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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 JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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 August 3, 1998 was 133,408,830.
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HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
JUNE 30, 1998
PAGE
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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................................................. 30
SIGNATURES ................................................................................... 33
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PART I - FINANCIAL INFORMATION
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ITEM 1. CONDENSED FINANCIAL STATEMENTS
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
DECEMBER 31, JUNE 30,
1997 1998
--------------- ---------------
ASSETS
Current Assets:
Cash and temporary investments $ 85,740,000 $ 187,525,000
Cash in segregated accounts 37,771,000 --
Accounts and notes receivable, net 2,175,000 4,406,000
Related party notes receivable 295,000 355,000
Prepaid expenses and other current assets 411,000 538,000
--------------- ---------------
Total Current Assets 126,392,000 192,824,000
Property and Equipment, net 106,798,000 164,408,000
Other Assets, net 5,323,000 8,337,000
--------------- ---------------
$ 238,513,000 $ 365,569,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 6,268,000 $ 6,678,000
Accrued liabilities and other 8,668,000 6,663,000
Revenues and royalties payable 816,000 664,000
--------------- ---------------
Total Current Liabilities 15,752,000 14,005,000
European Convertible Notes Payable 39,880,000 85,000,000
Deferred Revenue 25,000,000 33,824,000
Stockholders' Equity:
Series F Preferred Stock, $1.00 par value; 15,000 shares
authorized and issued as of June 30, 1998 -- 15,000
Common stock, $0.01 par value; 225,000,000 shares authorized;
121,811,534 and 133,408,830 shares issued, respectively 1,218,000 1,334,000
Additional paid-in capital 248,770,000 323,140,000
Retained deficit and other comprehensive income (92,107,000) (91,749,000)
--------------- ---------------
Total Stockholders' Equity 157,881,000 232,740,000
--------------- ---------------
$ 238,513,000 $ 365,569,000
=============== ===============
The accompanying Notes to Consolidated Condensed 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
Revenues:
Oil and gas operations $ 3,164,000 $ 2,634,000 $ 6,844,000 $ 5,334,000
Interest and other income 863,000 2,262,000 1,434,000 3,924,000
-------------- -------------- -------------- --------------
4,027,000 4,896,000 8,278,000 9,258,000
-------------- -------------- -------------- --------------
Costs and Expenses:
Oil and gas operating expenses 1,247,000 1,346,000 2,486,000 2,728,000
General and administrative expenses, net 1,166,000 1,766,000 2,500,000 3,524,000
Depreciation and amortization 1,239,000 1,286,000 2,330,000 2,416,000
Interest expense and other, net 329,000 208,000 848,000 216,000
-------------- -------------- -------------- --------------
3,981,000 4,606,000 8,164,000 8,884,000
-------------- -------------- -------------- --------------
Income before income taxes 46,000 290,000 114,000 374,000
Income tax expense -- 46,000 -- 46,000
-------------- -------------- -------------- --------------
Net income $ 46,000 $ 244,000 $ 114,000 $ 328,000
============== ============== ============== ==============
Accretion related to preferred stock -- (169,000) -- (169,000)
-------------- -------------- -------------- --------------
Net income attributed to common stock $ 46,000 $ 75,000 $ 114,000 $ 159,000
============== ============== ============== ==============
Income per common share:
Basic income per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============== ============== ============== ==============
Weighted average shares outstanding 104,638,246 130,452,657 100,640,530 126,394,977
============== ============== ============== ==============
Diluted income per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00
============== ============== ============== ==============
Weighted average shares outstanding 107,666,856 133,103,990 103,668,547 129,231,422
============== ============== ============== ==============
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
PREFERRED COMMON PAID-IN TREASURY RETAINED
STOCK STOCK CAPITAL STOCK DEFICIT
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1996 $ -- $ 939,000 $ 171,191,000 $ (1,390,000) $ (92,386,000)
Issuance of common stock, net -- 77,000 20,208,000 -- --
Conversions of European notes
payable -- 202,000 57,371,000 1,390,000 --
Comprehensive income:
Equity adjustment from
foreign currency translation -- -- -- -- --
Net income -- -- -- -- 189,000
Total comprehensive income
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1997 -- 1,218,000 248,770,000 -- (92,197,000)
Issuance of common stock, net -- 37,000 22,597,000 -- --
Issuance of preferred stock 15,000 -- 14,438,000 -- --
Conversions of European notes
payable -- 79,000 37,335,000 -- --
Comprehensive income:
Equity adjustment from foreign
currency translation -- -- -- -- --
Net income -- -- -- -- 328,000
Total comprehensive income
------------- ------------- ------------- ------------- -------------
Balance, June 30, 1998 $ 15,000 $ 1,334,000 $ 323,140,000 $ -- $ (91,869,000)
============= ============= ============= ============= =============
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
------------- -------------
Balance, December 31, 1996 $ (15,000) $ 78,339,000
Issuance of common stock, net -- 20,285,000
Conversions of European notes
payable -- 58,963,000
Comprehensive income:
Equity adjustment from
foreign currency translation 105,000
Net income --
Total comprehensive income 294,000
------------- -------------
Balance, December 31, 1997 90,000 157,881,000
Issuance of common stock, net -- 22,634,000
Issuance of preferred stock -- 14,453,000
Conversions of European notes
payable -- 37,414,000
Comprehensive income:
Equity adjustment from foreign
currency translation 30,000
Net income --
Total comprehensive income 358,000
------------- -------------
Balance, June 30, 1998 $ 120,000 $ 232,740,000
============= =============
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)
SIX MONTHS ENDED
JUNE 30,
------------------------------------
1997 1998
--------------- ---------------
Cash flows from operating activities:
Net income $ 114,000 $ 328,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,330,000 2,416,000
Amortization of European note issuance costs 246,000 33,000
Provision for doubtful accounts -- 15,000
Change in assets and liabilities:
Decrease (increase) in accounts receivable 112,000 (164,000)
Increase (decrease) in trade payables and other (223,000) (203,000)
--------------- ---------------
Net cash provided by operating activities 2,579,000 2,425,000
--------------- ---------------
Cash flows from investing activities:
Proceeds from sales of assets 6,000 --
Investor advances, net 3,779,000 10,832,000
Capital expenditures, net (11,143,000) (46,396,000)
--------------- ---------------
Net cash used in investing activities (7,358,000) (35,564,000)
--------------- ---------------
Cash flows from financing activities:
Transfer from segregated account cash 15,302,000 38,647,000
Proceeds from issuances of common stock,
net of issuance costs 2,224,000 2,075,000
Proceeds from issuance of preferred stock, net -- 14,473,000
Proceeds from issuance of European notes, net -- 81,800,000
Investment in segregated account cash, net 22,000 (2,071,000)
--------------- ---------------
Net cash provided by financing activities 17,548,000 134,924,000
--------------- ---------------
Net increase in cash and temporary investments 12,769,000 101,785,000
Cash and temporary investments at beginning of period 9,855,000 85,740,000
--------------- ---------------
Cash and temporary investments at end of period $ 22,624,000 $ 187,525,000
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,000 $ 5,000
Income taxes -- --
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
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HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1998
(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, 1997 and
June 30, 1998 and the results of its operations and changes in its cash flows
for all periods presented as of June 30, 1997 and 1998. 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, 1997.
