1
The following items were the subject of a
Form 12b-25 and are included herein: (1)
financial statements of the Registrant's
subsidiaries whose securities are pledged as
collateral for the Registrant's Senior
Subordinated Secured Notes and (2) the
exhibits filed herewith.
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K/A
AMENDMENT NO. 1
-------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________
COMMISSION FILE NUMBER: 000-22433
BRIGHAM EXPLORATION COMPANY
(Exact name of Registrant as Specified in its Charter)
DELAWARE 75-2692967
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6300 BRIDGE POINT PARKWAY
BUILDING 2, SUITE 500 78730
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
(512) 427-3300
(Registrant's telephone number, including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of April 13, 1999, the Registrant had outstanding 14,309,071 shares of
Common Stock. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the closing sale price of the
Common Stock on April 13, 1999, as reported on The Nasdaq Stock Market(sm), was
approximately $35.8 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 1999 Annual
Meeting of Stockholders to be held on May 13, 1999, are incorporated by
reference in Part III of this Form 10-K. Such definitive proxy statement will be
filed with the Securities and Exchange Commission not later than 120 days
subsequent to December 31, 1998.
================================================================================
2
Item 14 of Brigham Exploration Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 is hereby amended in order to file the
following items which were the subject of a Form 12b-25 and were omitted from
the Company's Form 10-K as filed with the Securities and Exchange Commission on
March 31, 1999: (1) financial statements of the Registrant's subsidiaries whose
securities are pledged as collateral for the Registrant's Senior Subordinated
Secured Notes and (2) the exhibits (other than 23.1) filed herewith. Item 14 is
set forth herein in its entirety, as amended.
TABLE OF CONTENTS
PAGE
----
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................1
SIGNATURES...................................................................................................7
INDEX TO FINANCIAL STATEMENTS.............................................................................F1-1
- i -
3
BRIGHAM EXPLORATION COMPANY
1998 ANNUAL REPORT ON FORM 10-K
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements on page F1-1.
2. Financial Statement Schedules:
See Index to Financial Statements on page F1-1.
3. Exhibits: The following documents are filed as exhibits to this report:
Number Description
- ------ -----------
2.1 -- Exchange Agreement (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
3.1 -- Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
3.2 -- Bylaws (filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
4.2+ -- Indenture dated as of August 20, 1998 between Brigham Exploration
Company and Chase Bank of Texas, National Association, as Trustee.
4.2.1++ -- Supplemental Indenture dated as of March 26, 1999 between Brigham
Exploration Company and Chase Bank of Texas, National Association,
as Trustee.
4.3++ -- Form of Warrant Certificate.
4.4 -- Form of Senior Subordinated Secured Note due 2003 (filed as
Exhibit 4.4 to the Company's Registration Statement on Form S-1
(Registration No. 333-53873), and incorporated herein by reference).
10.1 -- Agreement of Limited Partnership, dated May 1, 1992, between
Brigham Exploration Company and General Atlantic Partners III, L.P.
as general partners, and Harold D. Carter and GAP-Brigham Partners,
L.P. as limited partners (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.1.1 -- Amendment No. 1 to Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated May 1, 1992, by and among Brigham Exploration
Company, General Atlantic Partners III, L.P., GAP-Brigham Partners,
L.P. and Harold D. Carter (filed as Exhibit 10.1.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.1.2 -- Amendment No. 2 to Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated September 30, 1994, by and among Brigham
Exploration Company, General Atlantic Partners III, L.P.,
GAP-Brigham Partners, L.P., Harold D. Carter and the additional
signatories thereto (filed as Exhibit 10.1.2 to the Company's
- 1 -
4
Number Description
- ------ -----------
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.1.3 -- Amendment No. 3 to Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated August 24, 1995, by and among Brigham
Exploration Company, General Atlantic Partners III, L.P.,
GAP-Brigham Partners, L.P., Harold D. Carter, Craig M. Fleming,
David T. Brigham and Jon L. Glass (filed as Exhibit 10.1.3 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.1.4+ -- Amended and Restated Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated December 30, 1997 by and among Brigham, Inc.,
Brigham Holdings I, L.L.C. and Brigham Holdings II, L.L.C.
10.2 -- Agreement of Limited Partnership of Venture Acquisitions, L.P.,
dated September 23, 1994, by and between Quest Resources, L.L.C. and
RIMCO Energy, Inc. as general partners, and RIMCO Production
Company, Inc., RIMCO Exploration Partners, L.P. I and RIMCO
Exploration Partners, L.P. II, as limited partners (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.3 -- Regulations of Quest Resources, L.L.C. (filed as Exhibit 10.3 to
the Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.4 -- Management and Ownership Agreement, dated September 23, 1994, by
and among Brigham Oil & Gas, L.P., Brigham Exploration Company,
General Atlantic Partners III, L.P., Harold D. Carter, Ben M.
Brigham and GAP-Brigham Partners, L.P. (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.5* -- Consulting Agreement, dated May 1, 1997, by and between Brigham
Oil & Gas, L.P. and Harold D. Carter (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Registration No.
33-53873), and incorporated herein by reference).
10.6* -- Employment Agreement, by and between Brigham Exploration Company
and Ben M. Brigham (filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.7* -- Form of Confidentiality and Noncompete Agreement between the
Registrant and each of its executive officers (filed as Exhibit 10.8
to the Company's Registration Statement on Form S-1 (Registration
No. 333-22491), and incorporated herein by reference).
10.8* -- 1997 Incentive Plan of Brigham Exploration Company (filed as
Exhibit 10.9 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.8.1* -- Form of Option Agreement for certain executive officers (filed as
Exhibit 10.9.1 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by
reference).
10.8.2* -- Option Agreement dated as of March 4, 1997, by and between
Brigham Exploration Company and Jon L. Glass (filed as Exhibit
10.9.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.9* -- Incentive Bonus Plan dated as of February 28, 1997 of Brigham,
Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.10 -- Two Bridgepoint Lease Agreement, dated September 30, 1996, by and
between Investors Life Insurance Company of North America and
Brigham Oil & Gas, L.P.
- 2 -
5
Number Description
- ------ -----------
(filed as Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.10.1 -- First Amendment to Two Bridge Point Lease Agreement dated April
11, 1997 between Investors Life Insurance Company of North America
and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-53873), and incorporated herein by reference).
10.10.2 -- Second Amendment to Two Bridge Point Lease Agreement dated
October 13, 1997 between Investors Life Insurance Company of North
America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.2 to the
Company's Registration Statement on Form S-1 (Registration No.
333-53873), and incorporated herein by reference).
10.10.3 -- Letter dated April 17, 1998 exercising Right of First Refusal to
Lease "3rd Option Space" (filed as Exhibit 10.9.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-53873), and
incorporated herein by reference).
10.11 -- Anadarko Basin Seismic Operations Agreement, dated February 15,
1996, by and between Brigham Oil & Gas, L.P. and Veritas
Geophysical, Ltd. (filed as Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491),
and incorporated herein by reference).
10.11.1 -- Letter Amendment to Anadarko Basin Seismic Operations Agreement,
dated June 10, 1996, between Brigham Oil & Gas, L.P. and Veritas
Geophysical, Ltd. (filed as Exhibit 10.15.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.12 -- Expense Allocation and Participation Agreement, dated April 1,
1996, between Brigham Oil & Gas, L.P. and Gasco Limited Partnership.
(filed as Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.12.1 -- Amendment to Expense Allocation and Participation Agreement,
dated October 21, 1996, between Brigham Oil & Gas, L.P. and Gasco
Limited Partnership (filed as Exhibit 10.16.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.13 -- Expense Allocation and Participation Agreement, dated April 1,
1996, between Brigham Oil & Gas, L.P. and Middle Bay Oil Company,
Inc. (filed as Exhibit 10.17 to the Company's Registration Statement
on Form S-1 (Registration No. 333-22491), and incorporated herein
by reference).
10.13.1 -- Amendment to Expense Allocation and Participation Agreement,
dated September 26, 1996, between Brigham Oil & Gas, L.P. and Middle
Bay Oil Company, Inc. (filed as Exhibit 10.17.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.13.2 -- Letter Amendment to Expense Allocation and Participation
Agreement, dated May 20, 1996, between Brigham Oil & Gas, L.P. and
Middle Bay Oil Company, Inc. (filed as Exhibit 10.17.2 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.14 -- Anadarko Basin Joint Participation Agreement, dated May 1, 1996,
by and among Stephens Production Company and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.15 -- Anadarko Basin Joint Participation Agreement, dated May 1, 1996,
by and between Vintage Petroleum, Inc. and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.19 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.16 -- Processing Alliance Agreement, dated July 20, 1993, between
Veritas Seismic Ltd. and Brigham Oil & Gas, L.P. (filed as Exhibit
10.20 to the Company's Registration
- 3 -
6
Number Description
- ------ -----------
Statement on Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.16.1 -- Letter Amendment to Processing Alliance Agreement, dated November
3, 1994, between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.20.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.17 -- Agreement and Assignment of Interest, West Bradley Project, dated
September 1, 1995, by and between Aspect Resources Limited Liability
Company and Brigham Oil & Gas, L.P. (filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.18 -- Agreement and Assignment of Interests in lands located in Grady
County, Oklahoma, West Bradley Project, dated December 1, 1995, by
and between Aspect Resources Limited Liability Company, Brigham Oil
& Gas, L.P. and Venture Acquisitions, L.P. (filed as Exhibit 10.22
to the Company's Registration Statement on Form S-1 (Registration
No. 333-22491), and incorporated herein by reference).
10.19 -- Agreement and Assignment of Interests, West Bradley Project,
dated December 1, 1995, by and between Aspect Resources Limited
Liability Company and Brigham Oil & Gas, L.P. (filed as Exhibit
10.23 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.20 -- Geophysical Exploration Agreement, Hardeman Project, Hardeman and
Wilbarger Counties, Texas and Jackson County, Oklahoma, dated March
15, 1993 by and among General Atlantic Resources, Inc., Maynard Oil
Company, Ruja Muta Corporation, Tucker Scully Interests Ltd., JHJ
Exploration, Ltd., Cheyenne Petroleum Company, Antrim Resources,
Inc., and Brigham Oil & Gas, L.P. (filed as Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.21 -- Agreement and Partial Assignment of Interests in OK13-P Prospect
Area, Jackson County, Oklahoma (Hardeman Project), dated August 1,
1995, by and between Brigham Oil & Gas, L.P. and Aspect Resources
Limited Liability Company (filed as Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.22 -- Agreement and Partial Assignment of Interests in Q140-E Prospect
Area, Hardeman County, Texas (Hardeman Project), dated August 1,
1995, by and between Brigham Oil & Gas, L.P. and Aspect Resources
Limited Liability Company (filed as Exhibit 10.26 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.23 -- Agreement and Partial Assignment of Interests in Hankins #1
Chappel Prospect Agreement, Jackson County, Oklahoma (Hardeman
Project), dated March 21, 1996, by and between Brigham Oil & Gas,
L.P., NGR, Ltd. and Aspect Resources Limited Liability Company
(filed as Exhibit 10.27 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.24 -- Form of Indemnity Agreement between the Registrant and each of
its executive officers (filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.25 -- Registration Rights Agreement dated February 26, 1997 by and
among Brigham Exploration Company, General Atlantic Partners III
L.P., GAP-Brigham Partners, L.P., RIMCO Partners, L.P. II, RIMCO
Partners L.P. III, and RIMCO Partners, L.P. IV, Ben M. Brigham, Anne
L. Brigham, Harold D. Carter, Craig M. Fleming, David T. Brigham and
Jon L. Glass (filed as Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
- 4 -
7
Number Description
- ------ -----------
10.26 -- 1997 Director Stock Option Plan (filed as Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.27 -- Form of Employee Stock Ownership Agreement (filed as Exhibit
10.31 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.28 -- Agreement and Assignment of Interest in Geophysical Exploration
Agreement, Esperson Dome Project, dated November 1, 1994, by and
between Brigham Oil & Gas, L.P. and Vaquero Gas Company (filed as
Exhibit 10.33 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.29 -- Geophysical Exploration Agreement, Southwest Danbury Project,
Brazoria County, Texas, dated as of July 1, 1996, by and among
UNEXCO, Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.34 to
the Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.30 -- Geophysical Exploration Agreement, Welder Project, Duval County,
Texas, dated as of October 1, 1996, by and among UNEXCO, Inc. and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.31 -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion Parish,
Louisiana, among Brigham Oil & Gas, L.P., Tigre Energy Corporation
and Resource Investors Management Company (filed as Exhibit 10.36 to
the Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.31.1 -- Letter relating to Proposed Trade Structure, RIMCO/Tigre Project,
dated January 31, 1997, from Resource Investors Management Company
to Brigham Oil & Gas, L.P. (filed as Exhibit 10.36 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.32 -- Anadarko Basin Seismic Operations Agreement II, dated as of April
1, 1997, by and between Brigham Oil & Gas, L.P. (filed as Exhibit
10.37 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.32.1 -- Letter Amendment to Anadarko Basin Seismic Operations Agreement
II, dated March 20, 1997, between Brigham Oil & Gas, L.P. and
Veritas DGC Land, Inc. (filed as Exhibit 10.37 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.33 -- Expense Allocation and Participation Agreement II, dated April 1,
1997, between Brigham Oil & Gas, L.P., and Gasco Limited Partnership
(filed as Exhibit 10.31 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, and incorporated herein by
reference).
10.36 -- Credit Agreement dated as of January 26, 1998 among Brigham Oil &
Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory
thereto (filed as Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, and incorporated
herein by reference).
10.36.1+ -- First Amendment to Credit Agreement dated as of August 20, 1998
among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the
lenders signatory thereto.
10.36.2++ -- Second Amendment to Credit Agreement dated as of March 26, 1999
among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the
lenders signatory thereto.
10.37 -- Guaranty Agreement dated January 26, 1998 by Brigham Exploration
Company in favor of Bank of Montreal, as Agent, and each of the
Lenders party to the Credit
- 5 -
8
Number Description
- ------ -----------
Agreement (filed as Exhibit 10.33.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-53873), and incorporated
herein by reference).
10.37.1 -- First Amendment to Guaranty Agreement dated as of March 30, 1998
between Brigham Exploration Company and Bank of Montreal, as Agent
for the Lenders party to the Credit Agreement (filed as Exhibit
10.33.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-53873), and incorporated herein by reference).
10.37.2+ -- Second Amendment to Guaranty Agreement dated as of August 20,
1998 between Brigham Exploration Company and Bank of Montreal, as
Agent for the Lenders party to the Credit Agreement.
10.37.3++ -- Third Amendment to Guaranty Agreement dated as of March 26, 1999
between Brigham Exploration Company and Bank of Montreal, as Agent
for the Lenders party to the Credit Agreement.
10.38+ -- Securities Purchase Agreement dated as of August 20, 1998 among
Brigham Exploration Company, Enron Capital & Trade Resources Corp.
and Joint Energy Development Investments II Limited Partnership.
10.39+ -- Registration Rights Agreement dated as of August 20, 1998, by and
among Brigham Exploration Company, Enron Capital & Trade Resources
Corp. and Joint Energy Development Investments II Limited
Partnership.
10.39.1++ -- Amendment to Registration Rights Agreement dated as of March 26,
1999, by and among Brigham Exploration Company, Enron Capital &
Trade Resources Corp., ECT Merchant Investments Corp. and Joint
Energy Development Investments II Limited Partnership.
10.40+ -- Form of Guaranty for subsidiaries.
10.41++ -- Exchange Agreement dated as of March 30, 1999 by and between
Brigham Exploration Company and Veritas DGC Land, Inc.
10.42++ -- Registration Rights Agreement dated as of March 30, 1999 by and
between Brigham Exploration Company and Veritas DGC Land, Inc.
21+ -- Subsidiaries of the Registrant.
23.1++ -- Consent of Pricewaterhouse Coopers LLP, independent public
accountants.
23.2+ -- Consent of Cawley, Gillespie & Associates, Inc., independent
petroleum engineers.
27+ -- Financial Data Schedule.
- ----------
* Management contract or compensatory plan.
+ Previously filed
++ Filed herewith.
(b) The following reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Annual Report on Form 10-K:
None.
- 6 -
9
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, hereunder duly authorized, as of April 15,
1999.
