC and other competitors; the impact of possible geopolitical
occurrences world-wide; the results of financing efforts; changes in laws and
regulations; capacity, deliverability and supply constraints or difficulties;
unforeseen engineering and mechanical or technological difficulties in drilling
or working over wells; and other risks described in Harken's filings with the
Securities and Exchange Commission.
OVERVIEW
Harken reported net income for the nine months ended September 30, 1997
of $152,000 compared to a net loss of $183,000 for the prior year period. Total
revenues were derived from domestic oil and gas operations and interest income
and increased from approximately $9.0 million during the nine months ended
September 30, 1996 to approximately $13.3 million for the same period in 1997,
primarily due to an acquisition consummated in July 1996 that increased Harken's
producing properties and oil and gas reserves and due to a significant increase
in interest income from invested cash balances. Gross profit from oil and gas
operations before depreciation and amortization, general and administrative and
interest expenses totaled approximately $6.3 million during the nine months
ended September 30, 1997 compared to approximately $5.1 million for the prior
year period. Harken expects that its monthly operating revenues, expenses and
gross profit from oil and gas operations will remain at current levels during
the remainder of 1997 and until such time as it commences production from its
Colombian operations.
Internationally, on November 10, 1997, Harken commenced drilling
operations on the Catalina #1 well which is located on the Bolivar Contract area
in the Middle Magdalena Basin of Colombia. The well is the first of a three well
exploratory program and will be the first horizontal wellbore drilled in a
vertically-fractured reservoir in Colombia. During the third quarter of 1997,
Harken redrilled the production interval of the Torcaz #2 well, which had been
drilled in 1996. The recompleted Torcaz #2 remediation wellbore produced at
rates in excess of 650 barrels of oil per day. Harken is continuing to
investigate potential methods to produce the fields discovered by the Torcaz #2
well in addition to the Torcaz #3 and Estero #1 wells drilled earlier in 1997,
including possible pipeline connections and trucking arrangements. Harken
anticipates that it will initiate production by trucking operations late in the
fourth quarter of 1997.
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RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected Harken's earnings and balance sheet
during the periods included in the accompanying consolidated financial
statements.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ---------------------------------------
1996 1997 1996 1997
---------------- ----------------- ----------------- ------------------
EXPLORATION AND (Unaudited)
PRODUCTION
OPERATIONS
REVENUES
Oil sales revenues $ 2,444,000 $ 1,976,000 $ 5,274,000 $ 6,111,000
Oil volumes in barrels 118,000 106,000 262,000 312,000
Oil price per barrel $ 20.71 $ 18.64 $ 20.13 $ 19.59
Gas sales revenues $ 1,092,000 $ 1,329,000 $ 2,238,000 $ 3,673,000
Gas volumes in mcf 459,000 478,000 949,000 1,346,000
Gas price per mcf $ 2.38 $ 2.78 $ 2.36 $ 2.73
Gas plant revenues $ 143,000 $ 203,000 $ 552,000 $ 568,000
OTHER REVENUES
Interest Income $ 432,000 $ 1,490,000 $ 817,000 $ 2,904,000
Other Income $ 4,000 $ 2,000 $ 165,000 $ 22,000
For the quarter ended September 30, 1997 compared with the corresponding prior
period.
DOMESTIC OPERATIONS
Gross oil and gas revenues during the third quarter of 1996 and 1997
were generated by Harken's domestic exploration and production operations.
During the third quarter of 1997 these domestic operations consisted primarily
of the operations in the Four Corners area of Utah, Arizona and New Mexico,
primarily on the Navajo Indian Reservation (the "Four Corners Properties"),
onshore South Texas, and in the Western and Panhandle regions of Texas, as well
as Harken's operations in the Magnolia region of Arkansas and the Carlsbad
region of New Mexico, which were acquired as part of the EnerVest Property
purchase in July 1996.
Gross oil revenues decreased 19% to $1,976,000 during the third quarter
of 1997 compared to $2,444,000 during the third quarter of 1996. This decrease
in oil revenues during the third quarter of 1997 was caused primarily by normal
production declines in the Four Corners area, and by lower prices received
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per barrel of oil during the quarter of $18.64 per barrel compared to $20.71
received during the third quarter of 1996.