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 six month period ended June 30, 1998 are
not necessarily indicative of the results to be expected for the full year.
(2) ACQUISITIONS
On August 29, 1997, Harken, along with Harken Exploration Company, a
wholly-owned subsidiary, 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.
On May 19, 1998, Harken, along with Harken Exploration Company, a
wholly-owned subsidiary, purchased working interests in oil and gas properties
located in southern Louisiana (the "Bargo Properties") from St. Martinville
Partners, Ltd. and Bargo Energy Company (collectively "the Sellers"). The
purchase price consisted of 2,716,483 shares of Harken common stock, having an
approximate value of $16,250,000, which were issuable at closing. According to
the Asset Purchase and Sale Agreement, additional consideration having a value
of $4,000,000 less certain adjustments, is payable by Harken to the Sellers if
the Sellers are able to obtain new or renewal leases for certain of the Bargo
Properties. Such adjustments may include unresolved title issues on certain
leases and an allowance of up to a maximum of $750,000 for environmental and
regulatory compliance. The additional consideration is to be paid 120 days after
closing and is payable at Harken's option in the form of additional shares of
Harken common stock or cash. See Note 11--Related Party Transactions for a
discussion of the relationship between Harken and the Sellers.
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(3) MARKETABLE SECURITIES
Included within cash and temporary investments and cash in segregated
accounts at December 31, 1997 and June 30, 1998 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, June 30,
1997 1998
--------------- ---------------
Included in cash and temporary investments:
Cost $ 50,906,000 $ 149,946,000
Estimated fair value $ 50,973,000 $ 150,313,000
Included in segregated accounts:
Cost $ 37,184,000 $ --
Estimated fair value $ 37,242,000 $ --
Harken includes in cash and temporary investments and cash in segregated
accounts other cash and cash equivalent amounts in addition to the above
marketable debt securities.
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
December 31, June 30,
1997 1998
--------------- ---------------
Unevaluated oil and gas properties:
Unevaluated international properties $ 21,413,000 $ 25,312,000
Unevaluated domestic properties 5,780,000 14,496,000
Evaluated oil and gas properties:
Evaluated international properties 22,754,000 55,460,000
Evaluated domestic properties 67,431,000 81,109,000
Gas plant and other property 8,325,000 9,363,000
Less accumulated depreciation and amortization (18,905,000) (21,332,000)
--------------- ---------------
$ 106,798,000 $ 164,408,000
=============== ===============
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(5) COLOMBIAN OPERATIONS
Harken's Colombian operations are conducted through Harken de Colombia,
Ltd., a wholly-owned subsidiary of Harken, which held six exclusive Colombian
Association Contracts with Empresa Colombiana de Petroleos ("Ecopetrol") as of
June 30, 1998. These Association Contracts include the Alcaravan Contract,
awarded in 1992, the Bocachico Contract, awarded in 1994, the Cambulos Contract,
awarded in 1995, the Bolivar Contract, awarded in 1996, the Miradores Contract,
awarded in December 1997, and the Los Olmos Contract, awarded in March 1998. The
Alcaravan and Miradores Contracts currently cover a combined area of
approximately 242,000 acres in the Llanos Basin of Eastern Colombia. The
Bocachico and Cambulos Contracts cover a combined area of approximately 492,000
acres in the Middle Magdalena Valley of Central Colombia and the Bolivar
Contract covers an area of approximately 250,000 acres in the Northern Middle
Magdalena Valley of Central Colombia. The Los Olmos Contract covers
approximately 374,000 acres in the Lower Magdalena Valley of Northern Colombia.
Terms of each of the Association Contracts commit Harken to perform certain
activities in accordance with a prescribed timetable. As of August 1, 1998,
Harken was in compliance with the requirements of each of the Association
Contracts, as amended.
Under the terms of the Association Contracts, if, during the first six
years of each contract, Harken discovers one or more fields 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
that contract will be extended for a period of 22 years from the date of such
commercial discovery. Upon discovery of a field capable of commercial
production, and upon commencement of production from that commercial field,
Ecopetrol will begin to reimburse Harken for 50% of Harken's successful well
costs expended up to the point of declaration of a commercial discovery plus,
in the case of the Cambulos, Bolivar, Miradores and Los Olmos Contracts, 50% of
all seismic and dry well costs incurred prior 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 (or the particular productive field under certain of
the Association Contracts) in the Association Contract acreage reaches 60
million barrels of oil. As cumulative production increases in excess of 60
million barrels of oil, Ecopetrol's share of production will increase
progressively (to a maximum of 75% under certain of the Association Contracts)
with a corresponding decrease in Harken's share of production. 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. For any fields that are not declared by Ecopetrol
to be a commercial discovery, Harken would retain the rights to all production
after royalty.
Harken has entered into certain development finance and operating
agreements with outside parties whereby such parties have received a beneficial
interest in certain of Harken's Colombian operations. For further discussion,
see Note 6 -- Development Finance and Operating Agreements.
(6) DEVELOPMENT FINANCE AND OPERATING 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
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provided $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").
In March 1997, Harken and the Rio Negro Investors entered into a Conversion
Agreement whereby Harken purchased 75% of the Rio Negro Participation in
exchange for 900,000 restricted shares of Harken common stock. 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 provided an aggregate of $2,500,000 to finance the drilling of a well
on the Palo Blanco prospect in the Alcaravan Association Contract area. 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.
Rochester Agreement -- 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 33 1/3% of the aggregate costs of the Estero #1 well and related
production facilities on the Palo Blanco prospect, 25% of the aggregate costs
related to the Estero #3 well, and 25% of the aggregate costs of the initial
well drilled on the Anteojos prospect, the Canacabare #1, all of which are
located within the Alcaravan Contract area, along with 25% of the aggregate
costs related to the Miradores Association Contract. In exchange, Rochester
acquired a beneficial interest equal to 25% of the interest held by Harken de
Colombia, Ltd. in the Palo Blanco and Anteojos prospect operations.
Parkcrest Financing Agreement -- Harken de Colombia, Ltd. has entered into
a financing agreement (the "Parkcrest Financing Agreement") with Parkcrest
Explorations, Ltd. ("Parkcrest", a Canadian corporation) pursuant to which
Parkcrest has paid 33 1/3% of the aggregate costs of the Estero #1 well and
related production facilities on the Palo Blanco prospect, 33 1/3% of the
aggregate costs of the initial well to be drilled on the Anteojos prospect, the
Canacabare #1, and 25% of the aggregate costs related to the Estero #3 well, all
of which are located within the Alcaravan Contract area. In addition, Parkcrest
will pay 33 1/3% of the aggregate costs of the initial well to be drilled under
the Miradores Association Contract. Parkcrest is also responsible for their
contracted percentage share of costs related to seismic on the Alcaravan and
Miradores Contract areas. In exchange, Parkcrest, upon its full performance,
will acquire a beneficial interest equal to 25% of the interest held by Harken
de Colombia, Ltd. in these prospects.