BRIGHAM EXPLORATION COMPANY
By: /s/ Ben M. Brigham
-------------------------------------
Ben M. Brigham
Chief Executive Officer and President
- 7 -
10
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Financial Statements of Brigham Exploration Company
Report of Independent Accountants............................................................. F1-2
Consolidated Balance Sheets as of December 31, 1998 and 1997.................................. F1-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996.......................................................... F1-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997, and 1996.......................................................... F1-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996.......................................................... F1-6
Notes to the Consolidated Financial Statements................................................ F1-7
Financial Statements of Brigham Exploration Company Subsidiaries
Report of Independent Accountants............................................................. F2-1
Balance Sheets as of December 31, 1998........................................................ F2-2
Balance Sheets as of December 31, 1997........................................................ F2-3
Statements of Operations for the Year Ended December 31, 1998................................. F2-4
Statements of Operations for the Year Ended December 31, 1997................................. F2-5
Statements of Equity for the Year Ended December 31, 1998..................................... F2-6
Statements of Equity for the Year Ended December 31, 1997..................................... F2-7
Statements of Cash Flows for the Year Ended December 31, 1998................................. F2-8
Statements of Cash Flows for the Year Ended December 31, 1997................................. F2-9
Notes to the Financial Statements............................................................. F2-10
As all Brigham Exploration Company subsidiaries fully and unconditionally
guarantee the Senior Subordinated Secured Notes and the Company has no
significant assets other than its investments in its subsidiaries, the
consolidated financial statements are substantially the same as the financial
statements of the subsidiary guarantors and separate financial statements have
been omitted as they would not be meaningful to investors.
Financial statements for the wholly owned subsidiaries whose securities are
pledged as collateral for the Senior Subordinated Notes are included in the
Financial Statements of Brigham Exploration Company Subsidiaries. The financial
statements for Brigham Oil & Gas L.P. for the year ended December 31, 1996,
whose partnerhsip interests are pledged as collateral for the Notes, are
substantially the same as those presented in the Consolidated Financial
Statements of Brigham Exploration Company.
F1-1
11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Brigham Exploration Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in stockholders' equity and of
cash flows, after the restatement discussed in Note 12, present fairly, in all
material respects, the financial position of Brigham Exploration Company and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Houston, Texas
March 30, 1999
F1-2
12
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
--------------------
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 2,569 $ 1,701
Accounts receivable 7,938 4,909
Prepaid expenses 290 280
-------- --------
Total current assets 10,797 6,890
-------- --------
Natural gas and oil properties, at cost, net 134,317 84,294
Other property and equipment, at cost, net 2,014 1,239
Drilling advances paid 230 78
Other noncurrent assets 3,158 18
-------- --------
$150,516 $ 92,519
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,883 $ 11,892
Accrued drilling costs 1,219 2,406
Participant advances received 764 489
Other current liabilities 1,647 726
-------- --------
Total current liabilities 23,513 15,513
-------- --------
Notes payable 59,000 32,000
Senior subordinated notes, net 35,786 --
Other noncurrent liabilities 7,536 507
Deferred income tax liability -- 1,186
Stockholders' equity:
Preferred stock, $.01 par value, 10 million shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 30 million shares
authorized, 13,306,206 and 12,253,574 issued and outstanding at
December 31, 1998 and 1997, respectively 133 123
Additional paid-in capital 58,838 44,919
Unearned stock compensation (890) (1,674)
Accumulated deficit (33,400) (55)
-------- --------
Total stockholders' equity 24,681 43,313
-------- --------
$150,516 $ 92,519
======== ========
The Company uses the full cost method to account for its natural gas and oil
properties.
See accompanying notes to the consolidated financial statements.
F1-3
13
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
----------------------------------
1998 1997 1996
---------- -------- --------
Revenues:
Natural gas and oil sales $ 13,799 $ 9,184 $ 6,141
Workstation revenue 390 637 627
---------- -------- --------
14,189 9,821 6,768
---------- -------- --------
Costs and expenses:
Lease operating 2,172 1,151 726
Production taxes 850 549 362
General and administrative 4,672 3,570 2,199
Depletion of natural gas and oil properties 8,410 2,743 2,323
Depreciation and amortization 413 306 487
Capitalized ceiling impairment 24,847 -- --
Amortization of stock compensation 372 388 --
---------- -------- --------
41,736 8,707 6,097
---------- -------- --------
Operating income (loss) (27,547) 1,114 671
---------- -------- --------
Other income (expense):
Interest income 136 145 52
Interest expense (7,120) (1,017) (373)
Interest expense - related party -- (173) (800)
---------- -------- --------
(6,984) (1,045) (1,121)
---------- -------- --------
Net income (loss) before income taxes (34,531) 69 (450)
Income tax benefit (expense) 1,186 (1,186) --
---------- -------- --------
Net loss $ (33,345) (1,117) $ (450)
========== ======== ========
Net loss per share:
Basic/Diluted $ (2.64) $ (0.10) $ (0.05)
Common shares outstanding:
Basic/Diluted 12,626 11,081 8,929
Unaudited pro forma information (Notes 1 and 2)
Net loss $ (450)
Pro forma Exchange adjustments 275
--------
Pro forma net loss before income taxes (175)
Pro forma income tax benefit 147
--------
Pro forma net loss $ (28)
========
Pro forma net loss per basic/diluted common share $ (0.00)
Pro forma weighted average number of common
basic/diluted shares outstanding 9,170
See accompanying notes to the consolidated financial statements.
F1-4
14
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Common Stock Additional Unearned
---------------------- Paid-in Stock Accumulated Predecessor
Shares Amounts Capital Compensation Deficit Capital Total
---------- --------- ---------- ------------ -------------- ------------- -------
Balance,
December 31, 1995 -- $ -- $ -- $ -- $ -- $ 3,694 $ 3,694
Net loss -- -- -- -- -- (450) (450)
---------- --------- ---------- ------------ ------------ ------------- -------
Balance,
December 31, 1996 -- -- -- -- -- 3,244 3,244
Consummation of
the Exchange 8,928,574 90 19,580 -- -- (3,244) 16,426
Issuance of stock
options -- -- 2,576 (2,576) -- -- --
Forfeiture of stock
options -- -- (69) 69 -- -- --
Issuance of common
stock 3,325,000 33 23,894 -- -- -- 23,927
Net loss for
period ended
February 27, 1997 -- -- (4,869) -- -- -- (4,869)
Net income for
period from
February 27, 1997
to Dec. 31, 1997 -- -- 3,807 -- (55) -- 3,752
Amortization of
unearned stock
compensation -- -- -- 833 -- -- 833
---------- --------- ---------- ----------- ------------ ------------- -------
Balance,
December 31, 1997 12,253,574 123 44,919 (1,674) (55) -- 43,313
Net loss -- -- -- -- (33,345) -- (33,345)
Issuance of
common stock 1,052,632 10 9,419 -- -- -- 9,429
Issuance of warrants -- -- 4,500 -- -- -- 4,500
Amortization of
unearned stock
compensation -- -- -- 784 -- -- 784
----------- ---------- ---------- ----------- ------------ ------------- -------
Balance,
December 31, 1998 13,306,206 $ 133 $ 58,838 $ (890) $ (33,400) $ -- $24,681
=========== ========= ========== =========== ============ ============= =======
See accompanying notes to the consolidated financial statements.
F1-5
15
BRIGHAM EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Net loss $ (33,345) $ (1,117) $ (450)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion of natural gas and oil properties 8,410 2,743 2,323
Depreciation and amortization 413 306 487
Capitalized ceiling impairment 24,847 -- --
Amortization of stock compensation 372 388 --
Amortization of deferred loan fees and debt issuance costs 726 -- --
Amortization of discount on senior subordinated notes 286 -- --
Changes in working capital and other items:
Increase in accounts receivable (3,029) (2,213) (1,440)
(Increase) decrease in prepaid expenses (10) (128) 25
Increase in accounts payable 7,991 8,955 1,619
Increase (decrease) in participant advances received 275 (648) 804
Increase in interest payable on senior subordinated notes 507 -- --
Increase in other current liabilities 355 50 60
Increase in deferred interest payable - related party -- 53 320
Increase (decrease) in deferred income tax liability (1,186) 1,186 --
Other noncurrent assets 6 281 (224)
Other noncurrent liabilities 7,004 (50) 186
--------- --------- ---------
Net cash provided by operating activities 13,622 9,806 3,710
--------- --------- ---------
Cash flows from investing activities:
Additions to natural gas and oil properties (84,055) (57,170) (13,612)
Proceeds from the sale of natural gas and oil properties -- 74 2,149
Additions to other property and equipment (868) (545) (41)
(Increase) decrease in drilling advances paid (152) 341 (292)
--------- --------- ---------
Net cash used by investing activities (85,075) (57,300) (11,796)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,429 23,927 --
Proceeds from issuance of senior subordinated notes
payable and warrants 40,000 -- --
Increase in notes payable 105,800 37,250 8,000
Repayment of notes payable (78,800) (13,250) --
Principal payments on capital lease obligations (236) (179) (269)
Deferred loan fees and debt issuance costs (3,872) -- --
--------- --------- ---------
Net cash provided by financing activities 72,321 47,748 7,731
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 868 254 (355)
Cash and cash equivalents, beginning of year 1,701 1,447 1,802
--------- --------- ---------
Cash and cash equivalents, end of year $ 2,569 $ 1,701 $ 1,447
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 5,490 $ 1,679 $ 762
========= ========= =========
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 320 $ 403 $ 101
========= ========= =========
See accompanying notes to the consolidated financial statements.
F1-6
16
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Brigham Exploration Company is a Delaware corporation formed on February
25, 1997 for the purpose of exchanging its common stock for the common stock of
Brigham, Inc. and the partnership interests of Brigham Oil & Gas, L.P. (the
"Partnership"). Hereinafter, Brigham Exploration Company and the Partnership are
collectively referred to as "the Company." Brigham, Inc. is a Nevada corporation
whose only asset is its ownership interest in the Partnership. The Partnership
was formed in May 1992 to explore and develop onshore domestic natural gas and
oil properties using 3-D seismic imaging and other advanced technologies. Since
its inception, the Partnership has focused its exploration and development of
natural gas and oil properties primarily in West Texas, the Anadarko Basin and
the onshore Gulf Coast.
Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange
Agreement") and upon the initial filing on February 27, 1997 of a registration
statement with the Securities and Exchange Commission (the "SEC") for the public
offering of common stock (the "Offering"), the shareholders of Brigham, Inc.
transferred all of the outstanding stock of Brigham, Inc. to the Company in
exchange for 3,859,821 shares of common stock of the Company. Pursuant to the
Exchange Agreement, the Partnership's other general partner and the limited
partners also transferred all of their partnership interests to the Company in
exchange for 3,314,286 shares of common stock of the Company. Furthermore, the
holders of the Partnership's subordinated convertible notes transferred these
notes to the Company in exchange for 1,754,464 shares of common stock. These
transactions are referred to as "the Exchange." In completing the Exchange, the
Company issued 8,928,571 shares of common stock to the stockholders of Brigham,
Inc., the partners of the Partnership and the holder of the Partnership's
subordinated notes payable. As a result of the Exchange, the Company now owns
all the partnership interests in the Partnership. In May 1997, the Company sold
3,325,000 shares of its common stock in the Offering at a price of $8.00 per
share.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
The Exchange has been reflected in the consolidated financial statements of
the Company as a reorganization.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, and its proportionate share of assets,
liabilities and income and expenses of the limited partnerships in which the
Company, or any of its subsidiaries has a participating interest. All
significant intercompany accounts and transactions have been eliminated.
F1-7
17
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
The Company uses the full cost method of accounting for its investment in
natural gas and oil properties. Under this method, all acquisition, exploration
and development costs, including certain payroll and other internal costs,
incurred for the purpose of finding natural gas and oil reserves are
capitalized. Internal costs capitalized are directly attributable to
acquisition, exploration and development activities and do not include costs
related to production, general corporate overhead or similar activities. Costs
associated with production and general corporate activities are expensed in the
period incurred.
The capitalized costs of the Company's natural gas and oil properties
plus future development, dismantlement, restoration and abandonment costs (the
"Amortizable Base"), net of estimated of salvage values, are amortized using the
unit-of-production method based upon estimates of total proved reserve
quantities. The Company's capitalized costs of its natural gas and oil
properties, net of accumulated amortization, are limited to the total of
estimated future net cash flows from proved natural gas and oil reserves,
discounted at ten percent, plus the cost of unevaluated properties. There are
many factors, including global events, that may influence the production,
processing, marketing and valuation of natural gas and oil. A reduction in the
valuation of natural gas and oil properties resulting from declining prices or
production could adversely impact depletion rates and capitalized cost
limitations.
All costs directly associated with the acquisition and evaluation of
unproved properties are initially excluded from the Amortizable Base. Upon the
interpretation by the Company of the 3-D seismic data associated with unproved
properties, the geological and geophysical costs related to acreage that is not
specifically identified as prospective are added to the Amortizable Base.
Geological and geophysical costs associated with prospective acreage, as well as
leasehold costs, are added to the Amortizable Base when the prospects are
drilled. Costs of prospective acreage are reviewed annually for impairment on a
property-by-property basis.
At December 31, 1998, a capitalized ceiling impairment of $24.8 million was
recognized. The write down was calculated based on the estimated discounted
present value of future net cash flows from proved natural gas and oil reserves
using prices in effect at December 31, 1998.
Other property and equipment, which primarily consists of 3-D seismic
interpretation workstations, are depreciated on a straight-line basis over the
estimated useful lives of the assets after considering salvage value. Estimated
useful lives are as follows:
Furniture and fixtures.................................. 10 years
Machinery and equipment................................. 5 years
3-D seismic interpretation workstations and software.... 3 years
F1-8
18
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Betterments and major improvements that extend the useful lives are
capitalized, while expenditures for repairs and maintenance of a minor nature
are expensed as incurred.
Revenue Recognition
The Company recognizes natural gas and oil sales from its interests in
producing wells under the sales method of accounting. Under the sales method,
the Company recognizes revenues based on the amount of natural gas or oil sold
to purchasers, which may differ from the amounts to which the Company is
entitled based on its interest in the properties. Gas balancing obligations as
of December 31, 1996, 1997 and 1998 were not significant.
Industry participants in the Company's seismic programs are charged on an
hourly basis for the work performed by the Company on its 3-D seismic
interpretation workstations. The Company recognizes workstation revenue as
service is provided.
Derivative Instruments
Net realized gains or losses and related cash flows arising from the
Company's commodity price swaps (see Note 11) are recognized in the period
incurred as a component of natural gas and oil sales. If subsequent to being
hedged, underlying transactions are determined not to be likely to occur, the
related derivatives gains and losses are recognized in that period as "Other
income."
Stock Based Compensation
The Company measures compensation expense for its stock based incentive
plan using the intrinsic value method and has provided in Note 12 the pro forma
disclosure of the effect on net loss and net loss per common share as if the
fair value based method prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation," had been
applied in measuring compensation expense.
Federal and State Income Taxes
Prior to the consummation of the Exchange, there was no income tax
provision included in the financial statements as the Partnership was not a
taxpaying entity. Income and losses were passed through to its partners on the
basis of the allocation provisions established by the partnership agreement.
Upon consummation of the Exchange, the Partnership became subject to federal
income taxes through its ownership by the Company.
In conjunction with the Exchange, the Company recorded a deferred income
tax liability of $5 million to recognize the temporary differences between the
financial statement and tax bases of the assets and liabilities of the
Partnership at the Exchange date, February 27, 1997, given the provisions of
enacted tax laws. Subsequent to this date, the Company elected to record a
step-up in basis of its assets for tax purposes as a result of the Exchange.
Related to this election, the Company recorded a $3.8 million deferred income
tax benefit, resulting in a net $1.2 million deferred income tax charge for the
year ended December 31, 1997.
F1-9
19
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Unaudited Pro Forma Information
Pro forma net loss for the year ended December 31, 1996 reflects the
Exchange, including income taxes that would have been recorded had the
Partnership been a taxable entity. Pro forma exchange adjustments primarily
represent the amortization of the compensation expense related to employee stock
options granted upon the formation of the Company (see Note 12), and the
reduction of interest expense related to the elimination of debt as part of the
Exchange. Pro forma income taxes have been included in the Statement of
Operations pursuant to the rules and regulations of the SEC for instances when a
partnership becomes subject to federal income taxes.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The standard, which was effective for financial statements issued for
periods ending after December 15, 1997, established standards for reporting, in
addition to net income, comprehensive income and its components including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. Adoption of this Standard has no impact on the Company's financial
statements.
Recent Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, depending on the type of hedge transaction.