Gross gas revenues increased 22% to $1,329,000 for the three months
ended September 30, 1997 compared to $1,092,000 for the prior year period, due
to the August 1997 acquisition of the Cal-T Properties, which contributed
approximately $92,000 to third quarter 1997 gas revenues. Also, Harken received
an average price per mcf of $2.78 during the third quarter of 1997 compared to
$2.38 received per mcf during the prior year period. Gas produced from the
Panhandle Properties, with its associated products, is sold at approximately a
60% premium to posted gas prices in the region as a result of the high BTU
content of such gas.
Oil and gas operating expenses consist of lease operating expenses and
gas plant expenses, along with a number of production and reserve based taxes,
including severance taxes, property taxes, Utah conservation taxes and Navajo
severance and possessory interest taxes. The increase in oil and gas operating
expenses during the third quarter of 1997 compared to the prior year period is
primarily a result of the above mentioned acquisitions of additional properties
during the third quarter of 1996 and 1997. Third quarter 1997 oil and gas
operating expenses increased as a percentage of oil and gas revenues as compared
to the prior year period due to the net decrease in oil and gas revenues and due
to increased well servicing costs, particularly for Harken's Panhandle
Properties.
INTEREST AND OTHER INCOME
Interest and other income increased during the third quarter of 1997
compared to the prior period due to the inclusion during 1997 of approximately
$907,000 of interest income earned by Harken on proceeds received from the June
1997 issuance of $70 million of 5 1/2% European Notes. Such proceeds, net of
European Notes issuance costs and amounts released and transferred, are
initially maintained and invested in separate interest bearing bank accounts
(the "Segregated Accounts"). In addition, Harken generated increased interest
income from its larger balances of corporate cash, funded primarily from
transfers during 1997 from the Segregated Accounts related to the 6 1/2%
European Notes.
OTHER COSTS AND EXPENSES
General and administrative expenses increased from $1,103,000 for the
third quarter of 1996 to $1,571,000 for the third quarter of 1997, primarily as
a result of increased personnel and office costs associated with the increased
overall operations as well as increased corporate costs.
Depreciation and amortization expense increased during the third
quarter of 1997 compared to the prior year period despite slightly decreased
equivalent barrel production levels due to increases in evaluated oil and gas
property costs and increases in other fixed assets. Depreciation and
amortization on oil and gas properties is calculated on a unit of production
basis in accordance with the full cost method of accounting for oil and gas
properties.
Interest expense and other increased during the third quarter of 1997
compared to the prior year period due to the June 1997 issuance of the 5 1/2%
European Notes which generated interest expense of approximately $318,000 net of
amounts of interest capitalized, and approximately $159,000 of net amortization
of related issuance costs. Such amounts were greater than the corresponding
costs in 1996 associated with the 6 1/2% European Notes.
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24
For the nine months ended September 30, 1997 compared with the corresponding
prior period.
Gross oil revenues increased 16% to $6,111,000 during the first nine
months of 1997 compared to $5,274,000 during the first nine months of 1996
primarily due to the additional production volumes added as a result of the July
1996 acquisition of the EnerVest Properties which contributed approximately
$2,351,000 to 1997 oil revenues, compared to approximately $867,000 during 1996.
Such increased oil revenues were partially offset by normal production declines
on Harken's existing properties.
Gross gas revenues increased 64% to $3,673,000 for the nine months
ended September 30, 1997 compared to $2,238,000 for the prior year period, due
primarily to the July 1996 acquisition of the EnerVest Properties consummated in
July 1996. The EnerVest Properties contributed approximately $950,000 to 1997
gas revenues compared to approximately $229,000 during the prior year period. In
addition, Harken received an overall average price per mcf of $2.73 per mcf of
gas production during the first nine months of 1997 compared to $2.36 per mcf
received during the first nine months of 1996. Harken also reflected increased
gas production volumes from its South Texas properties during the first nine
months of 1997 due to the successful completion of new gas wells drilled during
late 1996 and early 1997.
Oil and gas operating expenses consist of lease operating expenses and
gas plant expenses, along with a number of production and reserve based taxes,
including severance taxes, property taxes, Utah conservation taxes and Navajo
severance and possessory interest taxes. The increase in oil and gas operating
expenses compared to the prior year period is primarily a result of the above
mentioned acquisition of the EnerVest Properties, which added approximately
$882,000 to the first nine months of 1997 oil and gas operating expenses.