In April 1998, Harken and Parkcrest entered into a Loan and Security
Agreement (the "Parkcrest Loan Agreement") whereby Harken agreed to provide up
to $2,600,000 to Parkcrest to be used as needed by Parkcrest to finance its
share of costs under the Parkcrest Financing Agreement. Under the terms of the
Parkcrest Loan Agreement, any outstanding loans bear interest at 6% per annum in
addition to a monthly management fee payable to Harken of $37,500 per month. Any
outstanding balance pursuant to the Parkcrest Loan Agreement is due and payable
by Parkcrest on November 30, 1998 and is secured by 50% of Parkcrest's
beneficial interest in the Palo Blanco prospect. As of June 30, 1998, Parkcrest
had borrowed
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approximately $2,130,000 pursuant to the Parkcrest Loan Agreement, and such
amount is included in accounts and notes receivable in the accompanying balance
sheet.
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
million (the "Payment Amount"), less a 2% investment banking fee, to Harken to
finance the planned 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, including the Islero #1 well which is
scheduled to be spudded in August 1998. 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.
European Development Finance Agreements -- In December 1997, Harken entered
into a Development Finance Agreement and other related agreements (the "European
Development Finance Agreement") whereby Sidro S.A., Lambertine Holdings, Ltd.
and Rauscher Pierce and Clark (collectively the "European Investors") purchased
all of the outstanding common stock of Harken Capital Corporation, ("HCC", a
newly-formed U.S. corporation) for $7 million. Pursuant to the European
Development Finance Agreement, HCC then provided the $7 million to Harken in
January 1998 to finance a portion of the cost of the three-well exploratory
program discussed above pursuant to the EnCap Development Finance Agreement. In
exchange, HCC received the right to receive future payments from Harken equal to
1.4% 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. Beginning in December 1998, the European
Investors have the right to convert their shares of HCC into shares of Harken
common stock with terms substantially identical to the EnCap Development Finance
Agreement. As part of the transaction, Harken
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issued 42,000 shares of Harken common stock to the European Investors and paid a
cash fee of $175,000 to one of the European Investors.
In March 1998, Harken received directly an additional $3 million pursuant
to a Development Finance Agreement with Faisal Finance ("Faisal"), which
contains terms substantially identical to the EnCap Development Finance
Agreement, including conversion provisions which begin in March 1999. In
exchange, Faisal received the right to receive future payments from Harken equal
to 0.6% 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 discussed above
pursuant to the EnCap Development Finance Agreement if the planned drilling on
the prospect is successful. As part of this transaction, Harken issued 18,000
shares of Harken common stock and paid a cash fee of $75,000 to a financial
advisor.
(7) EUROPEAN CONVERTIBLE NOTES PAYABLE
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% 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. In February 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 6 1/2% European Notes and on
June 2, 1997 formally called the 6 1/2% European Notes for conversion on July
31, 1997. 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. 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 were to 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 Note proceeds for commissions
and issuance costs. Interest incurred on these notes was 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 were 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"). The Trust Indenture provided for a five percent premium on the number
of shares of Harken common stock issuable on conversion that was paid to holders
converting the 5 1/2% European Notes prior to December 11, 1997. The 5 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
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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 any time on or after June 11, 1998, and provided
notice to the holders as required under the Trust Indenture. In May 1998, Harken
formally called the 5 1/2% European Notes which remain outstanding for
conversion on June 12, 1998. As of December 31, 1997, holders of 5 1/2% European
Notes totaling $30,120,000 exercised their conversion option and such holders
were issued 6,325,200 shares of Harken common stock. During the first six months
of 1998, additional holders of 5 1/2% European Notes totaling $610,000 have
exercised their conversion option and such holders were issued an additional
122,000 shares of Harken common stock. On June 12, 1998, Harken converted the
remaining 5 1/2% European Notes into 7,854,000 shares of Harken common stock.
Upon closing, all proceeds from the sale of the 6 1/2% European Notes and
5 1/2% 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 were converted,
Harken was to maintain an Asset Value Coverage Ratio as defined in the Trust
Indenture. Upon the June 1998 conversion of the 5 1/2% European Notes which
remained outstanding, Harken transferred the approximately $38.6 million
remaining in the Segregated Accounts to its main operating account.
All Segregated Account cash related to the 5 1/2% European Notes is
reflected as a current asset at December 31, 1997 as all such cash was available
according to the Trust Indenture. The initial cash proceeds from the issuance of
the 5 1/2% European Notes are not included in the Statement of Cash Flows
because the proceeds are not considered to be cash equivalents due to the
Segregated Account requirement of these notes. Transfers of proceeds from the
Segregated Accounts are included in cash flows from financing activities in the
accompanying consolidated statements of cash flows.
5% European Notes - On May 26, 1998, Harken issued to qualified purchasers
a total of $85 million in 5% Senior Convertible Notes (the "5% European Notes")
which mature on May 26, 2003. In connection with the sale and issuance of the 5%
European Notes, Harken paid approximately $4,256,000 from the 5% European Notes
proceeds for commissions and issuance costs. Interest incurred on these notes is
payable semi-annually in May and November of each year to maturity or until the
5% European Notes are converted. Such 5% European Notes are convertible into
shares of Harken common stock at an initial conversion price of $6.50 per share,
subject to adjustment in certain circumstances ("the 5% European Note Conversion
Price"). The Trust Indenture provides for a three percent premium on the number
of shares of Harken common stock issuable on conversion to holders of the 5%
European Notes who convert prior to November 25, 1998. The 5% European Notes are
also convertible by Harken into shares of Harken common stock after May 26,
1999, if for any period of thirty consecutive days commencing on or after May
26, 1998, the average of the closing prices of Harken common stock for each
trading day during such thirty-day period shall have equaled or exceeded 125% of
the 5% European Note Conversion Price (or $8.125 per share of Harken common
stock). The 5% European Notes may be redeemed for cash, at Harken's option, at
par, in whole or in part, at any time after May 26, 2002, upon not less than 30
days notice to the holders. In addition, beginning November 26, 2002, Harken may
redeem up to 50% of the 5% European Notes in exchange for shares of Harken
common stock at a defined conversion price based on an average market price
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of Harken common stock. Beginning May 26, 2003, Harken may similarly redeem all
remaining 5% European Notes. The 5% European Notes are listed on the Luxembourg
Stock Exchange.
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.
(8) STOCKHOLDERS' EQUITY
Common Stock -- Harken currently has authorized 225,000,000 shares of $.01
par common stock. At December 31, 1997 and June 30, 1998, Harken had issued
121,811,534 and 133,408,830 shares, respectively.