For fair value hedge transactions in which the Company is hedging changes in an
asset's, liability's, or firm commitment's fair value, changes in the fair value
of the derivative instrument will generally be offset in the income statement by
changes in the hedged item's fair value. For cash flow hedge transactions in
which the Company is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in the fair
value of the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that are reported in
other comprehensive income will be reclassified as earnings in the periods in
which earnings are impacted by the variability of the cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current period
earnings. The Company must adopt SFAS No. 133 effective January 1, 2000. The
Company is in the process of analyzing the potential impact of this standard on
its financial statements presentation.
3. ACQUISITION
On November 12, 1997, the Company acquired a 50% interest in certain
producing properties in Grady County, Oklahoma (the "Acquisition"). These
properties were formerly owned by Mobil and were acquired by Ward Petroleum. The
acquisition was accounted for as a purchase and the results of operations of the
properties acquired were included in the Company's results of operations
effective September 1, 1997. The purchase price of $13.4 million was financed
primarily through the Company's existing revolving credit facility and was based
on the Company's determination of the fair value of the assets acquired.
F1-10
20
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pro Forma Information
The following unaudited pro forma statement of operations information has
been prepared to give effect to the Acquisition as if the transaction had
occurred at the beginning of 1996 and 1997. The historical results of operations
have been adjusted to reflect (i) the difference between the acquired
properties' historical depletion and such expense calculated based on the value
allocated to the acquired assets, (ii) the increase in interest expense
associated with the debt issued in the transaction, and (iii) the increase in
federal income taxes related to historical net income attributable to the
properties acquired. The pro forma amounts do not purport to be indicative of
the results of operations that would have been reported had the Acquisition
occurred as of the dates indicated, or that may be reported in the future (in
thousands).
PRO FORMA
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
-------- -------
Revenues.......................................................................... $ 11,194 $ 8,516
Costs and expenses:
Lease operating and production taxes ....................................... 1,864 1,300
General and administrative ................................................. 3,570 2,199
Depletion of natural gas and oil properties ................................ 3,307 2,791
Depreciation and amortization .............................................. 593 487
Interest expense, net ...................................................... 2,235 2,355
-------- -------
Total costs and expenses ................................................... 11,569 9,132
-------- -------
Net loss before income taxes ..................................................... (375) (616)
Income tax expense ......................................................... 1,035 --
-------- -------
Net loss......................................................................... $ (1,410) $ (616)
======== =======
Net loss per share:
Basic/Diluted.............................................................. $ (0.13) $ (0.07)
======== =======
Common shares outstanding:
Basic/Diluted .............................................................. 11,081 8,929
======== =======
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are summarized as follows (in
thousands):
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Natural gas and oil properties.................................... $ 179,867 $ 96,587
Accumulated depletion............................................. (45,550) (12,293)
------------ ------------
134,317 84,294
------------ ------------
Other property and equipment:
3-D seismic interpretation workstations and software.......... 2,186 1,693
Office furniture and equipment................................ 1,774 1,095
Accumulated depreciation...................................... (1,946) (1,549)
------------ ------------
2,014 1,239
------------ ------------
$ 136,331 $ 85,533
============ ============
F1-11
21
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The accumulated depletion balance for natural gas and oil properties at
December 31, 1998, includes the effect of a capitalized ceiling impairment of
$24.8 million described at Note 2, "Property and Equipment."
The Company sold its interest in certain producing properties for $74,000
during 1997. No gain or loss was recognized on this transaction because the
Company applies the full cost method of accounting for its investment in natural
gas and oil properties.
The Company capitalizes certain payroll and other internal costs directly
attributable to acquisition, exploration and development activities as part of
its investment in natural gas and oil properties over the periods benefited by
these activities. Capitalized costs do not include any costs related to
production, general corporate overhead, or similar activities. During the years
ended December 31, 1996, 1997 and 1998, these capitalized costs amounted to $1.8
million, $3.5 million and $4.6 million, respectively.
5. NOTES PAYABLE AND SENIOR SUBORDINATED NOTES PAYABLE
In April 1996, the Company entered into a revolving credit facility which
provided for borrowings up to $25 million. On November 10, 1997, this facility
was amended and the amount available under the agreement was increased to $75
million. The Company's borrowings under this facility were limited to a
borrowing base determined periodically by the lender. This determination was
based upon the proved reserves of the Company's natural gas and oil properties.
The amounts outstanding under this facility, excluding a $5.4 million
special advance made November 12, 1997, bore interest, at the borrower's option,
at the Base Rate or (i) LIBOR plus 1.75% if the principal outstanding was less
than or equal to 50% of the borrowing base, (ii) LIBOR plus 2.0% if the
principal outstanding was less than or equal to 75% but more than 50% of the
borrowing base, and (iii) LIBOR plus 2.25% if the principal outstanding was
greater than 75% of the borrowing base. The Base Rate is the fluctuating rate of
interest per annum established from time to time by the lender. Interest accrued
on the $5.4 million special advance at 11.50% per annum. The Company also paid a
quarterly commitment fee of 0.5% per annum for the unused portion of the
borrowing base.
In January 1998, the Company entered into a new reserve-based revolving
credit facility (the "Credit Facility"). The Credit Facility originally provided
for borrowings up to $75 million, all of which was immediately available for
borrowing to fund capital expenditures. A portion of the funds available under
the Credit Facility were used to repay in full the debt outstanding under the
Company's previous revolving credit facility. Principal outstanding under the
Credit Facility is due at maturity on January 26, 2001 with interest due monthly
for base rate tranches or periodically as LIBOR tranches mature. Amounts
outstanding under the Credit Facility bore interest at either the lender's Base
Rate or LIBOR plus 2.25%, at the Company's option. The Credit Facility contains
covenants restricting the Company's ability to declare or pay dividends on its
stock. In connection with the origination of the Credit Facility, certain bank
fees and other expenses totaling approximately $1.9 million were recorded as
deferred costs and are amortized over the life of the loan. The Credit
Facility's borrowing base was reduced to $65 million upon issuance of the senior
subordinated notes in August 1998.
F1-12
22
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In March 1999, the Company and its lenders entered into an amendment to the
Credit Facility. Pursuant to this amendment, the borrowing availability under
the Credit Facility remains at $65 million and the initial borrowing
availability redetermination date was extended from January 31, 1999 to June 1,
1999, when the borrowing availability will be redetermined by the lenders based
on the Company's then proved reserve value and cash flows. To the extent that
the amounts outstanding under the Credit Facility exceed the borrowing
availability at the redetermination date, the Company may be required to repay
such excess under provision of the amendment. In addition, certain financial
covenants have been amended, additional covenants have been included that place
significant restrictions on the Company's ability to make certain capital
expenditures, and the annual interest rate for borrowings under the Credit
Facility is revised to the lender's base rate or LIBOR plus 3.0% and the Company
will pay the lender a $500,000 transaction fee over a ten month period. The
Company's obligations under the Credit Facility are secured by substantially all
of the natural gas and oil properties and other tangible assets of the Company.
In August 1998, upon the filing of a registration statement with the SEC,
the Company issued $50 million of debt and equity securities to two affiliated
institutional investors. The financing transaction consisted of the issuance of
$40 million of senior subordinated secured notes (the "Notes") with warrants
(the "Warrants") to purchase the Company's common stock and the sale of $10
million of the Company's common stock, or 1,052,632 shares at a price of $9.50
per share. The combined sale of the Notes and common stock of the Company
generated proceeds, net of offering costs, of approximately $47.5 million that
was used to repay a portion of the then outstanding borrowings under the
Company's Credit Facility.
The Notes mature in August 2003, with no principal payments required until
maturity and quarterly interest payments payable either in cash at an annual
rate of 12% or, in limited circumstances, the issuance of additional notes at an
annual interest rate of 13% for the first three years. The Company may repay the
Notes in full without premium at any time prior to maturity. The indenture
governing the Notes contains certain covenants including, but not limited to,
limitations or restrictions on indebtedness, distributions, affiliate
transactions, liens and sale and leaseback transactions. The indenture prohibits
all dividends on the Company's stock. Warrants to purchase 1 million shares of
the Company's common stock exercisable during a period of seven years at a price
of $10.45 per share were issued in connection with the Notes.
The Notes are fully and unconditionally guaranteed, on a joint and several
basis, by each of the Company's subsidiaries (the "Subsidiary Guarantors"), all
of which are directly or indirectly wholly-owned by the Company. The obligations
of the Subsidiary Guarantors under the subsidiary guaranty agreements are
subordinated to the senior indebtedness of the Subsidiary Guarantors. The assets
of the parent, Brigham Exploration Company, consist solely of investments in its
subsidiaries.
Concurrent with the issuance of the Notes, the Company recorded a discount
on the Notes of $4.5 million to reflect the estimated value of the Warrants.
Also in connection with the issuance of the Notes, certain fees and expenses
totaling approximately $1.8 million were recorded as deferred costs. The Note
discount and deferred fees are amortized over the five year term of the Notes.
In March 1999, the indenture governing the Notes was amended to provide the
Company with the option to pay interest due on the Notes in kind, for any
reason, through the second quarter of 2000. In addition, certain financial and
other covenants were amended. The amendment also provides for a reduction in the
exercise price per share of the Warrants from $10.45 per share to $3.50 per
share.
F1-13
23
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. CAPITAL LEASE OBLIGATIONS
Property under capital leases consists of the following (in thousands):
DECEMBER 31,
--------------------
1998 1997
-------- --------
3-D seismic interpretation workstations and software....................... $ 620 $ 497
Office furniture and equipment............................................. 167 204
-------- --------
787 701
Accumulated depreciation and amortization.................................. (276) (241)
-------- --------
$ 511 $ 460
======== ========
The obligations under capital leases are at fixed interest rates ranging
from 8.7% to 17.9% and are collateralized by property, plant and equipment. The
future minimum lease payments under the capital leases and the present value of
the net minimum lease payments at December 31, 1998 are as follows (in
thousands):
1999............................................................................................. $ 323
2000............................................................................................. 237
2001............................................................................................. 95
2002............................................................................................. 24
------
Total minimum lease payments..................................................................... 679
Estimated executory costs included in capital leases......................................... (50)
------
Net minimum lease payments....................................................................... 629
Amounts representing interest................................................................ (90)
------
Present value of net minimum lease payments...................................................... 539
Less: current portion........................................................................... (240)
------
Noncurrent portion............................................................................... $ 299
======
7. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Current income taxes:
Federal...................................................................... $ -- $ --
State........................................................................ -- --
Deferred income taxes:
Federal ..................................................................... (1,186) 1,186
State........................................................................ -- --
------------ ------------
$ (1,186) $ 1,186
============ ============
The difference in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
F1-14
24
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Tax at statutory rate............................................................ $ (11,740) $ 23
Add (deduct) the effect of:
January and February 1997 income, not taxable................................ -- (44)
Tax effect of Exchange....................................................... -- 1,193
Nondeductible expenses ...................................................... 10 14
Valuation reserve............................................................ 10,544 --
------------- ------------
$ (1,186) $ 1,186
============= ============
The components of deferred income tax assets and liabilities are as
follows (in thousands):
DECEMBER 31,
---------------------------
1998 1997
----------- ------------
Deferred tax assets:
Net operating loss carryforwards.............................................. $ 11,219 $ 5,563
Amortization of stock compensation............................................ 258 132
Other......................................................................... 3 3
----------- ------------
11,480 5,698
Deferred tax liability:
Depreciable and depletable property........................................... (936) (6,884)
Valuation reserve............................................................. (10,544) --
----------- ------------
$ -- $ (1,186)
=========== ============
At December 31, 1998, the Company had regular and alternative minimum tax
net operating loss carryforwards of approximately $32.9 million and $23.7
million, respectively, each including separate return limitation year carryovers
of approximately $1.2 million, which expire by December 31, 2018.
8. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is presented in the consolidated financial
statements based on a basic EPS calculation as well as a diluted EPS
calculation. Basic EPS is computed by dividing net income (loss) applicable to
common shareholders by the weighted average number of common shares outstanding
during each period. Diluted EPS is computed by dividing net income (loss)
applicable to common shareholders by the weighted average number of common
shares and common share equivalents outstanding (if dilutive), during each
period. The number of common share equivalents outstanding is computed using the
treasury stock method.
Historical net loss per common share for 1996 is based on shares issued
upon consummation of the Exchange, assuming such shares has been outstanding for
all periods presented. Net loss per share for 1997 is presented giving effect to
the shares issued pursuant to the Exchange as well as shares issued in the
initial public offering. At December 31, 1997 and 1998, options and warrants to
purchase 628,737 and 1,194,654, respectively, shares of common stock were
outstanding but were not included in the computation of diluted EPS due to the
anti-dilutive effect they would have on EPS if converted.
F1-15
25
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. CONTINGENCIES, COMMITMENTS AND FACTORS WHICH MAY AFFECT FUTURE OPERATIONS
Litigation
The Company is, from time to time, party to certain lawsuits and claims
arising in the ordinary course of business. While the outcome of lawsuits and
claims cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial condition, results
of operations or cash flows of the Company.
As of December 31, 1998, there were no known environmental or other
regulatory matters related to the Company's operations which are reasonably
expected to result in a material liability to the Company. Compliance with
environmental laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company's capital expenditures, earnings or
competitive position.
Lease Commitments
The Company leases office equipment and space under operating leases
expiring at various dates through 2002. The future minimum annual rental
payments under the noncancelable terms of these leases at December 31, 1998, are
as follows (in thousands):
1999........................................................ $ 868
2000........................................................ 790
2001........................................................ 789
2002........................................................ 395
------------
$ 2,842
============
Rental expense for the years ended December 31, 1996, 1997 and 1998 was
$253,112, $606,173 and $875,150, respectively.
Factors Which May Affect Future Operations
Since the Company's major products are commodities, significant changes
in the prices of natural gas and oil could have a significant impact on the
Company's results of operations for any particular year.
Due to an expectation for continuing difficult industry and capital markets
conditions, the Company has substantially reduced its planned capital budget for
1999 and has undertaken a number of strategic initiatives in an effort to
improve and preserve its capital liquidity in the current environment. The
Company has adapted its business strategy in the near-term through the
implementation of the following principal strategic initiatives: (i) focusing
all of the Company's planned exploration efforts in 1999 towards the drilling of
its highest grade 3-D prospects, (ii) eliminating substantially all planned
seismic and land expenditures for new projects until its capital resources can
support such additional activity, (iii) seeking to divest certain producing
natural gas and oil properties in an effort to raise capital to reduce debt
borrowings and to redirect capital to drilling projects that have the potential
to generate higher investment returns, (iv) restructuring its outstanding senior
and subordinated debt agreements to provide the Company with flexibility needed
to preserve cash flow to fund its expected near-term exploration activities, (v)
implementing an overhead
F1-16
26
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
reduction plan to reduce annual general and administrative expenses, and (vi)
evaluating opportunities to raise additional equity capital either through the
sales of interests in certain of its seismic projects or the issuance of equity
securities. The Company believes that the successful execution of these
strategic initiatives will provide it with sufficient capital resources to
execute its planned 1999 exploration program and position it to realize the
significant value it believes it has captured in its inventory of 3-D seismic
projects and delineated drilling locations. While the Company has initiated each
of these strategic directives in late 1998 and early 1999, and has effected
certain of them to date, the successful completion of any or all of these
efforts to improve the Company's capital availability within the expected time
frame is uncertain and will likely have a material impact on the Company's
near-term capital expenditure levels and growth profile.
10. SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which the Company adopted in the first
quarter of 1998. The statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. It
also requires disclosures about products and services, geographic areas and
major customers.
All of the Company's natural gas and oil properties and related operations
are located in the United States and management has determined that the Company
has one reportable segment.
During 1998, approximately 25%, 15%, 11% and 11% of the Company's natural
gas and oil production was sold to four separate customers. During 1997,
approximately 14% and 12% of the Company's natural gas and oil production was
sold to two separate customers. During 1996, approximately 16%, 12% and 10% of
the Company's natural gas and oil production was sold to three separate
customers. However, due to the availability of other markets, the Company does
not believe that the loss of any one of these individual customers would
adversely affect the Company's result of operations.
11. FINANCIAL INSTRUMENTS
The Company periodically enters into commodity price swap agreements
which require payments to (or receipts from) counterparties based on the
differential between a fixed price and a variable price for a fixed quantity of
natural gas or crude oil without the exchange of the underlying volumes. The
notional amounts of these derivative financial instruments are based on planned
production from existing wells. The Company uses these derivative financial
instruments to manage market risks resulting from fluctuations in commodity
prices. Commodity price swaps are effective in minimizing these risks by
creating essentially equal and offsetting market exposures. The derivative
financial instruments held by the Company are not leveraged and are held for
purposes other than trading.