INTEREST AND OTHER INCOME
Interest and other income increased during the first nine months of
1997 compared to the prior period due to the inclusion of approximately
$1,117,000 of interest income earned by Harken on proceeds received from the
June 1997 issuance of $70 million of 5 1/2% European Notes and approximately
$790,000 from the July 1996 issuance of $40 million of 6 1/2% European Notes.
European Note proceeds generated interest income of $600,000 during the nine
months ended September 30, 1996. Such proceeds, net of European Notes issuance
costs and amounts released and transferred, are initially maintained and
invested in separate interest bearing bank accounts (the "Segregated Accounts").
In addition, Harken generated increased interest income from its larger balances
of corporate cash, funded primarily from transfers from the Segregated Accounts.
OTHER COSTS AND EXPENSES
General and administrative expenses increased from $2,900,000 for the
first nine months of 1996 to $4,071,000 for the first nine months of 1997,
primarily as a result of increased personnel and office costs associated with
the increased overall operations as well as increased corporate costs. However,
the first nine months of 1997 general and administrative expenses decreased
slightly as a percentage of total revenues as compared to the prior year.
Depreciation and amortization expense increased during the first nine
months of 1997 compared to the prior year period consistent with the increased
production levels from the acquired oil and gas property
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25
interests during 1996 and 1997. Depreciation and amortization on oil and gas
properties is calculated on a unit of production basis in accordance with the
full cost method of accounting for oil and gas properties.
Interest expense and other increased during the first nine months of
1997 compared to the prior year period due to the June 1997 issuance of the 5
1/2% European Notes and the July 1996 issuance of the 6 1/2% European Notes,
which together generated interest expense of approximately $999,000 net of
amounts of interest capitalized, and approximately $429,000 of net amortization
of related issuance costs. Such amounts were greater than the corresponding
costs in 1996 associated with the 8% and 6 1/2% European Notes.
LIQUIDITY AND CAPITAL RESOURCES
Harken's working capital increased to approximately $101.5 million at
September 30, 1997 from $43.8 million at December 31, 1996, primarily due to the
June 11, 1997 issuance of 5 1/2% European Notes (see discussion below) which
generated net available proceeds of approximately $65 million which are
classified as a current asset.
During the nine months ended September 30, 1997, Harken's cash and
temporary investments increased approximately $34.2 million consisting primarily
of transfers from the 6 1/2% European Notes Segregated Accounts of approximately
$36.5 million following the conversions of the 6 1/2% European Notes to Common
Stock, proceeds from the exercise of outstanding options and warrants of
approximately $5.3 million, and advances received pursuant to the Palo Blanco
Development Finance Agreement, Parkcrest Agreement and Rochester Agreement of
approximately $6.9 million. Such activity was sufficient to fund capital
expenditures of approximately $18.6 million. Cash flow provided by operations
during the first nine months of 1997 totaled approximately $4.7 million. In
addition, in October 1997, Harken received approximately $25 million from a
Development Finance Agreement discussed below.
Harken believes that cash flow from operations will be sufficient to
meet its operating cash requirements in 1997 and 1998. Harken includes in cash
and temporary investments certain balances which are restricted to use for
specific project expenditures, collateral or for distribution to outside
interest owners and are not available for general working capital purposes.
On June 11, 1997, Harken issued to qualified purchasers a total of $70
million in 5 1/2% Senior Convertible Notes (the "5 1/2% European Notes") which
mature on June 10, 2002. In connection with the sale and issuance of the 5 1/2%
European Notes, Harken paid approximately $5,174,000 from the 5 1/2% European
Notes proceeds for commission and issuance costs. Interest incurred on these
notes is payable semi-annually in June and December of each year to maturity or
until the 5 1/2% European Notes are converted. Such 5 1/2% European Notes are
convertible into shares of Harken common stock at an initial conversion price of
$5.00 per share, subject to adjustment in certain circumstances ("the 5 1/2 %
European Note Conversion Price"). A five percent premium on the number of shares
of Harken common stock issuable on conversion will be payable to holders
converting the 5 1/2% European Notes prior to December 11, 1997. The 5 1/2%
European Notes are also convertible by Harken into shares of Harken common stock
after one year following issuance, if for any period of thirty consecutive days
commencing on or after June 11, 1997, the average of the closing prices of
Harken common stock for each trading day during such thirty day period shall
have equaled or exceeded 130% of the 5 1/2% European Note Conversion Price (or
$6.50 per share of Harken common stock). In November 1997, Harken gave notice as
required under the Trust Indenture that it had met the market price criteria
necessary to call for mandatory conversion of the 5 1/2% European Notes at any
time after June 10,
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1998. All proceeds from the sale of the 5 1/2% European Notes were initially
paid at closing to a Trustee pursuant to a Trust Indenture and held in
Segregated Accounts to be maintained for Harken's benefit.