Issuance of European Convertible Notes Payable -- 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. In February 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 6 1/2% European Notes
and on June 2, 1997, formally called the 6 1/2% European Notes for conversion on
July 31, 1997. (see Note 7 -- European Convertible Notes Payable for further
discussion). 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. On July 31,
1997, Harken converted the remaining 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 certain non-registered
non-transferrable stock purchase warrants to purchase 1,280,000 shares of Harken
common stock which are currently exercisable by the holders thereof at any time
on or before July 31, 1999 at an exercise price of $2.50 per share. As of June
30, 1998, all but approximately 60,000 of such warrants had been 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 were to mature on June 11, 2002. 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. As of December 31,
1997, holders of 5 1/2% European Notes totaling $30,120,000 exercised their
conversion option and such holders were issued 6,325,200 shares of Harken common
stock. Subsequent to December 31, 1997 and as of June 11, 1998, holders of
5 1/2% European Notes totaling an additional $610,000 exercised their conversion
option and such holders were issued 122,000 shares of Harken common stock. On
June 12, 1998, Harken converted the remaining 5 1/2% European Notes into
7,854,000 shares of Harken common stock.
In May 1998, Harken issued to qualified purchasers a total of $85 million
in 5% European Notes which mature on May 26, 2003. The 5% European Notes are
convertible under certain terms into a maximum of approximately 13,500,000
shares of Harken common stock. In connection with the issuance
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of the 5% European Notes, Harken issued to the placement agents for the 5%
European Notes warrants to purchase 200,000 shares of Harken common stock on or
before June 26, 2000 at an exercise price of $6.50 per share.
Acquisition of Bargo Properties - In May 1998, Harken acquired working
interests in the Bargo Properties in exchange for 2,716,483 shares issuable at
closing. Additional consideration of up to $4,000,000 is payable by Harken to
the Sellers in the form of additional shares of Harken common stock or cash
under certain circumstances. See Note 2 - Acquisition for further discussion.
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-- Acquisition for further discussion.
Acquisition of EnerVest Properties -- In March 1997, Harken and EnerVest
Acquisition - II Limited Partnership ("EnerVest") entered into a Resolution and
Settlement Agreement whereby in addition to the 1,550,000 shares of Harken
common stock previously issued to EnerVest at the July 10, 1996 acquisition
closing date, Harken issued 1,400,000 shares of Harken common stock as final
consideration for the purchase of the EnerVest Properties.
Palo Blanco Development Finance Agreements -- In June 1996, Harken, along
with Harken de Colombia, Ltd. entered into separate Development Finance
Agreements with two investors. 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. See Note 6 -- Development Finance and Operating Agreements.
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 and Operating 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 funded 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 and Operating Agreements for further discussion of the EnCap Development
Finance Agreement and Note 11 -- Related Party Transactions for further
discussion of the EnCap Investors.
European Development Finance Agreements -- In December 1997, Harken, HCC
and the European Investors entered into a Development Finance Agreement under
which HCC funded $7 million in January 1998 to finance the drilling of three
wells in the Middle Magdalena Basin of Colombia. Pursuant to the European
Development Finance Agreement, both Harken and HCC have the right under certain
circumstances to convert some or all of the shares of HCC common stock into
shares of Harken common stock. In addition, Harken issued 42,000 shares of
Harken common stock to the European Investors. In March 1998, Harken entered
into an additional Development Finance Agreement with Faisal, which also
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contained terms whereby both Harken and Faisal have the right under certain
circumstances to convert part of the Participation into shares of Harken common
stock. In addition, Harken issued 18,000 shares of Harken common stock to a
financial advisor in connection with the Development Finance Agreement with
Faisal. See Note 6 -- Development Finance and Operating Agreements for further
discussion.
Series F Preferred Stock -- On April 9, 1998, Harken entered into a
Securities Purchase Agreement with RGC International Investors, LDC ("RGC"),
pursuant to which Harken issued to RGC 15,000 shares of its Series F Convertible
Preferred Stock (the "Series F Preferred") in exchange for $15,000,000. The
Series F Preferred is convertible into shares of Harken common stock at a
conversion price based upon the market price of Harken common stock at the time
of conversion. The number of shares of Harken common stock issuable upon
conversion of the Series F Preferred will also include a premium amount equal to
an increase calculated on the face value of the Series F Preferred at 5% per
annum. The Series F Preferred does not pay dividends.
During the first six months following the issuance of the Series F
Preferred, RGC can elect to convert the shares of the Series F Preferred into
Harken common stock on any day that the closing sales price of the Harken common
stock on the American Stock Exchange is equal to or greater than 115% of the
"Market Price." The Market Price is equal to the lower of (a) the average of the
closing bid prices of Harken common stock for any five consecutive trading days
during the 22 trading days ending one trading day prior to the conversion date,
or (b) the low closing bid price of Harken common stock over the five trading
days ending one trading day prior to the conversion date.
During the first nine months following the issuance of the Series F
Preferred, the conversion price will be equal to 103% of the Market Price on the
conversion date. On January 9, 1999, the conversion price will be fixed at 90%
of the average of the closing bid prices of Harken common stock for the previous
22 trading days. Beginning February 9, 1999, the conversion price will be fixed
at 90% of the average of the closing bid prices of Harken common stock for the
previous 22 trading days if it would result in a lower conversion price than
that calculated on January 9, 1999. Any shares of Series F Preferred outstanding
on April 9, 1999, will automatically be converted into shares of Harken common
stock at the then applicable conversion price.
Harken has the option to redeem for cash any shares of Series F Preferred
presented for conversion if (a) prior to January 9, 1999, the closing price of
Harken common stock on the conversion date is less than $4.80, or (b) on or
after January 9, 1999, the then applicable conversion price is less than $4.80,
for an amount equal to the number of shares of Harken common stock that would
otherwise be issuable upon conversion multiplied by the closing price of Harken
common stock on the conversion date.
At each election to convert shares of Series F Preferred into Harken common
stock, RGC will have the option to purchase from Harken for cash additional
shares of Harken common stock equal to the number of shares issued on such
conversion (less any shares issued in respect of the premium amount) at a
purchase price equal to the then applicable conversion price.
Stockholder Rights Plan -- In April 1998, Harken adopted a rights agreement
(the "Rights Agreement") whereby a dividend of one preferred share purchase
right (a "Right") was paid for each outstanding share of Harken common stock.
The Rights will be exercisable only if a person acquires beneficial ownership of
15 percent or more of Harken common stock (an "Acquiring Person"), or commences
a tender offer which would result in beneficial ownership of 15 percent or more
of such stock. When they become exercisable, each Right entitles the registered
holder to purchase from Harken one one-
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thousandth of one share of Series E Junior Participating Preferred Stock
("Series E Preferred Stock"), at a price of $35.00 per one one-thousandth of a
share of Series E Preferred Stock, subject to adjustment under certain
circumstances.
Upon the occurrence of certain events specified in the Rights Agreement,
each holder of a Right (other than an Acquiring Person) will have the right to
purchase, at the Right's then current exercise price, shares of Harken common
stock having a value of twice the Right's exercise price. In addition, if, after
a person becomes an Acquiring Person, Harken is involved in a merger or other
business combination transaction with another person in which Harken is not the
surviving corporation, or under certain other circumstances, each Right will
entitle its holder to purchase, at the Right's then current exercise price,
shares of common stock of the other person having a value of twice the Right's
exercise price.
Unless redeemed by Harken earlier, the Rights will expire on April 6, 2008.