In 1996 and 1997, the Company was a party to a crude oil swap arrangement
resulting in a fixed price over a period of time for a specified volume of crude
oil. Adjustment to the price received for oil under these
F1-17
27
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
swap arrangements resulted in a decrease in oil revenues of $301,280 and $6,191
in 1996 and 1997, respectively.
In February 1998, the Company entered into a hedging contract whereby
10,000 MMBtu per day of natural gas is purchased and sold subject to a fixed
price swap agreement for monthly periods from April 1998 through October 1999.
Pursuant to these arrangements the Company exchanges a floating market price for
a contract month and payments are received when the fixed price exceeds the
floating price. Total natural gas subject to this hedging contract is 2,750,000
MMBtu in 1998 and 3,040,000 MMBtu in 1999. As a result of this natural gas
hedging contract, the Company realized an increase in revenues of $555,240
during 1998.
In August 1998, the Company entered into a hedging contract whereby 5,000
MMBtu per day of natural gas is purchased and sold subject to a fixed price swap
agreement for monthly periods from April 1999 through October 1999. Pursuant to
these arrangements the Company exchanges a floating market price for a fixed
contract price of $2.015 per MMBtu. Payments are made by the Company when the
floating price exceeds the fixed price for a contract month and payments are
received when the fixed price exceeds the floating price. Total natural gas
subject to this hedging contract is 1,070,000 MMBtu in 1999.
In January 1999, the Company entered into a swap agreement with terms
similar to existing agreements which relates to production for monthly periods
from November 1999 through April 2001. Pursuant to these arrangements, 15,000
MMBtu per day of natural gas is purchased and sold subject to a fixed price swap
agreement, and the Company exchanges a floating market price for a fixed
contract price of $2.065 per MMBtu. Total natural gas volumes subject to this
agreement are 915,000 MMBtu, 5,490,000 MMBtu and 1,800,000 MMBtu in 1999, 2000
and 2001, respectively.
The Company's non-derivative financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amount of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of their immediate or short maturities.
The carrying value of the Company's revolving credit facility (see Note 5)
approximates its fair market value since it bears interest at floating market
interest rates.
The Company's accounts receivable relate to natural gas and oil sales to
various industry companies, amounts due from industry participants for
expenditures made by the Company on their behalf and workstation revenues.
Credit terms, typical of industry standards, are of a short-term nature and the
Company does not require collateral. The Company's accounts receivable at
December 31, 1998 do not represent significant credit risks as they are
dispersed across many counterparties. Counterparties to the natural gas and
crude oil price swaps are investment grade financial institutions.
12. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
During 1996 the Company adopted a defined contribution 401(k) plan for
substantially all of its employees. Eligible employees may contribute up to 15%
of their compensation to this plan. The 401(k) plan provides that the Company
may, at its discretion, match employee contributions. The Company has not
matched employee contributions in any plan year.
F1-18
28
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stock Compensation
In 1994 three employees were granted restricted interests in the Company
which vest in increments through July 1999. At the date of grant, the value of
these interests was immaterial. On February 26, 1997, in connection with the
Exchange (see Note 1), the three employees transferred these company interests
to the Company in exchange for 156,250 shares of restricted common stock of the
Company. The terms of the restricted stock and the restricted company interests
are substantially the same. The shares vest over a three-year period ending in
1999. No compensation expense will result from this exchange.
The Company adopted an incentive plan, effective upon completion of the
Exchange (see Note 1), which provides for the issuance of stock options, stock
appreciation rights, stock, restricted stock, cash or any combination of the
foregoing. The objective of this plan is to reward key employees whose
performance may have a significant effect on the success of the Company. An
aggregate of 1,588,170 shares of the Company's common stock was reserved for
issuance pursuant to this plan. The Compensation Committee of the Board of
Directors will determine the type of awards made to each participant and the
terms, conditions and limitations applicable to each award. Options granted
subsequent to March 4, 1997 have an exercise price equal to the fair market
value of the Company's common stock on the date of grant and generally vest, in
increments, over five to six years.
The Company also maintains a plan under which it offers stock compensation
to non-employee directors. Pursuant to the terms of the plan, non-employee
directors are entitled to annual grants. Options granted under this plan have an
exercise price equal to the fair value of the Company's common stock on the date
of grant and generally vest over five years.
The following table summarizes activity under the incentive plan for each
of the two years ended December 31, 1998:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------ ------------
Options outstanding December 31, 1996........................................... -- $ --
Options granted .......................................................... 646,097 5.03
Options forfeited or cancelled............................................ (17,360) 5.00
Options exercised......................................................... -- --
------------ ------------
Options outstanding December 31, 1997........................................... 628,737 5.03
Options granted........................................................... 873,500 8.62
Options forfeited or cancelled............................................ (307,583) (12.88)
Options exercised......................................................... -- --
------------ ------------
Options outstanding December 31, 1998........................................... 1,194,654 $ 5.63
============ ============
On December 14, 1998, the Board of Directors approved a proposal to cancel
and reissue outstanding employee stock options which were granted in January
1998 with an exercise price of $12.88. A total of 305,250 options with an
exercise price of $12.88 per share were cancelled and reissued with an exercise
price
F1-19
29
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of $6.31 per share, the fair market value of the Company's stock at the date of
reissuance. Vesting schedules remained unchanged by the reissuance.
Exercise prices for options outstanding at December 31, 1997 range from
$5.00 to $14.375 and remaining contractual lives range from 5.5 years to 6
years. Exercise prices for options outstanding at December 31, 1998 range from
$5.00 to $14.375 and remaining contractual lives range from 5.5 years to 7
years. No options were exercisable at December 31, 1997 and 145,740 were
exercisable at December 31, 1998.
The weighted average fair value per share of stock compensation issued
during 1997 and 1998 was $6.24 and $5.40, respectively. The fair value for these
options was estimated using the Black-Scholes model with the following weighted
average assumptions for grants made in 1997 and 1998: risk free interest rate of
6.24% and 4.70%; volatility of the expected market prices of the Company's
common stock of 38% and 77%; expected dividend yield of zero and weighted
average expected option lives of 7.3 and 5.0 years, respectively.
The Black-Scholes valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are
transferable. Additionally, the assumptions required by the valuation model are
highly subjective. Because the Company's stock options have significantly
different characteristics from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion the model does not necessarily provide a reliable single
measure of the fair value of the Company's stock options.
Had compensation cost for the Company's stock options been determined based
on the fair market value at the grant dates of the awards consistent with the
methodology prescribed by SFAS No. 123 the Company's net loss and net loss per
share for 1998, 1997 and 1996 would have been the pro forma amounts indicated
below:
1998 1997
----------- -----------
Net loss:
As reported.............................................................................. $ (33,345) $ (1,117)
Pro forma ......................................................................... (33,591) (1,314)
Net loss per share:
As reported.............................................................................. (2.64) (0.10)
Pro forma................................................................................ (2.66) (0.12)
The Company granted 644,097 stock options as of March 4, 1997. These
options have an exercise price of $5.00 compared to an originally determined
estimated fair market value of the Company's common stock at date of grant of
$8.00. This grant resulted in noncash compensation expense which is being
recognized over the related vesting period of the options. During 1999, the
Company revised the fair market value of its common stock at the date these
options were granted from $8.00 to $9.00. As a result, the Company restated its
financial statements to reflect the impact of this change in estimate.
The impact of the restatement on the 1997 financial statements is presented
below:
F1-20
30
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AS
PREVIOUSLY AS
REPORTED RESTATED
-------------- -------------
For the year ended December 31, 1997
Net loss .............................................................. $ (1,036) $ (1,117)
Net loss per share:
Basic/Diluted....................................................... (0.09) (0.10)
As of December 31, 1997
Retained earnings/(accumulated deficit)................................ 26 (55)
Total stockholders' equity......................................... 43,153 43,313
13. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996, 1997 and 1998, the Company paid
approximately $596,000, $837,000 and $851,000 respectively, in fees for land
acquisition services performed by a company owned by a brother of the Company's
President and Chief Executive Officer. Other participants in the Company's 3-D
seismic projects reimbursed the Company for a portion of these amounts.
In 1996 and 1997, the Company paid $110,000 and $18,000 for working
interests in natural gas and oil properties owned by affiliates of a member of
the Company's board of directors/management committee. The Company billed the
affiliates $68,000 in 1996 for their proportionate share of the costs related to
this project.
A Director of the Company served as a consultant to the Company on
various aspects of the Company's business and strategic issues. Fees paid for
these services by the Company were $79,200, $86,580 and $100,539 for the twelve
month periods ended December 31, 1996, 1997 and 1998, respectively. Additional
disbursements totaling approximately $13,000 and $12,000 were made during 1997
and 1998, respectively, for the reimbursement of certain expenses.
14. SUBSEQUENT EVENT
In February 1999, the Company entered into a project financing arrangement
with Duke Energy Financial Services, Inc. ("Duke") to fund the continued
exploration of five projects covered by approximately 200 square miles of 3-D
seismic data acquired in 1998. In this transaction, the Company conveyed 100% of
its working interest in land and seismic in these project areas to a newly
formed limited liability company (the "Duke LLC") for a total consideration of
$10 million. The Company is the managing member of the Duke LLC with a 1%
interest, and Duke is the sole remaining member with a 99% interest. Pursuant to
the terms of the Duke LLC agreement, the Company pays 100% of the drilling and
completion costs for all wells drilled by the Duke LLC in exchange for a 70%
working interest in the wells and their associated drilling and spacing units
and allocable seismic data. Upon 100% project payout, the Company has certain
rights to back-in for up to a 94% effective working interest in the Duke LLC
properties.
F1-21
31
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. NATURAL GAS AND OIL EXPLORATION AND PRODUCTION ACTIVITIES
The tables presented below provide supplemental information about natural
gas and oil exploration and production activities as defined by SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities."
Results of Operations for Natural Gas and Oil Producing Activities (in
thousands)
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- --------- ---------
Natural gas and oil sales............................................... $ 13,799 $ 9,184 $ 6,141
Costs and expenses:
Lease operating..................................................... 2,172 1,151 726
Production taxes.................................................... 850 549 362
Depletion of natural gas and oil properties......................... 8,410 2,743 2,323
Capitalized ceiling impairment...................................... 24,847 -- --
Income tax expense (benefit) (a).................................... (7,868) 1,318 --
---------- --------- ---------
Total costs and expenses................................................ 28,411 5,761 3,411
---------- --------- ---------
$ (14,612) $ 3,423 $ 2,730
========== ========= =========
Depletion per physical unit of production (equivalent Mcf of gas)....... $ 1.27 $ 0.88 $ 1.13
========== ========= =========
- ------------
(a) The income tax expense (benefit) for 1997 and 1998 is calculated at
the statutory rate and determined without regard to the Company's
deduction for general and administrative expenses, interest costs and
other income tax deductions and credits.
Natural gas and oil sales reflect the market prices of net production
sold or transferred, with appropriate adjustments for royalties, net profits
interest and other contractual provisions. Lease operating expenses include
lifting costs incurred to operate and maintain productive wells and related
equipment, including such costs as operating labor, repairs and maintenance,
materials, supplies and fuel consumed. Production taxes include production and
severance taxes. No provision was made for income taxes for 1996 since these
taxes are the responsibility of the partners (see Note 2). Depletion of natural
gas and oil properties relates to capitalized costs incurred in acquisition,
exploration and development activities. Results of operations do not include
interest expense and general corporate amounts.
Costs Incurred and Capitalized Costs
The costs incurred in natural gas and oil acquisition, exploration and
development activities follow (in thousands):
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Costs incurred for the year:
Exploration.................................................... $ 67,110 $ 29,516 $ 10,527
Property acquisition........................................... 16,245 26,956 6,195
Development.................................................... 10,427 2,953 1,328
Proceeds from participants..................................... (10,502) (319) (4,111)
----------- ----------- -----------
$ 83,280 $ 59,106 $ 13,939
=========== =========== ===========
F1-22
32
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Costs incurred represent amounts incurred by the Company for exploration,
property acquisition and development activities. Periodically, the Company will
receive proceeds from participants subsequent to project initiation for an
assignment of an interest in the project. These payments are represented by
"Proceeds from participants" in the table above.
Capitalized costs related to natural gas and oil acquisition, exploration
and development activities follow (in thousands):
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Cost of natural gas and oil properties at year-end:
Proved..................................................................... $ 127,491 $ 67,744
Unproved................................................................... 52,376 28,843
------------ ------------
Total capitalized costs.................................................... 179,867 96,587
Accumulated depletion...................................................... (45,550) (12,293)
------------ ------------
$ 134,317 $ 84,294
============ ============
Following is a summary of costs (in thousands) excluded from depletion at
December 31, 1998, by year incurred. At this time, the Company is unable to
predict either the timing of the inclusion of these costs and the related
natural gas and oil reserves in its depletion computation or their potential
future impact on depletion rates.
DECEMBER 31,
----------------------------------- PRIOR
1998 1997 1996 YEARS TOTAL
---------- ---------- --------- --------- ----------
Property acquisition.......................... $ 9,659 $ 13,161 $ 1,176 $ 1,278 $ 25,274
Exploration................................... 21,577 5,072 320 133 27,102
---------- ---------- --------- --------- ----------
Total......................................... $ 31,236 $ 18,233 $ 1,496 $ 1,411 $ 52,376
========== ========== ========= ========= ==========
16. NATURAL GAS AND OIL RESERVES AND RELATED FINANCIAL DATA (UNAUDITED)
Information with respect to the Company's natural gas and oil producing
activities is presented in the following tables. Reserve quantities as well as
certain information regarding future production and discounted cash flows were
determined by the Company's independent petroleum consultants and internal
petroleum reservoir engineer.
Natural Gas and Oil Reserve Data
The following tables present the Company's estimates of its proved
natural gas and oil reserves. The Company emphasizes that reserve estimates are
approximates and are expected to change as additional information becomes
available. Reservoir engineering is a subjective process of estimating
underground accumulations of natural gas and oil that cannot be measured in an
exact way, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated. A substantial portion
of the reserve balances were estimated utilizing the volumetric method, as
opposed to the production performance method.
F1-23
33
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NATURAL
GAS OIL
(MMCF) (MBBLS)
------------ ------------
Proved reserves at December 31, 1995........................................... 4,257 1,672
Revisions to previous estimates............................................ (1,005) (232)
Extensions, discoveries and other additions................................ 7,742 996
Purchase of minerals-in-place.............................................. 260 3
Sales of minerals-in-place................................................. (299) (272)
Production................................................................. (698) (227)
------------ ------------
Proved reserves at December 31, 1996........................................... 10,257 1,940
Revisions to previous estimates............................................ (3,044) (447)
Extensions, discoveries and other additions................................ 33,721 735
Purchase of minerals-in-place.............................................. 13,718 1,244
Sales of minerals-in-place................................................. (40) --
Production................................................................. (1,382) (291)
------------ ------------
Proved reserves at December 31, 1997........................................... 53,230 3,181
Revisions of previous estimates............................................ (26,696) (115)
Extensions, discoveries and other additions................................ 48,050 1,752
Purchase of minerals-in-place.............................................. 851 11
Production................................................................. (4,269) (396)
------------ ------------
Proved reserves at December 31, 1998........................................... 71,166 4,433
============ ============
Proved developed reserves at December 31:
1996....................................................................... 6,034 1,453
1997....................................................................... 30,677 2,665
1998....................................................................... 38,571 2,935
Proved reserves are estimated quantities of crude natural gas and oil
which geological and engineering data indicate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods.
Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein
The following table presents a standardized measure of discounted future
net cash inflows (in thousands) relating to proved natural gas and oil reserves.
Future cash flows were computed by applying year end prices of natural gas and
oil relating to the Company's proved reserves to the estimated year-end
quantities of those reserves. Future price changes were considered only to the
extent provided by contractual agreements in existence at year-end. Future
production and development costs were computed by estimating those expenditures
expected to occur in developing and producing the proved natural gas and oil
reserves at the end of the year, based on year-end costs. Actual future cash
inflows may vary considerably and the standardized measure does not necessarily
represent the fair value of the Company's natural gas and oil reserves.