Until the 5 1/2% European Notes mature or are converted, the Trust
Indenture under which the 5 1/2% European Notes were issued requires Harken to
maintain an Asset Value Coverage Ratio, as defined in the Trust Indenture. For a
detailed discussion of the 5 1/2% European Notes see "Notes to Consolidated
Financial Statements, Note 7 -- European Convertible Notes Payable." As of
September 30, 1997, Harken was in compliance with the Asset Value Coverage Ratio
test and the full amount of net proceeds of the offering (approximately $65
million) was available. Once an amount of proceeds are available to be released
from the Segregated Accounts, Harken may submit its request for the transfer of
such proceeds at its discretion and according to its capital resource
requirements. Subsequent to June 10, 1998, the remaining outstanding balance of
the 5 1/2% European Notes is dependent solely on Harken's decision to
mandatorily convert the remaining unconverted 5 1/2% European Notes. As of
November 12, 1997, no 5 1/2% European Notes proceeds have been transferred from
the Segregated Accounts.
In order for a specific amount of proceeds to be released from the
Segregated Accounts, Harken must demonstrate that the Asset Value Coverage Ratio
test would continue to be met after such release of funds and that no Event of
Default with respect to the 5 1/2% European Notes has occurred and is continuing
at the date of such release. Such request must be accompanied by an independent
reserve engineering report or other independent third party valuation of
Harken's unencumbered proved reserves.
To the extent that proceeds invested in the Segregated Accounts at the
balance sheet date are available under the above Asset Value Coverage Ratio
limitations, such cash is included as a current asset as it is available to
Harken to fund international and domestic activities including acquisitions,
drilling costs and other capital expenditures or other working capital needs.
Interest incurred on the 5 1/2% European Notes is payable semi-annually in June
and December of each year to maturity or until the 5 1/2% European Notes are
converted. Interest payments will be funded from cash flow from operations,
existing cash balances or from available proceeds in the Segregated Accounts.
In October 1997, Harken entered into a Development Finance Agreement
(the "EnCap Development Finance Agreement") with certain investors (the "EnCap
Investors") pursuant to which the EnCap Investors provided $25 million, less
certain fees, to Harken to finance the drilling of the initial wells on three
unexplored oil and gas prospects in the Middle Magdalena Basin of Colombia. In
exchange, the EnCap Investors received the right to receive future payments from
Harken equal to 5% of the net profits that Harken de Colombia, Ltd. may derive
from the sale of oil and gas produced from each of the three prospects if the
planned drilling on the prospect is successful. For a detailed discussion of the
EnCap Development Finance Agreement, see "Notes to Consolidated Financial
Statements, Note 6 -- Development Finance Agreements."
Harken's operating strategy includes efforts to find additional
opportunities to acquire domestic oil and gas reserves through domestic drilling
activities and through merger and acquisitions, in exchange for cash, debt or
issuance of Common Stock. In addition to Harken's efforts to develop and acquire
domestic oil and gas reserves, Harken continues to be very active in exploration
efforts internationally, particularly in Colombia. As of September 30, 1997,
Harken's net investment in its Colombian operations has totaled approximately
$28.2 million. Terms of each of the Association Contracts entered into between
Harken de Colombia, Ltd. and Ecopetrol commit Harken to perform certain
activities in accordance with a prescribed timetable. Failure by Harken to
perform these activities as required could result in Harken losing its rights
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under the particular Association Contract, which could potentially have a
material adverse effect on Harken's business. For a detailed discussion of each
of the Association Contracts entered into between Harken de Colombia, Ltd. and
Ecopetrol, see "Notes to Consolidated Financial Statements, Note 5 -- Colombian
Operations."