Harken will generally be entitled to redeem the Rights in whole, but not in
part, at $.01 per Right, subject to adjustment. No Rights were exercisable under
the Rights Agreement at June 30, 1998.
The terms of the Rights generally may be amended by Harken without the
approval of the holders of the Rights prior to the public announcement by Harken
or an Acquiring Person that a person has become an Acquiring Person.
(9) PER SHARE DATA
Basic earnings per common share was computed by dividing net income
attributed to common stock by the weighted average number of shares of Harken
common stock outstanding during the year. Diluted earnings per common share was
determined by including the effect of outstanding options and warrants using
the treasury stock method to the extent that the average share price exceeds
the exercise price. The impact of certain unconverted European Convertible
Notes was not included for the periods ended June 30, 1997 or 1998 as their
effect would have been antidilutive. The impact of unconverted Series F
Preferred Stock was not included for the periods ended June 30, 1998 as their
effect would have been antidilutive. Harken has adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", effective December 15,
1997, and as a result has restated 1997 weighted average shares outstanding
calculations, although there was no impact on prior year income per share
amounts. A reconciliation of the calculations of diluted earnings per common
share is as follows:
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Three Months Ended June 30, 1997 Six Months Ended June 30, 1997
------------------------------------- ----------------------------------------
Weighted Weighted
Average Average
Income Shares Per Share Income Shares Per Share
--------- ----------- --------- --------- ----------- ---------
Basic earnings per common share $ 46,000 104,638,246 $ 0.00 $ 114,000 100,640,530 $ 0.00
Treasury stock method effect of:
Outstanding employee stock options -- 1,551,261 -- -- 1,468,578 --
Outstanding warrants -- 1,477,349 -- -- 1,559,439 --
--------- ------------- ------- --------- ------------- --------
Diluted earnings per common share $ 46,000 107,666,856 $ 0.00 $ 114,000 103,668,547 $ 0.00
========= ============= ======= ========= ============= ========
Three Months Ended June 30, 1998 Six Months Ended June 30, 1998
-------------------------------------- ---------------------------------------
Weighted Weighted
Average Average
Income Shares Per Share Income Shares Per Share
--------- ----------- --------- --------- ----------- ---------
Basic earnings per common share $ 75,000 130,452,657 $ 0.00 $ 159,000 126,394,977 $ 0.00
Treasury stock method effect of:
Outstanding employee stock options -- 2,363,615 -- -- 2,465,490 --
Outstanding warrants -- 287,718 -- -- 370,955 --
--------- ------------- ------- --------- ------------- --------
Diluted earnings per common share $ 75,000 133,103,990 $ 0.00 $ 159,000 129,231,422 $ 0.00
========= ============= ======= ========= ============= ========
(10) INCOME TAXES
At June 30, 1998, Harken had available for federal income tax reporting
purposes, net operating loss (NOL) carryforward for regular tax purposes of
approximately $60,000,000 which expires in 1998 through 2012, alternative
minimum tax NOL carryforward of approximately $51,000,000 which expires in 1998
through 2011, investment tax credit carryforward of approximately $842,000 which
expires in 1998 through 2002, statutory depletion carryforward of approximately
$2,400,000 which does not have an expiration date, and a net capital loss
carryforward of approximately $12,400,000 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.
Total deferred tax liabilities, relating primarily to property and
equipment, as of June 30, 1998 were approximately $680,000. Total deferred tax
assets, primarily related to the net operating loss carryforward, were
approximately $20,538,000 at June 30, 1998. The total net deferred tax asset is
offset by the valuation allowance of approximately $19,858,000 at June 30, 1998.
(11) RELATED PARTY TRANSACTIONS
In June 1997, Harken added to its Board of Directors a new director who 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, $466,667 in cash, and 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 and Operating Agreements, in
October 1997, Harken entered into a Development Finance Agreement with the EnCap
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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. As described in Note 2--Acquisitions, in May
1998 Harken acquired the Bargo Properties from St. Martinville Partners, Ltd.
and Bargo Energy Company, which are affiliates of Encap.
During 1997 and 1998, Harken made short-term loans totaling $355,000 to
certain members of Harken's Board of Directors and Management. Such notes
receivable are reflected in Harken's consolidated balance sheet at December 31,
1997 and June 30, 1998 as Related Party Notes Receivable.
(12) COMMITMENTS AND CONTINGENCIES
Harken has accrued approximately $1,887,000 at June 30, 1998 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 the guarantee of certain lease
obligations of a former subsidiary, which in management's opinion, will not
result in significant loss exposure to Harken.
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, and statements containing the words
"believes", "anticipates", "estimates", "expects", or "may" are forward-looking
statements, as defined in Section 21D of the Securities Exchange Act of 1934.
Such forward-looking statements involve known and unknown risk, uncertainties
and other factors which may cause the actual results, performance, timing or
achievements of Harken to be materially different for any results, performance,
timing or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the risks described in Harken's filings with
the Securities and Exchange Commission.
OVERVIEW
Harken reported net income for the six months ended June 30, 1998 of
$328,000 compared to a net income of $114,000 for the prior year period. Total
revenues increased from approximately $8.28 million during the six months ended
June 30, 1997 to approximately $9.26 million for the same period in 1998, due to
increased interest income as a result of net proceeds received from the issuance
of the 5 1/2% European Notes, the 5% European Notes and from three Development
Finance Agreements. Gross profit from both domestic and Colombia oil and gas
operations before depreciation and amortization, general and administrative and
interest expenses totaled approximately $2.6 million during the six months ended
June 30, 1998 compared to approximately $4.3 million for the prior year period.
Internationally, during the second quarter of 1998, Harken reflected its
initial revenues from its Colombia operations, consisting of oil revenues from
Harken's Bolivar and Bocachico Contract Areas. During March 1998, Harken signed
an additional Association Contract in Colombia with Ecopetrol, bringing the
total number of Association Contracts to six and increasing the total number of
acres currently operated in Colombia by Harken to approximately 1,358,000.
Harken has continued its Colombian exploration efforts during the first part of
1998 with the drilling of the Estero #3 and Canacabare #1 wells on the Alcaravan
Contract area, the Catalina #1 and Olivo #1 wells on the Bolivar Contract area,
and the drilling of the Torcaz #5 well on the Bocachico Contract area.
In the Alcaravan Contract area, Harken's operations have been affected by
the rainy season in the Llanos Basin, which will delay the completion and
testing of the recently drilled Canacabare #1 well until the fourth quarter of
1998. Despite weather conditions, Harken is now planning to begin in August 1998
the construction of the Phase I Pipeline connecting the Estero wells to the
closest existing pipeline. Harken also expects to initiate a long-term
production test of the Estero wells in August 1998, with an initial trucking
rate of 500 barrels of oil per day, which is expected to increase to 1,000
barrels of oil per day within thirty to sixty days. Construction and initial
operations of the Phase I Pipeline, pending weather conditions, are scheduled
to be completed in late 1998.