F1-24
34
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Future cash inflows................................................ $ 198,082 $ 165,156 $ 84,987
Future development and production costs............................ (61,064) (40,923) (20,998)
Future income taxes................................................ (6,972) (22,919) --
----------- ----------- -----------
Future net cash inflows............................................ $ 130,046 $ 101,314 $ 63,989
=========== =========== ===========
Future net cash inflow before income taxes, discounted
at 10% per annum............................................... $ 81,741 $ 69,249 $ 44,506
=========== =========== ===========
Standardized measure of future net cash inflows discounted
at 10% per annum............................................... $ 81,649 $ 64,274 $ 44,506
=========== =========== ===========
The base sales prices for the Company's reserves were $3.71 per Mcf for
natural gas and $25.37 per Bbl for oil as of December 31, 1996, $2.27 per Mcf
for natural gas and $15.50 per Bbl for oil as of December 31, 1997, and $2.12
per Mcf for natural gas and $9.50 per Bbl for oil as of December 31, 1998. These
base prices were adjusted to reflect applicable transportation and quality
differentials on a well-by-well basis to arrive at realized sales prices used to
estimate the Company's reserves at these dates.
Changes in the future net cash inflows discounted at 10% per annum
follow:
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Beginning of period................................................ $ 64,274 $ 44,506 $ 18,222
Sales of natural gas and oil produced, net of production
costs..................................................... (10,776) (7,484) (5,053)
Development costs incurred..................................... 5,423 1,955 246
Extensions and discoveries..................................... 52,389 38,016 29,457
Purchases of minerals-in-place................................. 687 16,965 384
Sales of minerals-in-place..................................... -- (94) (2,380)
Net change of prices and production costs...................... (11,921) (20,466) 7,023
Change in future development costs............................. (656) 319 303
Changes in production rates and other.......................... (6,109) (1,954) (342)
Revisions of quantity estimates................................ (23,470) (6,964) (5,176)
Accretion of discount.......................................... 6,925 4,450 1,822
Change in income taxes ........................................ 4,883 (4,975) --
----------- ----------- -----------
End of period...................................................... $ 81,649 $ 64,274 $ 44,506
=========== =========== ===========
F1-25
35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Brigham Exploration Company
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of changes in equity present fairly, in all
material respects, the financial position of Brigham Oil & Gas, L.P., and
Brigham, Inc. at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. Additionally,
in our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of changes in equity present fairly, in all
material respects, the financial position of Brigham Holdings I, LLC and Brigham
Holdings II, LLC at December 31, 1998 and for the year then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
April 14, 1999
F2-1
36
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
BALANCE SHEETS
AS OF DECEMBER 31, 1998
(in thousands)
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
ASSETS
Current assets:
Cash and cash equivalents $ 2,549 $ 2,563 $ 5 $ 6
Accounts receivable 7,938 7,938 -- --
Prepaid expenses 290 290 -- --
--------- --------- --------- ---------
Total current assets 10,777 10,791 5 6
--------- --------- --------- ---------
Natural gas and oil properties, at cost, net 134,317 134,317 -- --
Other property and equipment, at cost, net 2,014 2,014 -- --
Investment in subsidiaries
and intercompany advances 115 16 11,714 46,913
Drilling advances paid 231 231 -- --
Other noncurrent assets 1,409 1,409 -- --
--------- --------- --------- ---------
$ 148,863 $ 148,778 $ 11,719 $ 46,919
========= ========= ========= =========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 19,883 $ 19,883 $ -- $ --
Accrued drilling costs 1,219 1,219 -- --
Participant advances received 764 764 -- --
Other current liabilities 1,647 1,647 -- --
--------- --------- --------- ---------
Total current liabilities 23,513 23,513 -- --
--------- --------- --------- ---------
Notes payable 59,000 59,000 -- --
Other noncurrent liabilities 7,536 7,536 -- --
Intercompany accounts payable 1,690 1,616 -- 1,707
Intercompany notes payable 40,000 40,000 -- 40,000
Minority interest -- 11,730 -- --
Equity
Partners' capital 17,124 -- 11,719 5,212
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding -- 1 -- --
Additional paid-in capital -- 16,109 -- --
Accumulated deficit -- (10,727) -- --
--------- --------- --------- ---------
Total equity 17,124 5,383 11,719 5,212
--------- --------- --------- ---------
$ 148,863 $ 148,778 $ 11,719 $ 46,919
========= ========= ========= =========
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the financial statements.
F2-2
37
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
BALANCE SHEETS
AS OF DECEMBER 31, 1997
(in thousands)
BRIGHAM
OIL & BRIGHAM,
GAS, L.P. INC.
ASSETS
Current assets:
Cash and cash equivalents $ 1,701 $ 1,701
Accounts receivable 4,909 4,909
Prepaid expenses 280 280
-------- --------
Total current assets 6,890 6,890
-------- --------
Natural gas and oil properties, at cost, net 84,294 84,294
Other property and equipment, at cost, net 1,239 1,239
Drilling advances paid 78 78
Other noncurrent assets 18 18
-------- --------
$ 92,519 $ 92,519
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 11,892 $ 11,892
Accrued drilling costs 2,406 2,406
Participant advances received 489 489
Other current liabilities 726 726
-------- --------
Total current liabilities 15,513 15,513
-------- --------
Notes payable 32,000 32,000
Other noncurrent liabilities 507 507
Deferred income tax liability -- 5,088
Intercompany accounts payable 834 834
Minority interest -- 29,910
Equity
Partners' capital 43,665 --
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding -- 1
Additional paid-in capital -- 13,732
Accumulated deficit -- (5,066)
-------- --------
Total equity 43,665 8,667
-------- --------
$ 92,519 $ 92,519
======== ========
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the financial statements.
F2-3
38
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
Revenues:
Natural gas and oil sales $ 13,799 $ 13,799 $ -- $ --
Workstation revenue 390 390 -- --
------------- ------------- ------------- -------------
14,189 14,189 -- --
------------- ------------- ------------- -------------
Costs and expenses:
Lease operating 2,172 2,172 -- --
Production taxes 850 850 -- --
General and administrative 4,650 4,661 11 11
Depletion of natural gas and oil properties 8,410 8,410 -- --
Depreciation and amortization 413 413 -- --
Capitalized ceiling impairment 24,847 24,847 -- --
Amortization of stock compensation 372 372 -- --
------------- ------------- ------------- -------------
41,714 41,725 11 11
------------- ------------- ------------- -------------
Operating loss (27,525) (27,536) (11) (11)
------------- ------------- ------------- -------------
Other income (expense):
Interest income 136 136 -- --
Interest expense (4,993) (4,993) -- --
Interest expense - intercompany (1,707) (1,707) -- (1,707)
------------- ------------- ------------- -------------
(6,564) (6,564) -- (1,707)
------------- ------------- ------------- -------------
Minority interest in net loss -- (23,351) -- --
------------- ------------- ------------- -------------
Net loss before income taxes (34,089) (10,749) (11) (1,718)
Income tax expense -- 5,088 -- --
Equity in net loss of investee -- -- (23,351) (8,690)
------------- ------------- ------------- -------------
Net loss $ (34,089) $ (5,661) $ (23,362) $ (10,408)
============= ============= ============= =============
See accompanying notes to the financial statements.
F2-4
39
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands)
BRIGHAM
OIL & BRIGHAM,
GAS, L.P. INC.
Revenues:
Natural gas and oil sales $ 9,184 $ 9,184
Workstation revenue 637 637
------- -------
9,821 9,821
------- -------
Costs and expenses:
Lease operating 1,151 1,151
Production taxes 549 549
General and administrative 3,570 3,570
Depletion of natural gas and oil properties 2,743 2,743
Depreciation and amortization 306 306
Amortization of stock compensation 388 388
------- -------
8,707 8,707
------- -------
Operating income 1,114 1,114
------- -------
Other income (expense):
Interest income 145 145
Interest expense (1,017) (1,017)
Interest expense - related party (173) (173)
------- -------
(1,045) (1,045)
------- -------
Minority interest in net income -- 47
------- -------
Net income before income taxes 69 22
Income tax benefit -- (5,088)
------- -------
Net income (loss) $ 69 $(5,066)
======= =======
See accompanying notes to the financial statements.
F2-5
40
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
Cash flows from operating activities:
Net loss $ (34,089) $ (5,661) $ (23,362) $ (10,408)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion of natural gas and oil properties 8,410 8,410 -- --
Depreciation and amortization 413 413 -- --
Capitalized ceiling impairment 24,847 24,847 -- --
Amortization of stock compensation 372 372 -- --
Amortization of deferred loan fees and debt issuance costs 593 593 -- --
Minority interest in net loss -- (23,351) -- --
Equity in net loss of investee -- -- 23,351 8,690
Changes in working capital and other items:
Increase in accounts receivable (3,029) (3,029) -- --
Increase in prepaid expenses (10) (10) -- --
Increase in accounts payable 7,991 7,991 -- --
Increase in participant advances received 275 275 -- --
Increase in other current liabilities 862 862 -- --
Decrease in deferred income tax liability -- (5,088) -- --
Increase in intercompany accounts payable -- -- -- 1,707
Other noncurrent assets 6 6 -- --
Other noncurrent liabilities 7,004 7,004 -- --
--------- --------- --------- ---------
13,645 13,634 (11) (11)
--------- --------- --------- ---------
Cash flows from investing activities:
Natural gas and oil properties (84,056) (84,056) -- --
Other property and equipment (868) (868) -- --
Investment in subsidiaries and intercompany advances (42) (17) (5,154) (42,285)
Change in drilling advances paid (153) (153) -- --
--------- --------- --------- ---------
(85,119) (85,094) (5,154) (42,285)
--------- --------- --------- ---------
Cash flows from financing activities:
Capital contribution received 7,548 7,548 5,170 2,302
Increase in intercompany notes payable 40,000 40,000 -- 40,000
Increase in notes payable 105,800 105,800 -- --
Repayment of notes payable (78,800) (78,800) -- --
Principal payments on capital lease obligations (236) (236) -- --
Deferred loan fees (1,990) (1,990) -- --
--------- --------- --------- ---------
72,322 72,322 5,170 42,302
--------- --------- --------- ---------
Net increase in cash and cash equivalents 848 862 5 6
Cash and cash equivalents, beginning of year 1,701 1,701 -- --
--------- --------- --------- ---------
Cash and cash equivalents, end of year $ 2,549 $ 2,563 $ 5 $ 6
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 4,878 $ 4,878 $ -- $ --
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 320 $ 320 $ -- $ --
Intercompany capital contributions $ -- $ -- $ 29,911 $ 13,318
See accompanying notes to the financial statements.
F2-6
41
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands)
BRIGHAM
OIL & BRIGHAM,
GAS, L.P. INC.
Cash flows from operating activities:
Net income (loss) $ 69 $ (5,066)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depletion of natural gas and oil properties 2,743 2,743
Depreciation and amortization 306 306
Amortization of stock compensation 388 388
Minority interest in net income -- 47
Changes in working capital and other items:
Increase in accounts receivable (2,213) (2,213)
Increase in prepaid expenses (128) (128)
Increase in accounts payable 8,955 8,955
Decrease in participant advances received (648) (648)
Increase in other current liabilities 50 50
Increase in deferred interest payable - related party 53 53
Increase in deferred income tax liability -- 5,088
Other noncurrent assets 281 281
Other noncurrent liabilities (50) (50)
------------ ------------
9,806 9,806
------------ ------------
Cash flows from investing activities:
Natural gas and oil properties (57,170) (57,170)
Proceeds from the sale of natural gas and oil properties 74 74
Other property and equipment (545) (545)
Change in drilling advances paid 341 341
------------ ------------
(57,300) (57,300)
------------ ------------
Cash flows from financing activities:
Capital contribution received 23,927 23,927
Increase in notes payable 37,250 37,250
Repayment of notes payable (13,250) (13,250)
Principal payments on capital lease obligations (179) (179)
------------ ------------
47,748 47,748
------------ ------------
Net increase in cash and cash equivalents 254 254
Cash and cash equivalents, beginning of year 1,447 1,447
------------ ------------
Cash and cash equivalents, end of year $ 1,701 $ 1,701
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,679 $ 1,679
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 403 $ 403
Intercompany capital contributions $ 16,425 $ --
Increase resulting from the Exchange and the Offering
in ownership interest in the Partnership $ -- $ 13,703
See accompanying notes to the financial statements.
F2-7
42
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY
(in thousands, except shares)
Retained
Common Stock Additional Earnings/
------------------------- Paid-in Accumulated Partners'
Shares Amounts Capital Deficit Capital Total
----------- ----------- ----------- ----------- ----------- -----------
BRIGHAM OIL & GAS, L.P.
Balance,
December 31, 1997 -- $ -- $ -- $ -- $ 43,665 $ 43,665
Capital contribution -- -- -- -- 7,548 7,548
Net loss -- -- -- (34,089) (34,089)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 -- $ -- $ -- $ -- $ 17,124 $ 17,124
=========== =========== =========== =========== =========== ===========
BRIGHAM INC.
Balance,
December 31, 1997 1,000 $ 1 $ 13,732 $ (5,066) $ -- $ 8,667
Capital contribution -- -- 2,377 -- -- 2,377
Net loss -- -- -- (5,661) -- (5,661)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 1,000 $ 1 $ 16,109 $ (10,727) $ -- $ 5,383
=========== =========== =========== =========== =========== ===========
BRIGHAM HOLDING I, LLC
Balance,
December 31, 1997 -- $ -- $ -- $ -- $ -- $ --
Partnership interest
contributed -- -- -- -- 29,911 29,911
Capital contribution -- -- -- -- 5,170 5,170
Net loss -- -- -- -- (23,362) (23,362)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 -- $ -- $ -- $ -- $ 11,719 $ 11,719
=========== =========== =========== =========== =========== ===========
BRIGHAM HOLDINGS II, LLC
Balance,
December 31, 1997 -- $ -- $ -- $ -- $ -- $ --
Partnership interest
contributed -- -- -- -- 13,318 13,318
Capital contribution -- -- -- -- 2,302 2,302
Net loss -- -- -- -- (10,408) (10,408)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 -- $ -- $ -- $ -- $ 5,212 $ 5,212
=========== =========== =========== =========== =========== ===========
See accompanying notes to the financial statements.
F2-8
43
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY
(in thousands)
Retained
Common Stock Additional Earnings/
--------------------------- Paid-in Accumulated Partners'
Shares Amounts Capital Deficit Capital Total
------------ ------------ ------------ ------------ ------------ ------------
BRIGHAM OIL & GAS, L.P.
Balance,
December 31, 1996 -- $ -- $ -- $ -- $ 3,244 $ 3,244
Capital contribution from
Brigham Exploration
Company at consummation
of Exchange -- -- -- -- 16,425 16,425
Capital contribution from
Brigham Exploration
Company of proceeds
from Offering -- -- -- -- 23,927 23,927
Net income -- -- -- -- 69 69
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1997 should be -- $ -- $ -- $ -- $ 43,665 $ 43,665
============ ============ ============ ============ ============ ============
BRIGHAM INC.
Balance,
December 31, 1996 1,000 $ 1 $ 29 $ -- $ -- $ 30
Increase in equity due to
change in ownership in the
Partnership resulting from the
Exchange and the Offering -- -- 13,703 -- -- 13,703
Net loss -- -- -- (5,066) -- (5,066)
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1997 1,000 $ 1 $ 13,732 $ (5,066) $ -- $ 8,667
============ ============ ============ ============ ============ ============
See accompanying notes to the financial statements.
F2-9
44
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND BACKGROUND
In August 1998, upon the filing of a registration statement with the SEC,
Brigham Exploration Company, a Delaware corporation, (the "Company") issued $50
million of debt and equity securities to two affiliated institutional investors.
The financing transaction consisted of the issuance of $40 million of senior
subordinated secured notes (the "Notes"). The Notes are fully and
unconditionally guaranteed, on a joint and several basis, by each of the
Company's directly or indirectly wholly-owned subsidiaries which are Brigham Oil
& Gas, L.P. (the "Partnership"), Brigham, Inc., Brigham Holdings I, LLC
("Holdings I"), and Brigham Holdings II, LLC ("Holdings II"). Furthermore, these
subsidiaries have pledged their respective stock and partnership interests as
collateral for the Notes. These financial statements include the financial
statements for the wholly owned subsidiaries whose securities and partnership
interests comprise substantially all of the collateral pledged for the Notes.