Capital expenditures related to Harken's Colombian operations are
expected to total a minimum of approximately $27 million before partner
contributions or Development Finance Agreements funding during 1997 and
approximately $110 million before partner contributions during 1998. Harken
anticipates that it will have sufficient cash available to fund all of its
planned activities in Colombia for 1997 and 1998. Harken plans to drill a three
well exploratory program in the Bolivar Contract area. Harken expects the
drilling of the three horizontal wells will require approximately $20 million,
with Harken retaining 100% ownership in these wells. In addition, Harken expects
that the approximately $25 million received pursuant to the EnCap Development
Finance Agreement will be sufficient to fund a majority of cash required to
drill one prospect on the Bocachico Contract area and two prospects on the
Cambulos Contract area as required to be drilled under the Agreement. The gross
amount of these costs are included in Harken's total capital expenditure plans
for 1997 and 1998.
Harken anticipates that full development of Colombian reserves in the
Alcaravan Contract area of the Llanos Basin and the Bocachico, Cambulos and
Bolivar Contract areas of the Middle Magdalena Basin will take several years and
may also require extensive production facilities and development activity which
would require significant additional capital expenditures. The ultimate amount
of such expenditures cannot be presently predicted. Harken anticipates that
amounts required to fund its Colombian activities, including the above mentioned
exploration programs and additional development expenditures, will be funded
from existing cash balances, asset sales, the proceeds from the European Notes,
future stock issuances, production payments, operating cash flows and from
industry partners; however, there can be no assurances that Harken will have
adequate funds available to it to fund all of its Colombian activities or that
industry partners can be obtained to fund a portion of such Colombian
activities.
Domestically, Harken plans to continue development of proved
undeveloped reserves on properties with minimal development risk in addition to
a continual workover program on producing properties. Harken expects such costs
to total approximately $4 million in 1998. The targeted results of these efforts
are to maintain domestic production and cash flow levels during 1998. Harken
expects that its increased domestic efforts will continue to be completed with a
minimal amount of planned increases in general and administrative expenses for
1998 compared to the level of such expenses reflected during 1996 and 1997.
The exploration, development and production of oil and gas are subject
to various Colombian, Navajo, federal, state and local laws and regulations
designed to protect the environment. Compliance with these regulations is part
of Harken's day-to-day operating procedures. Infrequently, accidental discharge
of such materials as oil, natural gas or drilling fluids can occur and such
accidents can require material expenditures to correct. Harken maintains levels
of insurance customary in the industry to limit its financial exposure.
Management is unaware of any material capital expenditures required for
environmental control during the next fiscal year.
Harken has accrued approximately $1.8 million at September 30, 1997
relating to operational or regulatory contingent liabilities related to Harken's
domestic operations. Harken and its subsidiaries currently are involved in
various lawsuits and other contingencies, including a certain lawsuit and the
guarantee of certain lease obligations of a former subsidiary, which in
management's opinion, will not result in significant loss exposure to Harken.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Search Acquisition Corp. ("Search Acquisition"), a wholly-owned
subsidiary of Harken, has been named as a defendant in a lawsuit by
Petrochemical Corporation of America and Lorken Investments
Corporation (together, "Petrochemical"). This lawsuit arises out of
an attempt by Petrochemical to enforce a judgment entered in 1993
against, among other parties, a group of 20 limited partnerships
known as the "Odyssey limited partnerships". In 1989, Search
Exploration, Inc. ("Search") acquired all of the assets of eight of
the 20 Odyssey limited partnerships. Petrochemical claims that Search
is liable for payment of the judgment as the successor-in-interest to
the eight Odyssey limited partnerships. Search Acquisition was the
surviving corporation in the merger with Search.
On February 28, 1996, the court granted Search Acquisition's motion
for summary judgment. Petrochemical has appealed the decision of the
trial court. Although the ultimate outcome of this litigation is
uncertain, Harken believes that any liability to Harken as a result
of this litigation will not have a material adverse effect on
Harken's financial condition.
Item 2. Changes in Securities.
Not applicable.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBIT INDEX
Exhibit
3.1 Certificate of Incorporation of Harken Energy
Corporation as amended (filed as Exhibit 3.1 to
Harken's Annual Report on Form 10-K for fiscal year
ended December 31,1989, File No. 0-9207, and
incorporated by reference herein).
3.2 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 28.8 to
the Registration Statement on Form S-1 of Tejas Power
Corporation, file No. 33-37141, and incorporated by
reference herein.)
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29
3.3 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3 to
Harken's Quarterly Report on Form 10-Q for fiscal
quarter ended March 31, 1991, File No. 0-9207, and
incorporated by reference herein.)
3.4 Amendments to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3 to
Harken's Quarterly Report on Form 10-Q for fiscal
quarter ended June 30, 1991, File No. 0-9207, and
incorporated by reference herein.)