An independent reservoir engineering firm estimates the Olivo #1 and the
Catalina #1 are each capable of producing at rates in excess of 20,000 barrels
of oil per day with larger production equipment. Harken anticipates initiating a
long-term production test by trucking from the Catalina #1 and Olivo #1 wells in
August 1998. Harken intends to submit its application to Ecopetrol for
commerciality of its Catalina, Olivo, Estero and Torcaz wells later in 1998 or
early 1999. In the Cambulos Contract area, Harken anticipates drilling its
first well
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on the Cambulos acreage, on the Emerald Mountain feature, in August 1998.
Harken plans to continue its Colombian exploration program during 1998,
expecting to spud seven additional exploratory wells in the Bolivar and Cambulos
Contract areas as well as certain pipeline and facility installation efforts,
including planned construction during the year of a Bolivar Association Contract
area pipeline and facility project to be completed and operational during the
first half of 1999. The completion of this Bolivar pipeline and facility
project is expected to allow the initial transport of a maximum of 30,000 gross
barrels of oil and 150 million gross cubic feet of gas per day.
For a detailed discussion of all of Harken's operations in Colombia, see
Harken's Annual Report on Form 10-K for the year ended December 31, 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 June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
Revenues 1997 1998 1997 1998
- -------- --------------- --------------- --------------- ---------------
(Unaudited)
Domestic Exploration and Production Operations
- ----------------------------------------------
Oil sales revenues $ 1,975,000 $ 1,346,000 $ 4,135,000 $ 2,725,000
Oil volumes in barrels 106,000 106,000 206,000 201,000
Oil price per barrel $ 18.63 $ 12.70 $ 20.07 $ 13.56
Gas sales revenues $ 1,037,000 $ 1,051,000 $ 2,344,000 $ 2,240,000
Gas volumes in mcf 474,000 469,000 868,000 971,000
Gas price per mcf $ 2.19 $ 2.24 $ 2.70 $ 2.31
Gas plant revenues $ 152,000 $ 103,000 $ 365,000 $ 235,000
Colombia Exploration and Production Operations
- ----------------------------------------------
Oil sales revenues $ -- $ 134,000 $ -- $ 134,000
Oil volumes in barrels -- 14,000 -- 14,000
Oil price per barrel $ -- $ 9.57 $ -- $ 9.57
Other Revenues
- --------------
Interest Income $ 854,000 $ 2,133,000 $ 1,414,000 $ 3,789,000
Other Income $ 9,000 $ 129,000 $ 20,000 $ 135,000
For the quarter ended June 30, 1998 compared with the corresponding prior
period.
DOMESTIC OPERATIONS
Harken's domestic operations consist primarily of the operations in the
Four Corners area of Utah, Arizona and New Mexico, primarily on the Navajo
Indian Reservation, onshore South Texas, the Western and Panhandle regions of
Texas, the Magnolia region of Arkansas and the Carlsbad region of New Mexico,
and beginning in May 1998, the onshore region of southern Louisiana.
Gross oil revenues decreased 32% to $1,346,000 during the second quarter of
1998 compared to $1,975,000 during the second quarter of 1997 primarily due to
the sharp decline in oil prices, which averaged $5.93 less per barrel during the
second quarter of 1998 compared to the prior year period. With the May 1998
acquisition of the Bargo Properties, Harken should begin to reflect production
volumes slightly higher than volumes produced in 1997. During the first half of
the third quarter of 1998, prices have continued to remain lower than prices
received during 1997.
Gross gas revenues increased only slightly to $1,051,000 for the three
months ended June 30, 1998 compared to $1,037,000 for the prior year period,
with the increased production resulting from the acquisition of the Cal-T
Properties in August 1997 approximately offsetting the normal declines of
Harken's other domestic gas production. The slight increase in gas revenues was
also caused by the increase in average gas prices received during the second
quarter of 1998, as Harken received an overall average price of $2.19 per mcf of
gas production during the second quarter of 1997 compared to $2.24 per mcf
received during the second quarter of 1998.
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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 is primarily a result of the above mentioned
acquisitions of the Cal-T and Bargo Properties.
COLOMBIAN OPERATIONS
In April 1998, Harken initiated trucking operations from its Torcaz #2 and
Torcaz #3 wells on the Bocachico Contract area. In addition, Harken sold
production which was generated during the drilling of the Catalina #1 and Olivo
#1 wells on the Bolivar Contract area. All sales volumes were transported using
trucking operations from the wellsite.
Harken's Colombian oil revenues are expected to increase throughout the
remainder of 1998, particularly as production tests commence for the Catalina #1
and Olivo #1 wells beginning in August 1998. In addition, long-term production
tests of the Estero wells are also expected to begin in August 1998.
INTEREST AND OTHER INCOME
Interest and other income increased significantly during the second quarter
of 1998 compared to the prior year period due to interest earned by Harken on
its invested funds, including the net proceeds from the June 1997 issuance of
$70 million of 5 1/2% European Notes, the May 1998 issuance of $85 million of 5%
European Notes and from proceeds from the EnCap Development Finance Agreement
and the European Development Finance Agreements. Harken generated approximately
$2.1 million of interest income during the second quarter of 1998, compared to
approximately $854,000 of interest income during the prior year period. Harken's
cash balances, which include investments in short-term marketable debt
securities, are expected to decrease in the second half of 1998 as such funds
are used to support Harken's capital expenditure plans, however, interest income
is expected to continue to be higher than the corresponding period of 1997.
OTHER COSTS AND EXPENSES
General and administrative expenses increased 51% from $1,166,000 for the
second quarter of 1997 to $1,766,000 for the second quarter of 1998, related to
Harken's increased executive, corporate and administrative personnel costs
associated with Harken's expanding overall operations. In addition, Harken has
increased its corporate office space to accommodate the growth in personnel.
Depreciation and amortization expense increased slightly during the second
quarter of 1998 compared to the prior year period due to the production from
Harken's Colombian operations. 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. In addition, Harken's
depreciation on other property has increased as a result of Harken's expanding
operations.
Interest expense and other decreased during the second quarter of 1998
compared to the prior year period despite the June 1997 issuance of the 5 1/2%
European Notes and the May 1998 issuance of the 5% European Notes due to the
increase in the amounts of interest capitalized to Harken's Colombian
exploration activity.
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For the six months ended June 30, 1998 compared with the corresponding prior
period.
Gross oil revenues decreased 34% to $2,725,000 during the first six months
of 1998 compared to $4,135,000 during the first six months of 1997 primarily due
to the sharp decline in oil prices, which averaged $6.51 less per barrel during
the first six months of 1998 compared to the prior year period. During the first
half of the third quarter of 1998, prices have continued to remain lower than
prices received during 1997.
Gross gas revenues decreased 4% to $2,240,000 for the six months ended June
30, 1998 compared to $2,344,000 for the prior year period, the increased
production resulting from the acquisition of the Cal-T Properties in August
1997. The decrease in gas revenues was partly caused by the decrease in average
gas prices received during the first six months of 1998, as Harken received an
overall average price of $2.70 per mcf of gas production during the first six
months of 1997 compared to $2.31 per mcf received during the first six months of
1998. Harken also reflected decreased gas production from certain of its Texas
Panhandle properties during the first quarter of 1998 as many of the properties
experienced numerous temporary operational curtailments.