The Partnership was formed in May 1992 to explore and develop onshore
domestic natural gas and oil properties using 3-D seismic imaging and other
advanced technologies. Since its inception, the Partnership has focused its
exploration and development of natural gas and oil properties primarily in West
Texas, the Anadarko Basin and the onshore Gulf Coast. Brigham, Inc. is a Nevada
corporation whose only asset prior to the Exchange was its less than 1%
ownership interest in the Partnership. Brigham, Inc. is the managing general
partner of the Partnership.
On February 25, 1997, the Company was formed for the purpose of exchanging
its common stock for the common stock of Brigham, Inc. and the partnership
interests of the Partnership.
Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange
Agreement") and upon the initial filing on February 27, 1997 of a registration
statement with the Securities and Exchange Commission (the "SEC") for the public
offering of common stock (the "Offering"), the shareholders of Brigham, Inc.
transferred all of the outstanding stock of Brigham, Inc. to the Company in
exchange for 3,859,821 shares of common stock of the Company. Pursuant to the
Exchange Agreement, the Partnership's other general partner and the limited
partners also transferred all of their partnership interests to the Company in
exchange for 3,314,286 shares of common stock of the Company. Furthermore, the
holders of the Partnership's subordinated convertible notes transferred these
notes to the Company in exchange for 1,754,464 shares of common stock. These
transactions are referred to as "the Exchange." In completing the Exchange, the
Company issued 8,928,571 shares of common stock to the stockholders of Brigham,
Inc., the partners of the Partnership and the holder of the Partnership's
subordinated notes payable. In May 1997, the Company sold 3,325,000 shares of
its common stock in the Offering at a price of $8.00 per share. As a result of
the Exchange and the Offering, the Company owns a 68.5% partnership interest in
the Partnership and all of the outstanding shares of Brigham, Inc. Brigham, Inc.
owns the remainder of the Partnership interest in the Partnership. The proceeds
of the Offering were contributed to the Partnership by the Company.
Subsequent to the Exchange and the Offering, the Company owned a 68.5%
interest in the Partnership and Brigham, Inc. owned a 31.50% interest in the
Partnership. Effective January 1, 1998, Brigham, Inc. contributed 30.5% of its
31.5% interest in the Partnership to Holdings II, a newly formed Nevada LLC and
wholly owned subsidiary of Brigham, Inc., whose only asset is its investment in
the Partnership. Also effective January 1, 1998 the Company contributed its
68.5% interest in the Partnership to Holdings I, a newly formed Nevada LLC and
wholly owned subsidiary of the Company whose only asset is its investment in the
Partnership.
F2-10
45
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Partnership, Brigham, Inc., Holdings I and Holdings II (collectively referred to
as the "Subsidiaries"). Holdings II accounts for its interest in the Partnership
under the equity method. Brigham, Inc. consolidates its interests in the
Partnership and Holdings II as a result of its general partner interest in the
Partnership and its 100% ownership of Holdings II. Holdings I accounts for its
68.5% investment in the Partnership under the equity method and its ownership in
the Partnership is reflected as the minority interest in the consolidated
results of Brigham, Inc. All entities are either directly or indirectly
wholly-owned subsidiaries of the Company. All significant intercompany accounts
and transactions have been eliminated.
Substantially all of the Subsidiaries' assets are held by and all
operations conducted through the Partnership and its subsidiaries. All
references in these financial statements to assets held by the Partnership and
transactions entered into by the Partnership are applicable to Brigham, Inc.
through its consolidation of the Partnership.
Cash and Cash Equivalents
The Subsidiaries consider all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
All natural gas and oil properties are held by the Partnership which uses
the full cost method of accounting for its investment in natural gas and oil
properties. Under this method, all acquisition, exploration and development
costs, including certain payroll and other internal costs, incurred for the
purpose of finding natural gas and oil reserves are capitalized. Internal costs
capitalized are directly attributable to acquisition, exploration and
development activities and do not include costs related to production, general
corporate overhead or similar activities. Costs associated with production and
general and administrative activities are expensed in the period incurred.
The capitalized costs of the Partnership's natural gas and oil properties
plus future development, dismantlement, restoration and abandonment costs (the
"Amortizable Base"), net of estimated of salvage values, are amortized using the
unit-of-production method based upon estimates of total proved reserve
quantities. The Partnership's capitalized costs of its natural gas and oil
properties, net of accumulated amortization, are limited to the total of
estimated future net cash flows from proved natural gas and oil reserves,
discounted at ten percent, plus the cost of unevaluated properties. There are
many factors, including global events, that may influence the production,
processing, marketing and valuation of natural gas and oil. A reduction in the
valuation of natural gas and oil properties resulting from declining prices or
production could adversely impact depletion rates and capitalized cost
limitations.
All costs directly associated with the acquisition and evaluation of
unproved properties are initially excluded from the Amortizable Base. Upon the
interpretation by the Partnership of the 3-D seismic data associated with
unproved properties, the geological and geophysical costs related to acreage
that is not specifically identified as
F2-11
46
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
prospective are added to the Amortizable Base. Geological and geophysical costs
associated with prospective acreage, as well as leasehold costs, are added to
the Amortizable Base when the prospects are drilled. Costs of prospective
acreage are reviewed annually for impairment on a property-by-property basis.
At December 31, 1998, a capitalized ceiling impairment of $24.8 million was
recognized by the Partnership. The write down was calculated based on the
estimated discounted present value of future net cash flows from proved natural
gas and oil reserves using prices in effect at December 31, 1998.
Other property and equipment, which primarily consists of 3-D seismic
interpretation workstations, are depreciated on a straight-line basis over the
estimated useful lives of the assets after considering salvage value.
Estimated useful lives are as follows:
Furniture and fixtures........................................................................ 10 years
Machinery and equipment....................................................................... 5 years
3-D seismic interpretation workstations and software.......................................... 3 years
Betterments and major improvements that extend the useful lives are
capitalized, while expenditures for repairs and maintenance of a minor nature
are expensed as incurred.
Revenue Recognition
The Partnership recognizes natural gas and oil sales from its interests in
producing wells under the sales method of accounting. Under the sales method,
the Partnership recognizes revenues based on the amount of natural gas or oil
sold to purchasers, which may differ from the amounts to which the Partnership
is entitled based on its interest in the properties. Gas balancing obligations
as of December 31, 1997 and 1998 were not significant.
Industry participants in the Partnership's seismic programs are charged on
an hourly basis for the work performed by the Partnership on its 3-D seismic
interpretation workstations. The Partnership recognizes workstation revenue as
service is provided.
Derivative Instruments
Net realized gains or losses and related cash flows arising from the
Partnership's commodity price swaps (see Note 10) are recognized in the period
incurred as a component of natural gas and oil sales. If subsequent to being
hedged, underlying transactions are determined not to be likely to occur, the
related derivatives gains and losses are recognized in that period as "Other
income."
Federal and State Income Taxes
The Subsidiaries other than Brigham, Inc. are not taxable entities and as a
result, no income tax provision has been recorded. However, the taxable income
or loss resulting from their operations will ultimately be included in the
federal and state income tax returns of the Company and may vary substantially
from the income or loss reported for financial reporting purposes.
F2-12
47
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
Brigham, Inc., which is included in the Company's consolidated income tax
return, is subject to federal corporate income taxation and utilizes an asset
and liability approach for accounting for income taxes that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities. Resulting tax liabilities, if any, are borne by the
Company.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The standard, which was effective for financial statements issued for
periods ending after December 15, 1997, established standards for reporting, in
addition to net income, comprehensive income and its components including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. Adoption of this Standard has no impact on the Subsidiaries'
financial statements.
Recent Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, depending on the type of hedge transaction.
For fair value hedge transactions in which the Partnership is hedging changes in
an asset's, liability's, or firm commitment's fair value, changes in the fair
value of the derivative instrument will generally be offset in the income
statement by changes in the hedged item's fair value. For cash flow hedge
transactions in which the Partnership is hedging the variability of cash flows
related to a variable-rate asset, liability, or a forecasted transaction,
changes in the fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument that are
reported in other comprehensive income will be reclassified as earnings in the
periods in which earnings are impacted by the variability of the cash flows of
the hedged item. The ineffective portion of all hedges will be recognized in
current period earnings. The Partnership must adopt SFAS No. 133 effective
January 1, 2000. The Partnership is in the process of analyzing the potential
impact of this standard on its financial statement presentation.
3. ACQUISITION
On November 12, 1997, the Partnership acquired a 50% interest in certain
producing properties in Grady County, Oklahoma (the "Acquisition"). These
properties were formerly owned by Mobil and were acquired by Ward Petroleum. The
acquisition was accounted for as a purchase and the results of operations of the
properties acquired were included in the Partnership's results of operations
effective September 1, 1997. The purchase price of $13.4 million was financed
primarily through the Partnership's existing revolving credit facility and was
based on the Partnership's determination of the fair value of the assets
acquired.
Pro Forma Information
The following unaudited pro forma statement of operations information has
been prepared to give effect to the Acquisition as if the transaction had
occurred at the beginning of 1997. The Partnership's historical results of
F2-13
48
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
operations have been adjusted to reflect (i) the difference between the acquired
properties' historical depletion and such expense calculated based on the value
allocated to the acquired assets, and (ii) the increase in interest expense
associated with the debt issued in the transaction. The pro forma amounts do not
purport to be indicative of the results of operations that would have been
reported had the Acquisition occurred as of the dates indicated, or that may be
reported in the future (in thousands).
PRO FORMA
YEAR ENDED
DECEMBER 31,
1997
------------
Revenues .............................................. $ 11,194
Costs and expenses:
Lease operating and production taxes ........... 1,864
General and administrative ..................... 3,570
Depletion of natural gas and oil properties .... 3,307
Depreciation and amortization .................. 593
Interest expense, net .......................... 2,235
--------
Total costs and expenses ....................... 11,569
--------
Net loss .............................................. $ (375)
========
Upon consolidation with Brigham, Inc., pro-forma income tax expense would
be $5,040.
4. PROPERTY AND EQUIPMENT
Property and equipment (held by the Partnership), at cost, are summarized
as follows (in thousands):
DECEMBER 31,
----------------------
1998 1997
--------- ---------
Natural gas and oil properties ............................. $ 179,867 $ 96,587
Accumulated depletion ...................................... (45,550) (12,293)
--------- ---------
134,317 84,294
--------- ---------
Other property and equipment:
3-D seismic interpretation workstations and software ... 2,186 1,693
Office furniture and equipment ......................... 1,774 1,095
Accumulated depreciation ............................... (1,946) (1,549)
--------- ---------
2,014 1,239
--------- ---------
$ 136,331 $ 85,533
========= =========
The accumulated depletion balance for natural gas and oil properties at
December 31, 1998, includes the effect of a capitalized ceiling impairment of
$24.8 million described at Note 2, "Property and Equipment."
The Partnership sold its interest in certain producing properties for
$74,000 during 1997. No gain or loss was recognized on this transaction because
the Partnership applies the full cost method of accounting for its investment in
natural gas and oil properties.
F2-14
49
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
The Partnership capitalizes certain payroll and other internal costs
directly attributable to acquisition, exploration and development activities as
part of its investment in natural gas and oil properties over the periods
benefited by these activities. Capitalized costs do not include any costs
related to production, general corporate overhead, or similar activities. During
the years ended December 31, 1997 and 1998, these capitalized costs amounted to
$3.5 million and $4.6 million, respectively, were capitalized.
5. NOTES PAYABLE AND SENIOR SUBORDINATED NOTES PAYABLE
In April 1996, the Partnership entered into a revolving credit facility
which provided for borrowings up to $25 million. On November 10, 1997, this
facility was amended and the amount available under the agreement was increased
to $75 million. The Partnership's borrowings under this facility were limited to
a borrowing base determined periodically by the lender. This determination was
based upon the proved reserves of the Partnership's natural gas and oil
properties.
The amounts outstanding under this facility, excluding a $5.4 million
special advance made November 12, 1997, bore interest, at the borrower's option,
at the Base Rate or (i) LIBOR plus 1.75% if the principal outstanding was less
than or equal to 50% of the borrowing base, (ii) LIBOR plus 2.0% if the
principal outstanding was less than or equal to 75% but more than 50% of the
borrowing base, and (iii) LIBOR plus 2.25% if the principal outstanding was
greater than 75% of the borrowing base. The Base Rate is the fluctuating rate of
interest per annum established from time to time by the lender. Interest accrued
on the $5.4 million special advance at 11.50% per annum. The Partnership also
paid a quarterly commitment fee of 0.5% per annum for the unused portion of the
borrowing base.
In January 1998, the Partnership entered into a new reserve-based revolving
credit facility (the "Credit Facility"). The Credit Facility originally provided
for borrowings up to $75 million, all of which was immediately available for
borrowing to fund capital expenditures. A portion of the funds available under
the Credit Facility were used to repay in full the debt outstanding under the
Partnership's previous revolving credit facility. Principal outstanding under
the Credit Facility is due at maturity on January 26, 2001 with interest due
monthly for base rate tranches or periodically as LIBOR tranches mature. Amounts
outstanding under the Credit Facility bore interest at either the lender's Base
Rate or LIBOR plus 2.25%, at the Partnership's option. The Credit Facility
contains covenants restricting the Company's ability to declare or pay dividends
on its stock. In connection with the origination of the Credit Facility, certain
bank fees and other expenses totaling approximately $1.9 million were recorded
as deferred costs and are amortized over the life of the loan. The Credit
Facility's borrowing base was reduced to $65 million upon issuance of the senior
subordinated notes in August 1998.
In March 1999, the Partnership and its lenders entered into an amendment to
the Credit Facility. Pursuant to this amendment, the borrowing availability
under the Credit Facility remains at $65 million and the initial borrowing
availability redetermination date was extended from January 31, 1999 to June 1,
1999, when the borrowing availability will be redetermined by the lenders based
on the Partnership's then proved reserve value and cash flows. To the extent
that the amounts outstanding under the Credit Facility exceed the borrowing
availability at the redetermination date, the Partnership may be required to
repay such excess under provision of the amendment. In addition, certain
financial covenants have been amended, additional covenants have been included
that place significant restrictions on the Partnership's ability to make certain
capital expenditures, and the annual interest rate for borrowings under the
Credit Facility is revised to the lender's base rate or LIBOR plus 3.0%
F2-15
50
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
and the Partnership will pay the lender a $500,000 transaction fee over a ten
month period. The Partnership's obligations under the Credit Facility are
secured by substantially all of the natural gas and oil properties and other
tangible assets of the Partnership.
In August 1998, upon the filing of a registration statement with the SEC,
the Company issued $50 million of debt and equity securities to two affiliated
institutional investors. The financing transaction consisted of the issuance of
$40 million of senior subordinated secured notes (the "Notes") with warrants
(the "Warrants") to purchase the Company's common stock and the sale of $10
million of the Company's common stock, or 1,052,632 shares at a price of $9.50
per share. The combined sale of the Notes and common stock of the Company
generated proceeds, net of offering costs, of approximately $47.5 million that
was used to repay a portion of the then outstanding borrowings under the
Partnership's Credit Facility.
The Notes mature in August 2003, with no principal payments required until
maturity and quarterly interest payments payable either in cash at an annual
rate of 12% or, in limited circumstances, the issuance of additional notes at an
annual interest rate of 13% for the first three years. The Company may repay the
Notes in full without premium at any time prior to maturity. The indenture
governing the Notes contains certain covenants including, but not limited to,
limitations or restrictions on indebtedness, distributions, affiliate
transactions, liens and sale and leaseback transactions. The indenture prohibits
all dividends on the Company's stock. Warrants to purchase 1 million shares of
the Company's common stock exercisable during a period of seven years at a price
of $10.45 per share were issued in connection with the Notes.
The Notes are fully and unconditionally guaranteed, on a joint and several
basis, by each of the Subsidiaries all of which are directly or indirectly
wholly-owned by the Company. The obligations of the Subsidiaries under the
subsidiary guaranty agreements are subordinated to the senior indebtedness of
the Partnership. Furthermore, all Subsidiaries have pledged their respective
stock and Partnership interests as collateral for the Notes.
Concurrent with the issuance of the Notes, the Company recorded a discount
on the Notes of $4.5 million to reflect the estimated value of the Warrants.
Also in connection with the issuance of the Notes, certain fees and expenses
totaling approximately $1.8 million were recorded as deferred costs. The Note
discount and deferred fees are amortized over the five year term of the Notes.