3.5 Amendments to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3.5
to Harken's Annual Report on Form 10-K for fiscal
year ended December 31, 1996, File No. 0-9207,
and incorporated by reference herein.).
3.6 Bylaws of Harken Energy Corporation, as amended
(filed as Exhibit 3.2 to Harken's Annual Report on
Form 10-K for fiscal year ended December 31, 1989,
File No. 0-9207, and incorporated by reference
herein.)
4.1 Form of certificate representing shares of Harken
common stock, par value $.01 per share (filed as
Exhibit 1 to Harken's Registration Statement on Form
8-A, File No. 0-9027, and incorporated by reference
herein.)
4.2 Certificate of Designations, Powers, Preferences and
Rights of Series A Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.1 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
4.3 Certificate of Designations, Powers, Preferences and
Rights of Series B Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.2 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
4.4 Certificate of the Designations, Powers, Preferences
and Rights of Series C Cumulative Convertible
Preferred Stock, $1.00 par value of Harken Energy
Corporation (filed as Exhibit 4.3 to Harken's Annual
Report on Form 10-K for fiscal year ended December
31, 1989, File No. 0-9207, and incorporated by
reference herein).
4.5 Certificate of the Designations of Series D Preferred
Stock, $1.00 par value of Harken Energy Corporation
(filed as Exhibit 4.3 to Harken's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1995, File No. 0-9207, and incorporated by reference
herein).
*10.1 Development Finance Agreement dated as of October 17,
1997, by and among Harken Energy Corporation and the
other signatories thereto.
*27 Financial Data Schedules.
- --------------------------------
* filed herewith
(b) REPORTS ON FORM 8-K.
None.
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31
HARKEN ENERGY CORPORATION
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.
Harken Energy Corporation
-------------------------------
(Registrant)
Date: November 14, 1997 By: /s/ Bruce N. Huff
----------------------------- -------------------------------
Bruce N. Huff, Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
3.1 Certificate of Incorporation of Harken Energy
Corporation as amended (filed as Exhibit 3.1 to
Harken's Annual Report on Form 10-K for fiscal year
ended December 31,1989, File No. 0-9207, and
incorporated by reference herein).
3.2 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 28.8 to
the Registration Statement on Form S-1 of Tejas Power
Corporation, file No. 33-37141, and incorporated by
reference herein.)
3.3 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3 to
Harken's Quarterly Report on Form 10-Q for fiscal
quarter ended March 31, 1991, File No. 0-9207, and
incorporated by reference herein.)
3.4 Amendments to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3 to
Harken's Quarterly Report on Form 10-Q for fiscal
quarter ended June 30, 1991, File No. 0-9207, and
incorporated by reference herein.)
3.5 Amendments to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3.5 to
Harken's Annual Report on Form 10-K for fiscal year
ended December 31, 1996, File No. 0-9207, and
incorporated by reference herein.).
3.6 Bylaws of Harken Energy Corporation, as amended
(filed as Exhibit 3.2 to Harken's Annual Report on
Form 10-K for fiscal year ended December 31, 1989,
File No. 0-9207, and incorporated by reference
herein.)
4.1 Form of certificate representing shares of Harken
common stock, par value $.01 per share (filed as
Exhibit 1 to Harken's Registration Statement on Form
8-A, File No. 0-9027, and incorporated by
reference herein.)
4.2 Certificate of Designations, Powers, Preferences and
Rights of Series A Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.1 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
4.3 Certificate of Designations, Powers, Preferences and
Rights of Series B Cumulative Convertible Preferred
Stock, $1.00 par value, of Harken Energy Corporation
(filed as Exhibit 4.2 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference
herein).
4.4 Certificate of the Designations, Powers, Preferences
and Rights of Series C Cumulative Convertible
Preferred Stock, $1.00 par value of Harken Energy
Corporation (filed as Exhibit 4.3 to Harken's Annual
Report on Form 10-K for fiscal year ended December
31, 1989, File No. 0-9207, and incorporated by
reference herein).
4.5 Certificate of the Designations of Series D Preferred
Stock, $1.00 par value of Harken Energy Corporation
(filed as Exhibit 4.3 to Harken's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1995, File No. 0-9207, and incorporated by reference
herein).
*10.1 Development Finance Agreement dated as of October 17,
1997, by and among Harken Energy Corporation and the
other signatories thereto.
*27 Financial Data Schedules.