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 is primarily a result of the above mentioned
acquisition of the Cal-T and Bargo Properties.
COLOMBIAN OPERATIONS
Harken initiated trucking operations for a ninety day production test from
its Bocachico Contract operations during the second quarter of 1998, and also
began sales of trucked volumes produced during the drilling of the Catalina #1
and Olivo #1 wells on the Bolivar Contract area. Harken expects to initiate
trucking of long-term test production from its Bolivar and Alcaravan Contract
operations in August 1998. In addition, 1998 production operations could further
increase if the current and planned drilling activities in Colombia are
successful. Harken reflected no oil and gas revenues or operating expenses from
its Colombian operations during the first quarter of 1998.
INTEREST AND OTHER INCOME
Interest and other income increased significantly during the first six
months of 1998 compared to the prior year period due to interest earned by
Harken on its invested funds, including the net proceeds from the June 1997
issuance of $70 million of 5 1/2% European Notes, and the May 1998 issuance of
$85 million of 5% European Notes, and from proceeds from the EnCap Development
Finance Agreement and the European Development Finance Agreements. Harken
generated approximately $3.8 million of interest income during the first six
months of 1998, compared to approximately $1.4 million of interest income during
the prior year period. Harken's cash balances, which include investments in
short-term marketable debt securities, are expected to decrease in the second
half of 1998 as such funds are used to support Harken's capital expenditure
plans, however, interest income is expected to continue to be higher than the
corresponding period of 1997.
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OTHER COSTS AND EXPENSES
General and administrative expenses increased 41% from $2,500,000 for the
first six months of 1997 to $3,524,000 for the first six months of 1998, related
to Harken's increased executive, corporate and administrative personnel costs
associated with Harken's expanding overall operations. In addition, Harken has
increased its corporate office space to accommodate the growth in personnel.
Depreciation and amortization expense increased slightly during the first
six months of 1998 compared to the prior year period consistent with the
increased equivalent barrel production levels during the period. 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. In addition, Harken's depreciation on other property has increased
as a result of Harken's expanding operations.
Interest expense and other decreased significantly during the first six
months of 1998 compared to the prior year period despite the June 1997 issuance
of the 5 1/2% European Notes and the May 1998 issuance of the 5% European Notes
due to the increase in the amounts of interest capitalized to Harken's Colombian
exploration activity.
LIQUIDITY AND CAPITAL RESOURCES
Harken's working capital at June 30, 1998 was approximately $178.8 million,
versus approximately $110.6 million at December 31, 1997. The increase in cash
and working capital resulted primarily from approximately $81.8 million of net
proceeds from the 5% European Notes issued in May 1998 and from the receipt of
approximately $9.8 million pursuant to Development Finance Agreements. In
addition, Harken's operations provided approximately $2.4 million of cash flow
during the first six months of 1998. Such activity was sufficient to fund
capital expenditures of approximately $46 million during the first six months of
1998.
Harken's primary need for capital is to fund the planned exploration and
development efforts in Colombia. In 1997, Harken's capital expenditures totaled
approximately $37 million, including $30 million related to exploration and
development in Colombia. Harken anticipates that its 1998 Colombian capital
expenditures will total approximately $112 million. Harken believes that it will
have sufficient cash resources to fund all of its planned capital expenditures
for 1998. In addition, Harken intends to continue to pursue domestic acquisition
opportunities during 1998. Harken intends to fund such acquisitions, if any are
consummated, through a combination of cash on hand, issuances of debt or equity
securities.
Harken anticipates that full development of its Colombian reserves will
take several years and will also require extensive production facilities,
transportation pipelines and development activity which will require significant
additional capital expenditures. The ultimate amount of such expenditures cannot
be presently predicted. As a result of its recent successes in Colombia from its
exploratory drilling program, Harken's current business plan includes estimated
total capital expenditures in Colombia for the years 1998 through 2001 that
approximate $1 billion. Harken estimates that approximately 75 to 80% of
external funds applicable to these capital expenditures will be provided from
non-recourse project finance and other similar forms of debt which can be
identified to specific development projects. Harken anticipates it would put
this type of debt facility in place after establishing ongoing production rates
from its recently announced discoveries. There can be no assurances, however,
that Harken will have adequate funds available to it to fund all of its
Colombian activities.
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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 under the
particular Association Contract, which could potentially have a material adverse
effect on Harken's business.
Harken's domestic operating strategy includes efforts to acquire additional
oil and gas reserves through drilling activities in North America and through
acquisitions. Harken plans to continue development of proved undeveloped
reserves on its North American properties in addition to a continual workover
program on producing properties. Harken expects such drilling and workover costs
to total approximately $4 million in 1998. The targeted results of these efforts
are to maintain North American production levels during 1998.
On May 26, 1998, Harken issued a total of $85 million in 5% Senior
Convertible Notes (the "European Notes") which mature on May 26, 2003. In
connection with the sale and issuance of the 5% European Notes, Harken paid
approximately $4,256,000 from the 5% European Notes proceeds for commission and
issuance costs. Interest incurred on these notes is payable semi-annually in May
and November of each year to maturity or until the 5% European Notes are
converted. Such European Notes are convertible into shares of Harken common
stock at a conversion price of $6.50 per share, subject to adjustment in certain
circumstances. Harken also has the right to require conversion of the 5%
European Notes into shares of Harken common stock at any time on or after May
26, 1999, if for any period of thirty consecutive days commencing on or after
May 26, 1998, the average of the closing prices of Harken common stock for each
trading day during such thirty-day period shall have equaled or exceeded 125% of
the 5% European Note Conversion Price (or $8.125 per share of Harken common
stock).
All proceeds from the sale of previous European Notes issuances were
initially paid to a Trustee pursuant to a Trust Indenture and held in Segregated
Accounts to be maintained for Harken's benefit. In order for any of the proceeds
to be released from the Segregated Accounts, Harken was required to demonstrate
that an Asset Value Coverage Ratio (as defined in the Trust Indenture) test
would continue to be met after such release of funds. At June 30, 1998, all
proceeds held in the Segregated Accounts had been released following the
conversion of these European Notes into shares of Harken common stock. There is
no Segregated Account requirement related to the proceeds from the 5% European
Notes. For a detailed discussion of the 5% European Notes see "Notes to
Consolidated Financial Statements, Note 7 -- European Convertible Notes
Payable."
Interest payments related to the 5% European Notes will be funded from cash
flow from operations or existing cash balances.
In October 1997, December 1997, and March 1998, Harken entered into
separate Development Finance Agreements with institutional investors
(collectively the "Institutional Investors"), pursuant to which the
Institutional Investors provided approximately $34.5 million (the "Payment
Amount") of net proceeds to Harken to finance the drilling of the initial wells
on three unexplored oil and gas prospects in the Middle Magdalena Basin of
Colombia. Approximately $24.5 million of net proceeds was received in October
1997 and approximately $10 million of net proceeds was received during the first
quarter of 1998. In exchange, the Institutional Investors obtained the right to
receive future payments from Harken equal to 7% 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
"Institutional Participation"). Pursuant to the Development Finance Agreements,
Harken is obligated to drill each of the three wells prior to October 2000.