The $40 million in proceeds from the Notes and Warrants were transferred
through a series of intercompany notes from the Company to Brigham, Inc.; from
Brigham, Inc. to Holdings II; and from Holdings II to the Partnership. Principal
on the intercompany notes is due at the maturity of the Notes and intercompany
interest accrues at rates corresponding to those applicable to the Notes.
Approximately $7.6 million of the proceeds from the common stock was transferred
through a series of intercompany capital contributions from the Company to
Holdings I ($5.2 million) and Brigham, Inc. ($2.4 million); from Holdings I to
the Partnership ($5.2 million); from Brigham, Inc. to Holdings II ($2.3 million)
and the Partnership ($75,000); and from Holdings II to the Partnership ($2.3
million).
In March 1999, the indenture governing the Notes was amended to provide the
Company with the option to pay interest due on the Notes in kind, for any
reason, through the second quarter of 2000. In addition, certain financial and
other covenants were amended. The amendment also provides for a reduction in the
exercise price per share of the Warrants from $10.45 per share to $3.50 per
share.
F2-16
51
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
6. CAPITAL LEASE OBLIGATIONS
Property under capital leases held by the Partnership consists of the
following (in thousands):
DECEMBER 31,
--------------
1998 1997
----- -----
3-D seismic interpretation workstations and software ... $ 620 $ 497
Office furniture and equipment ......................... 167 204
----- -----
787 701
Accumulated depreciation and amortization .............. (276) (241)
----- -----
$ 511 $ 460
===== =====
The obligations under capital leases are at fixed interest rates ranging
from 8.7% to 17.9% and are collateralized by property, plant and equipment. The
future minimum lease payments under the capital leases and the present value of
the net minimum lease payments at December 31, 1998 are as follows (in
thousands):
1999 ........................................................................................... $ 323
2000 ........................................................................................... 237
2001 ........................................................................................... 95
2002 ........................................................................................... 24
------------
Total minimum lease payments...................................................................... 679
Estimated executory costs included in capital leases.......................................... (50)
------------
Net minimum lease payments........................................................................ 629
Amounts representing interest................................................................. (90)
------------
Present value of net minimum lease payments....................................................... 539
Less: current portion............................................................................ (240)
------------
Noncurrent portion................................................................................ $ 299
============
7. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED
DECEMBER 31,
------------------
1998 1997
------- -------
Current income taxes:
Federal................................ $ -- $ --
State ................................. -- --
Deferred income taxes:
Federal ............................... (5,088) 5,088
State ................................. -- --
------- -------
$(5,088) $ 5,088
======= =======
F2-17
52
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
The difference in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
YEAR ENDED
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Tax at statutory rate ............. $ (3,655) $ 7
Add (deduct) the effect of:
Tax effect of Exchange ........ (1,433) 5,081
------------ ------------
$ (5,088) $ 5,088
============ ============
The components of deferred income tax assets and liabilities are as follows
(in thousands):
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Deferred tax assets:
Net operating loss carryforwards ........ $ 4,767 $ 1,496
Deferred tax liability:
Depreciable and depletable property ..... (4,767) (6,584)
------------ ------------
$ -- $ (5,088)
============ ============
At December 31, 1998, Brigham, Inc. had regular and alternative minimum tax
net operating loss carryforwards of approximately $14 million and $11 million,
respectively, each including separate return limitation year carryovers of
approximately $1.2 million, which expire by December 31, 2018.
8. CONTINGENCIES, COMMITMENTS AND FACTORS WHICH MAY AFFECT FUTURE OPERATIONS
Litigation
The Subsidiaries are, from time to time, party to certain lawsuits and
claims arising in the ordinary course of business. While the outcome of lawsuits
and claims cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial condition, results
of operations or cash flows of the Subsidiaries.
As of December 31, 1998, there were no known environmental or other
regulatory matters related to the Subsidiaries' operations which are reasonably
expected to result in a material liability to the Subsidiaries. Compliance with
environmental laws and regulations has not had, and is not expected to have, a
material adverse effect on their capital expenditures, earnings or competitive
position.
Lease Commitments
The Partnership leases office equipment and space under operating leases
expiring at various dates through 2002. The future minimum annual rental
payments under the noncancelable terms of these leases at December 31, 1998, are
as follows (in thousands):
F2-18
53
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
1999............................................... $ 868
2000............................................... 790
2001............................................... 789
2002............................................... 395
---------
$ 2,842
=========
Rental expense for the years ended December 31, 1997 and 1998 was $606,173
and $875,150, respectively.
Factors Which May Affect Future Operations
Since the Partnership's major products are commodities, significant changes
in the prices of natural gas and oil could have a significant impact on the
Company's results of operations for any particular year.
Due to an expectation for continuing difficult industry and capital markets
conditions, the Company and the Subsidiaries have substantially reduced their
planned capital budget for 1999 and have undertaken a number of strategic
initiatives in an effort to improve and preserve capital liquidity in the
current environment. The Company and the Subsidiaries have adapted their
business strategy in the near-term through the implementation of the following
principal strategic initiatives: (i) focusing all of the Partnership's planned
exploration efforts in 1999 towards the drilling of its highest grade 3-D
prospects, (ii) eliminating substantially all planned seismic and land
expenditures for new projects until its capital resources can support such
additional activity, (iii) seeking to divest certain producing natural gas and
oil properties in an effort to raise capital to reduce debt borrowings and to
redirect capital to drilling projects that have the potential to generate higher
investment returns, (iv) restructuring outstanding senior and subordinated debt
agreements to provide the Company and the Partnership with flexibility needed to
preserve cash flow to fund its expected near-term exploration activities, (v)
implementing an overhead reduction plan to reduce annual general and
administrative expenses, and (vi) evaluating opportunities to raise additional
equity capital either through the sales of interests in certain of its seismic
projects or the issuance of equity securities. The Company and the Subsidiaries
believe that the successful execution of these strategic initiatives will
provide sufficient capital resources to execute their planned 1999 exploration
program and position them to realize the significant value they believe the
Partnership has captured in its inventory of 3-D seismic projects and delineated
drilling locations. While the Company and the Subsidiaries have initiated each
of these strategic directives in late 1998 and early 1999, and have effected
certain of them to date, the successful completion of any or all of these
efforts to improve capital availability within the expected time frame is
uncertain and will likely have a material impact on the Company's and the
Subsidiaries' near-term capital expenditure levels and growth profiles.
9. SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which the Subsidiaries adopted in the
first quarter of 1998. The statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the reportable
segments. It also requires disclosures about products and services, geographic
areas and major customers.
F2-19
54
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
All of the Partnership's natural gas and oil properties and related
operations are located in the United States and management has determined that
each Subsidiary has one reportable segment.
During 1998, approximately 25%, 15%, 11% and 11% of the Partnership's
natural gas and oil production was sold to four separate customers. During 1997,
approximately 14% and 12% of the Partnership's natural gas and oil production
was sold to two separate customers. However, due to the availability of other
markets, the Partnership does not believe that the loss of any one of these
individual customers would adversely affect its result of operations.
10. FINANCIAL INSTRUMENTS
The Partnership periodically enters into commodity price swap agreements
which require payments to (or receipts from) counterparties based on the
differential between a fixed price and a variable price for a fixed quantity of
natural gas or crude oil without the exchange of the underlying volumes. The
notional amounts of these derivative financial instruments are based on planned
production from existing wells. The Partnership uses these derivative financial
instruments to manage market risks resulting from fluctuations in commodity
prices. Commodity price swaps are effective in minimizing these risks by
creating essentially equal and offsetting market exposures. The derivative
financial instruments held by the Partnership are not leveraged and are held for
purposes other than trading.
In 1997, the Partnership was a party to a crude oil swap arrangement
resulting in a fixed price over a period of time for a specified volume of crude
oil. Adjustment to the price received for oil under these swap arrangements
resulted in a decrease in oil revenues of $6,191 in 1997.
In February 1998, the Partnership entered into a hedging contract whereby
10,000 MMBtu per day of natural gas is purchased and sold subject to a fixed
price swap agreement for monthly periods from April 1998 through October 1999.
Pursuant to these arrangements the Partnership exchanges a floating market price
for a contract month and payments are received when the fixed price exceeds the
floating price. Total natural gas subject to this hedging contract is 2,750,000
MMBtu in 1998 and 3,040,000 MMBtu in 1999. As a result of this natural gas
hedging contract, the Partnership realized an increase in revenues of $555,240
during 1998.
In August 1998, the Partnership entered into a hedging contract whereby
5,000 MMBtu per day of natural gas is purchased and sold subject to a fixed
price swap agreement for monthly periods from April 1999 through October 1999.
Pursuant to these arrangements the Partnership exchanges a floating market price
for a fixed contract price of $2.015 per MMBtu. Payments are made by the
Partnership when the floating price exceeds the fixed price for a contract month
and payments are received when the fixed price exceeds the floating price. Total
natural gas subject to this hedging contract is 1,070,000 MMBtu in 1999.
In January 1999, the Partnership entered into a swap agreement with terms
similar to existing agreements which relates to production for monthly periods
from November 1999 through April 2001. Pursuant to these arrangements, 15,000
MMBtu per day of natural gas is purchased and sold subject to a fixed price swap
agreement, and the Partnership exchanges a floating market price for a fixed
contract price of $2.065 per MMBtu. Total natural gas volumes subject to this
agreement are 915,000 MMBtu, 5,490,000 MMBtu and 1,800,000 MMBtu in 1999, 2000
and 2001, respectively.
F2-20
55
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
The Partnership's non-derivative financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amount of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of their immediate or short maturities.
The carrying value of the Partnership's revolving credit facility (see Note 5)
approximates its fair market value since it bears interest at floating market
interest rates.
The Partnership's accounts receivable relate to natural gas and oil sales
to various industry companies, amounts due from industry participants for
expenditures made by the Partnership on their behalf and workstation revenues.
Credit terms, typical of industry standards, are of a short-term nature and the
Partnership do not require collateral. The Partnership's accounts receivable at
December 31, 1998 do not represent significant credit risks as they are
dispersed across many counterparties. Counterparties to the natural gas and
crude oil price swaps are investment grade financial institutions.
11. EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
During 1996 the Partnership adopted a defined contribution 401(k) plan for
substantially all of its employees. In 1997 Brigham, Inc. succeeded to the
401(k) plan when the employees of the Partnership became employees of Brigham,
Inc. Eligible employees may contribute up to 15% of their compensation to this
plan. The 401(k) plan provides that the employer may, at its discretion, match
employee contributions. The employer has not matched employee contributions in
any plan year.
Stock Compensation
In 1994 three employees were granted restricted interests in the
Partnership which vest in increments through July 1999. At the date of grant,
the value of these interests was immaterial. On February 26, 1997, in connection
with the Exchange (see Note 1), the three employees transferred these
Partnership interests to the Company in exchange for 156,250 shares of
restricted common stock of the Company. The terms of the restricted stock and
the restricted company interests are substantially the same. The shares vest
over a three-year period ending in 1999. No compensation expense will result
from this exchange.
The Company adopted an incentive plan, effective upon completion of the
Exchange (see Note 1), which provides for the issuance of stock options, stock
appreciation rights, stock, restricted stock, cash or any combination of the
foregoing. The objective of this plan is to reward key employees whose
performance may have a significant effect on the success of the Company.
Non-cash compensation expense related to certain stock options granted under the
incentive plan by the Company on behalf of the Partnership has been allocated to
the Partnerships's results of operations. Compensation expense allocated to the
Partnership totaled $833,710 and $782,544 in 1997 and 1998, respectively.
12. SUBSEQUENT EVENT
In February 1999, the Partnership entered into a project financing
arrangement with Duke Energy Financial Services, Inc. ("Duke") to fund the
continued exploration of five projects covered by approximately 200 square
F2-21
56
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
miles of 3-D seismic data acquired in 1998. In this transaction, the Partnership
conveyed 100% of its working interest in land and seismic in these project areas
to a newly formed limited liability company (the "Duke LLC") for a total
consideration of $10 million. The Partnership is the managing member of the Duke
LLC with a 1% interest, and Duke is the sole remaining member with a 99%
interest. Pursuant to the terms of the Duke LLC agreement, the Partnership pays
100% of the drilling and completion costs for all wells drilled by the Duke LLC
in exchange for a 70% working interest in the wells and their associated
drilling and spacing units and allocable seismic data. Upon 100% project payout,
the Partnership has certain rights to back-in for up to a 94% effective working
interest in the Duke LLC properties.
13. NATURAL GAS AND OIL EXPLORATION AND PRODUCTION ACTIVITIES
The tables presented below provide supplemental information about natural
gas and oil exploration and production activities as defined by SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities." All natural gas and oil
properties are held by the Partnership.
The Partnership's natural gas and oil properties are included in the
consolidated results of Brigham, Inc., subject to the minority interest of 68.5%
held by the Company in 1997 and by Holdings I in 1998.
Results of Operations for Natural Gas and Oil Producing Activities (in
thousands)
YEAR ENDED
DECEMBER 31,
----------------------------
1998(a) 1997(a)
------------ ------------
Natural gas and oil sales......................................................... $ 13,799 $ 9,184
Costs and expenses:
Lease operating............................................................... 2,172 1,151
Production taxes.............................................................. 850 549
Depletion of natural gas and oil properties................................... 8,410 2,743
Capitalized ceiling impairment................................................ 24,847 -
------------ ------------
Total costs and expenses.......................................................... 36,279 4,443
------------ ------------
$ (22,480) $ 4,741
============ ============
Depletion per physical unit of production (equivalent Mcf of gas)................. $ 1.27 $ 0.88
============ ============
- ----------
(a) The income tax expense (benefit) related to Brigham, Inc. for 1997
and 1998 is calculated at the statutory rate and determined without
regard to deduction for general and administrative expenses, interest
costs and other income tax deductions and credits. Upon consolidation
of the Partnership interest into Brigham, Inc. for 1997 and 1998, the
income tax expense (benefit) related to results of operations for
natural gas and oil producing activities for Brigham, Inc. would be
$(2,478) and $523, respectively.
Natural gas and oil sales reflect the market prices of net production sold
or transferred, with appropriate adjustments for royalties, net profits interest
and other contractual provisions. Lease operating expenses include lifting costs
incurred to operate and maintain productive wells and related equipment,
including such costs as operating labor, repairs and maintenance, materials,
supplies and fuel consumed. Production taxes include
F2-22
57
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
production and severance taxes. Depletion of natural gas and oil properties
relates to capitalized costs incurred in acquisition, exploration and
development activities. Results of operations do not include interest expense
and general corporate amounts.
Costs Incurred and Capitalized Costs
The costs incurred in natural gas and oil acquisition, exploration and
development activities follow (in thousands):
DECEMBER 31,
--------------------
1998 1997
-------- --------
Costs incurred for the year:
Exploration ................... $ 67,110 $ 29,516
Property acquisition .......... 16,245 26,956
Development ................... 10,427 2,953
Proceeds from participants .... (10,502) (319)
-------- --------
$ 83,280 $ 59,106
======== ========
Costs incurred represent amounts incurred by the Partnership for
exploration, property acquisition and development activities. Periodically, the
Partnership will receive proceeds from participants subsequent to project
initiation for an assignment of an interest in the project. These payments are
represented by "Proceeds from participants" in the table above.
Capitalized costs related to natural gas and oil acquisition, exploration
and development activities follow (in thousands):
DECEMBER 31,
----------------------
1998 1997
--------- ---------
Cost of natural gas and oil properties at year-end:
Proved ............................................ $ 127,491 $ 67,744
Unproved .......................................... 52,376 28,843
--------- ---------
Total capitalized costs ........................... 179,867 96,587
Accumulated depletion ............................. (45,550) (12,293)
--------- ---------
$ 134,317 $ 84,294
========= =========
Following is a summary of costs (in thousands) excluded from depletion at
December 31, 1998, by year incurred. At this time, the Partnership is unable to
predict either the timing of the inclusion of these costs and the related
natural gas and oil reserves in its depletion computation or their potential
future impact on depletion rates.
DECEMBER 31,
-------------------------------- Prior
1998 1997 1996 Years Total
------- ------- ------ ------ -------
Property acquisition $ 9,659 $13,161 $1,176 $1,278 $25,274
Exploration 21,577 5,072 320 133 27,102
------- ------- ------ ------ -------
Total $31,236 $18,233 $1,496 $1,411 $52,376
======= ======= ====== ====== =======
F2-23
58
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
16. NATURAL GAS AND OIL RESERVES AND RELATED FINANCIAL DATA (UNAUDITED)
Information with respect to the Partnership's natural gas and oil producing
activities is presented in the following tables. Reserve quantities as well as
certain information regarding future production and discounted cash flows were
determined by the Partnership's independent petroleum consultants and internal
petroleum reservoir engineer.