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Pursuant to the Development Finance Agreements, the Institutional Investors
have the right, for a period of two years beginning in October 1998, to convert
all or part of the Institutional Participation into shares of Harken common
stock. The number of shares of Harken common stock to be issued upon conversion
of the Institutional Participation will be equal to the quotient of (i) the
Payment Amount (less any distributions made in respect of the Institutional
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 the Harken common stock at the time of conversion. During the same two
year period, Harken also has the right to convert the Institutional
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 Institutional
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 Institutional Participation in lieu of issuing Harken common
stock. The Development Finance Agreements also provide for additional shares of
Harken common stock to be issued by Harken in the event of a conversion to the
extent that the Institutional Investors do not, under certain circumstances,
realize the Invested Amount from the sale of shares of Harken common stock
issued at the conversion.
At the present time, it is not known whether the Institutional Investors or
Harken will exercise their rights to convert the Institutional Interest into
Harken common stock, nor can Harken determine the number of shares of Harken
common stock which would be required to be issued in the event that Harken or
the Institutional Investors elect to convert the Institutional Participation
into shares of Harken common stock.
On April 9, 1998, Harken entered into a Securities Purchase Agreement with
RGC International Investors, LDC ("RGC"), pursuant to which Harken issued to RGC
15,000 shares of its Series F Convertible Preferred Stock (the "Series F
Preferred") in exchange for $15,000,000. The Series F Preferred is convertible
into shares of Harken common stock at a conversion price based upon the market
price of Harken common stock at the time of conversion. The number of shares of
Harken common stock issuable upon conversion of the Series F Preferred will also
include a premium amount equal to an increase calculated on the face value of
the Series F Preferred at 5% per annum. The Series F Preferred does not pay
dividends.
Harken has the option to redeem for cash any shares of Series F Preferred
presented for conversion if (a) prior to January 9, 1999, the closing price of
Harken common stock on the conversion date is less than $4.80, or (b) on or
after January 9, 1999, the then applicable conversion price is less than $4.80,
for an amount equal to the number of shares of Harken common stock that would
otherwise be issuable upon conversion multiplied by the closing price of Harken
common stock on the conversion date.
At each election to convert shares of Series F Preferred into Harken common
stock, RGC will have the option to purchase from Harken for cash additional
shares of Harken common stock equal to the number of shares issued on such
conversion (less any shares issued in respect of the premium amount) at a
purchase price equal to the then applicable conversion price. For a detailed
discussion of the Series F Preferred see "Notes to Consolidated Financial
Statements, Note 8--Stockholders' Equity".
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. 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
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is unaware of any material capital expenditures required for environmental
control during the next fiscal year.
Harken has accrued approximately $1.9 million at June 30, 1998 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, 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.
In September 1997, Harken Exploration Company, a wholly-owned
subsidiary of Harken, was served with a lawsuit filed in Amarillo,
Texas in Federal District Court for the Northern District of Texas
styled D. E. Rice and Karen Rice, as Trustees for the Rice Family
Living Trust vs. Harken Exploration Company. The Rice Family Living
Trust ("Rice") is a surface land owner in Hutchinson County, Texas.
Rice has alleged that oil and saltwater spills from Harken Exploration
Company's equipment and wells have polluted and otherwise damaged its
property. Rice is seeking payment of costs to prevent, minimize and
mitigate the alleged oil pollution, costs to restore and repair the
land and vegetation, costs to decontaminate the ground and surface
water, interest, attorneys' fees, and punitive damages. Furthermore,
Rice has requested that Harken Exploration Company be enjoined from
producing any oil or gas from its lands. Rice has alleged that
remediation of all of the pollution on its land will cost approximately
$40,000,000. Harken believes that this lawsuit is wholly without merit.
Harken has filed a Motion to Dismiss for Failure to State a Claim and
has asserted numerous other defenses, all of which Harken believes are
meritorious. Harken intends to defend itself vigorously.
Harken and its subsidiaries currently are involved in various other
lawsuits and other contingencies, which in management's opinion, will
not have a material adverse effect on Harken's financial position.
Item 2. Changes in Securities.
In April 1998, Harken adopted a Stockholder Rights Plan. For further
discussion, see Harken's Current Report on Form 8-K dated April 6,
1998.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
On June 11, 1998, Harken held its Annual Meeting of Stockholders. At
the Annual Meeting, the stockholders cast their votes as follows:
(1) Approval of an amendment to Harken's Certificate of
Incorporation increasing the number of authorized shares
of common stock from 175,000,000 to 225,000,000:
For: 82,501,016
Against: 29,424,711
Abstain: 433,301
(2) Election of Michael M. Ameen, Jr., Michael R. Eisenson,
and Hobart A. Smith to serve as Class B Directors:
For Vote Withheld
Michael M. Ameen, Jr. 96,620,679 15,748,349
Michael R. Eisenson 95,644,664 16,724,364
Hobart A. Smith 96,679,368 15,689,660
Item 5. Other Information
Not applicable.
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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.)
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 Amendment to the Certificate of Incorporation of
Harken Energy Corporation (filed as Exhibit 3.6 to
Harken's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 0-9207, and
incorporated by reference herein).
*3.6 Amendment to the Certificate of Incorporation of
Harken Energy Corporation.
3.7 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).
4.6 Rights Agreement, dated as of April 6, 1998, by and
between Harken Energy Corporation And ChaseMellon
Shareholder Services L.L.C., as Rights Agent (filed
as Exhibit 4 to Harken's Current Report on Form 8-K
dated April 7, 1998, file No. 0-9207, and
incorporated by reference herein).
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4.7 Certificate of Designations of Series E Junior
Participating Preferred Stock (filed as Exhibit B to
Exhibit 4 to Harken's Current Report on Form 8-K
dated April 7, 1998, file No. 0-9207, and
incorporated by reference herein).
4.8 Certificate of Designations, Preferences and Rights
of Series F Convertible Preferred Stock (filed as
Exhibit 4.8 to Harken's Quarterly Report on Form 10-Q
for the period ended March 31, 1998, File No. 0-9207,
and incorporated by reference herein).
*10.1 Trust Indenture, dated as of May 26, 1998, by and
between the Company and Marine Midland Bank.
*10.2 Asset Purchase and Sale Agreement dated as of May 19,
1998, by and among the Company, St. Martinville
Partners, Ltd. and Bargo Energy Company.
*27 Financial Data Schedules.
- --------------------
* Filed herewith
(b) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated May 26, 1998, reporting the
issuance of the 5% European Notes.
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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: August 10, 1998 By: /s/ WAYNE HENNECKE
---------------------- ----------------------------------------
Wayne Hennecke, Vice President of
Finance and Chief Financial Officer
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INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- ------------
3.6 Amendment to the Certificate of Incorporation
10.1 Trust Indenture
10.2 Asset Purchase and Sales Agreement
27 Financial Data Schedules