Natural Gas and Oil Reserve Data
The following tables present the Partnership's estimates of its proved
natural gas and oil reserves. The Partnership emphasizes that reserve estimates
are approximates and are expected to change as additional information becomes
available. Reservoir engineering is a subjective process of estimating
underground accumulations of natural gas and oil that cannot be measured in an
exact way, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated. A substantial portion
of the reserve balances were estimated utilizing the volumetric method, as
opposed to the production performance method.
NATURAL
GAS Oil
(MMCF) (MBbls)
------- -------
Proved reserves at December 31, 1996 .................. 10,257 1,940
Revisions to previous estimates ................... (3,044) (447)
Extensions, discoveries and other additions ....... 33,721 735
Purchase of minerals-in-place ..................... 13,718 1,244
Sales of minerals-in-place ........................ (40) --
Production ........................................ (1,382) (291)
------- -------
Proved reserves at December 31, 1997 .................. 53,230 3,181
Revisions of previous estimates ................... (26,696) (115)
Extensions, discoveries and other additions ....... 48,050 1,752
Purchase of minerals-in-place ..................... 851 11
Production ........................................ (4,269) (396)
------- -------
Proved reserves at December 31, 1998 .................. 71,166 4,433
======= =======
Proved developed reserves at December 31:
1997 .............................................. 30,677 2,665
1998 .............................................. 38,571 2,935
Proved reserves are estimated quantities of crude natural gas and oil which
geological and engineering data indicate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods.
F2-24
59
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein
The following table presents a standardized measure of discounted future
net cash inflows (in thousands) relating to proved natural gas and oil reserves.
Future cash flows were computed by applying year end prices of natural gas and
oil relating to the Partnership's proved reserves to the estimated year-end
quantities of those reserves. Future price changes were considered only to the
extent provided by contractual agreements in existence at year-end. Future
production and development costs were computed by estimating those expenditures
expected to occur in developing and producing the proved natural gas and oil
reserves at the end of the year, based on year-end costs. Actual future cash
inflows may vary considerably and the standardized measure does not necessarily
represent the fair value of the Partnership's natural gas and oil reserves.
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
Future cash inflows................................................................ $ 198,082 $ 165,156
Future development and production costs............................................ (61,064) (40,923)
------------ ------------
Future net cash inflows............................................................ $ 137,018 $ 124,233
============ ============
Standardized measure of future net cash inflows discounted
at 10% per annum............................................................... $ 81,741 $ 69,249
============ ============
Estimated future income tax expense as of December 31, 1997 and 1998
attributable to Brigham, Inc.'s interest in the Partnership was $7.2 million and
$2.2 million, respectively. The standardized measure of future net cash inflows
discounted at 10% per annum as of December 31, 1997 and 1998 after estimated
income taxes attributable to Brigham, Inc.'s interest in the Partnership was
$67.7 million and $81.7 million, respectively.
The base sales prices for the Partnership's reserves were $3.71 per Mcf for
natural gas and $25.37 per Bbl for oil as of December 31, 1996, $2.27 per Mcf
for natural gas and $15.50 per Bbl for oil as of December 31, 1997, and $2.12
per Mcf for natural gas and $9.50 per Bbl for oil as of December 31, 1998. These
base prices were adjusted to reflect applicable transportation and quality
differentials on a well-by-well basis to arrive at realized sales prices used to
estimate the Partnership's reserves at these dates.
F2-25
60
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
Changes in the future net cash inflows discounted at 10% per annum follow:
DECEMBER 31,
--------------------
1998 1997
-------- --------
Beginning of period .................................................. $ 69,249 $ 44,506
Sales of natural gas and oil produced, net of production
costs ....................................................... (10,776) (7,484)
Development costs incurred ....................................... 5,423 1,955
Extensions and discoveries ....................................... 52,389 38,016
Purchases of minerals-in-place ................................... 687 16,965
Sales of minerals-in-place ....................................... -- (94)
Net change of prices and production costs ........................ (11,921) (20,466)
Change in future development costs ............................... (656) 319
Changes in production rates and other ............................ (6,109) (1,954)
Revisions of quantity estimates .................................. (23,470) (6,964)
Accretion of discount ............................................ 6,925 4,450
-------- --------
End of period ........................................................ $ 81,741 $ 69,249
======== ========
The estimated change in future net cash inflows discounted at 10% per
annum attributable to income taxes for the years ended December 31, 1997 and
1998 attributable to Brigham, Inc.'s interest in the Partnership was $(1.6)
million and $1.5 million, respectively.
F2-26
61
INDEX TO EXHIBITS
Number Description
- ------ -----------
2.1 -- Exchange Agreement (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
3.1 -- Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
3.2 -- Bylaws (filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
4.1 -- Form of Common Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
4.2+ -- Indenture dated as of August 20, 1998 between Brigham Exploration
Company and Chase Bank of Texas, National Association, as Trustee.
4.2.1++ -- Supplemental Indenture dated as of March 26, 1999 between Brigham
Exploration Company and Chase Bank of Texas, National Association,
as Trustee.
4.3++ -- Form of Warrant Certificate.
4.4 -- Form of Senior Subordinated Secured Note due 2003 (filed as
Exhibit 4.4 to the Company's Registration Statement on Form S-1
(Registration No. 333-53873), and incorporated herein by reference).
10.1 -- Agreement of Limited Partnership, dated May 1, 1992, between
Brigham Exploration Company and General Atlantic Partners III, L.P.
as general partners, and Harold D. Carter and GAP-Brigham Partners,
L.P. as limited partners (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.1.1 -- Amendment No. 1 to Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated May 1, 1992, by and among Brigham Exploration
Company, General Atlantic Partners III, L.P., GAP-Brigham Partners,
L.P. and Harold D. Carter (filed as Exhibit 10.1.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.1.2 -- Amendment No. 2 to Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated September 30, 1994, by and among Brigham
Exploration Company, General Atlantic Partners III, L.P.,
GAP-Brigham Partners, L.P., Harold D. Carter and the additional
signatories thereto (filed as Exhibit 10.1.2 to the Company's
62
Number Description
- ------ -----------
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.1.3 -- Amendment No. 3 to Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated August 24, 1995, by and among Brigham
Exploration Company, General Atlantic Partners III, L.P.,
GAP-Brigham Partners, L.P., Harold D. Carter, Craig M. Fleming,
David T. Brigham and Jon L. Glass (filed as Exhibit 10.1.3 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.1.4+ -- Amended and Restated Agreement of Limited Partnership of Brigham
Oil & Gas, L.P., dated December 30, 1997 by and among Brigham, Inc.,
Brigham Holdings I, L.L.C. and Brigham Holdings II, L.L.C.
10.2 -- Agreement of Limited Partnership of Venture Acquisitions, L.P.,
dated September 23, 1994, by and between Quest Resources, L.L.C. and
RIMCO Energy, Inc. as general partners, and RIMCO Production
Company, Inc., RIMCO Exploration Partners, L.P. I and RIMCO
Exploration Partners, L.P. II, as limited partners (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.3 -- Regulations of Quest Resources, L.L.C. (filed as Exhibit 10.3 to
the Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.4 -- Management and Ownership Agreement, dated September 23, 1994, by
and among Brigham Oil & Gas, L.P., Brigham Exploration Company,
General Atlantic Partners III, L.P., Harold D. Carter, Ben M.
Brigham and GAP-Brigham Partners, L.P. (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.5* -- Consulting Agreement, dated May 1, 1997, by and between Brigham
Oil & Gas, L.P. and Harold D. Carter (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Registration No.
33-53873), and incorporated herein by reference).
10.6* -- Employment Agreement, by and between Brigham Exploration Company
and Ben M. Brigham (filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.7* -- Form of Confidentiality and Noncompete Agreement between the
Registrant and each of its executive officers (filed as Exhibit 10.8
to the Company's Registration Statement on Form S-1 (Registration
No. 333-22491), and incorporated herein by reference).
10.8* -- 1997 Incentive Plan of Brigham Exploration Company (filed as
Exhibit 10.9 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.8.1* -- Form of Option Agreement for certain executive officers (filed as
Exhibit 10.9.1 to the Company's Registration Statement on Form S-1
(Registration No. 333- 22491), and incorporated herein by
reference).
10.8.2* -- Option Agreement dated as of March 4, 1997, by and between
Brigham Exploration Company and Jon L. Glass (filed as Exhibit
10.9.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.9* -- Incentive Bonus Plan dated as of February 28, 1997 of Brigham,
Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.10 -- Two Bridgepoint Lease Agreement, dated September 30, 1996, by and
between Investors Life Insurance Company of North America and
Brigham Oil & Gas, L.P.
63
Number Description
- ------ -----------
(filed as Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.10.1 -- First Amendment to Two Bridge Point Lease Agreement dated April
11, 1997 between Investors Life Insurance Company of North America
and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-53873), and incorporated herein by reference).
10.10.2 -- Second Amendment to Two Bridge Point Lease Agreement dated
October 13, 1997 between Investors Life Insurance Company of North
America and Brigham Oil & Gas, L.P. (filed as Exhibit 10.9.2 to the
Company's Registration Statement on Form S-1 (Registration No.
333-53873), and incorporated herein by reference).
10.10.3 -- Letter dated April 17, 1998 exercising Right of First Refusal to
Lease "3rd Option Space" (filed as Exhibit 10.9.3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-53873), and
incorporated herein by reference).
10.11 -- Anadarko Basin Seismic Operations Agreement, dated February 15,
1996, by and between Brigham Oil & Gas, L.P. and Veritas
Geophysical, Ltd. (filed as Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (Registration No. 333- 22491),
and incorporated herein by reference).
10.11.1 -- Letter Amendment to Anadarko Basin Seismic Operations Agreement,
dated June 10, 1996, between Brigham Oil & Gas, L.P. and Veritas
Geophysical, Ltd. (filed as Exhibit 10.15.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.12 -- Expense Allocation and Participation Agreement, dated April 1,
1996, between Brigham Oil & Gas, L.P. and Gasco Limited Partnership.
(filed as Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (Registration No. 333- 22491), and incorporated herein by
reference).
10.12.1 -- Amendment to Expense Allocation and Participation Agreement,
dated October 21, 1996, between Brigham Oil & Gas, L.P. and Gasco
Limited Partnership (filed as Exhibit 10.16.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.13 -- Expense Allocation and Participation Agreement, dated April 1,
1996, between Brigham Oil & Gas, L.P. and Middle Bay Oil Company,
Inc. (filed as Exhibit 10.17 to the Company's Registration Statement
on Form S-1 (Registration No. 333- 22491), and incorporated herein
by reference).
10.13.1 -- Amendment to Expense Allocation and Participation Agreement,
dated September 26, 1996, between Brigham Oil & Gas, L.P. and Middle
Bay Oil Company, Inc. (filed as Exhibit 10.17.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.13.2 -- Letter Amendment to Expense Allocation and Participation
Agreement, dated May 20, 1996, between Brigham Oil & Gas, L.P. and
Middle Bay Oil Company, Inc. (filed as Exhibit 10.17.2 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.14 -- Anadarko Basin Joint Participation Agreement, dated May 1, 1996,
by and among Stephens Production Company and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (Registration No. 333- 22491), and incorporated herein by
reference).
10.15 -- Anadarko Basin Joint Participation Agreement, dated May 1, 1996,
by and between Vintage Petroleum, Inc. and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.19 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.16 -- Processing Alliance Agreement, dated July 20, 1993, between
Veritas Seismic Ltd. and Brigham Oil & Gas, L.P. (filed as Exhibit
10.20 to the Company's Registration
64
Number Description
- ------ -----------
Statement on Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
10.16.1 -- Letter Amendment to Processing Alliance Agreement, dated November
3, 1994, between Veritas Seismic Ltd. and Brigham Oil & Gas, L.P.
(filed as Exhibit 10.20.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.17 -- Agreement and Assignment of Interest, West Bradley Project, dated
September 1, 1995, by and between Aspect Resources Limited Liability
Company and Brigham Oil & Gas, L.P. (filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.18 -- Agreement and Assignment of Interests in lands located in Grady
County, Oklahoma, West Bradley Project, dated December 1, 1995, by
and between Aspect Resources Limited Liability Company, Brigham Oil
& Gas, L.P. and Venture Acquisitions, L.P. (filed as Exhibit 10.22
to the Company's Registration Statement on Form S-1 (Registration
No. 333-22491), and incorporated herein by reference).
10.19 -- Agreement and Assignment of Interests, West Bradley Project,
dated December 1, 1995, by and between Aspect Resources Limited
Liability Company and Brigham Oil & Gas, L.P. (filed as Exhibit
10.23 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.20 -- Geophysical Exploration Agreement, Hardeman Project, Hardeman and
Wilbarger Counties, Texas and Jackson County, Oklahoma, dated March
15, 1993 by and among General Atlantic Resources, Inc., Maynard Oil
Company, Ruja Muta Corporation, Tucker Scully Interests Ltd., JHJ
Exploration, Ltd., Cheyenne Petroleum Company, Antrim Resources,
Inc., and Brigham Oil & Gas, L.P. (filed as Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.21 -- Agreement and Partial Assignment of Interests in OK13-P Prospect
Area, Jackson County, Oklahoma (Hardeman Project), dated August 1,
1995, by and between Brigham Oil & Gas, L.P. and Aspect Resources
Limited Liability Company (filed as Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.22 -- Agreement and Partial Assignment of Interests in Q140-E Prospect
Area, Hardeman County, Texas (Hardeman Project), dated August 1,
1995, by and between Brigham Oil & Gas, L.P. and Aspect Resources
Limited Liability Company (filed as Exhibit 10.26 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.23 -- Agreement and Partial Assignment of Interests in Hankins #1
Chappel Prospect Agreement, Jackson County, Oklahoma (Hardeman
Project), dated March 21, 1996, by and between Brigham Oil & Gas,
L.P., NGR, Ltd. and Aspect Resources Limited Liability Company
(filed as Exhibit 10.27 to the Company's Registration Statement on
Form S-1 (Registration No. 333-22491), and incorporated herein by
reference).
10.24 -- Form of Indemnity Agreement between the Registrant and each of
its executive officers (filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.25 -- Registration Rights Agreement dated February 26, 1997 by and
among Brigham Exploration Company, General Atlantic Partners III
L.P., GAP-Brigham Partners, L.P., RIMCO Partners, L.P. II, RIMCO
Partners L.P. III, and RIMCO Partners, L.P. IV, Ben M. Brigham, Anne
L. Brigham, Harold D. Carter, Craig M. Fleming, David T. Brigham and
Jon L. Glass (filed as Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (Registration No. 333-22491), and incorporated
herein by reference).
65
Number Description
- ------ -----------
10.26 -- 1997 Director Stock Option Plan (filed as Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.27 -- Form of Employee Stock Ownership Agreement (filed as Exhibit
10.31 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.28 -- Agreement and Assignment of Interest in Geophysical Exploration
Agreement, Esperson Dome Project, dated November 1, 1994, by and
between Brigham Oil & Gas, L.P. and Vaquero Gas Company (filed as
Exhibit 10.33 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.29 -- Geophysical Exploration Agreement, Southwest Danbury Project,
Brazoria County, Texas, dated as of July 1, 1996, by and among
UNEXCO, Inc. and Brigham Oil & Gas, L.P. (filed as Exhibit 10.34 to
the Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.30 -- Geophysical Exploration Agreement, Welder Project, Duval County,
Texas, dated as of October 1, 1996, by and among UNEXCO, Inc. and
Brigham Oil & Gas, L.P. (filed as Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.31 -- Proposed Trade Structure, RIMCO/Tigre Project, Vermillion Parish,
Louisiana, among Brigham Oil & Gas, L.P., Tigre Energy Corporation
and Resource Investors Management Company (filed as Exhibit 10.36 to
the Company's Registration Statement on Form S-1 (Registration No.
333-22491), and incorporated herein by reference).
10.31.1 -- Letter relating to Proposed Trade Structure, RIMCO/Tigre Project,
dated January 31, 1997, from Resource Investors Management Company
to Brigham Oil & Gas, L.P. (filed as Exhibit 10.36 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.32 -- Anadarko Basin Seismic Operations Agreement II, dated as of April
1, 1997, by and between Brigham Oil & Gas, L.P. (filed as Exhibit
10.37 to the Company's Registration Statement on Form S-1
(Registration No. 333-22491), and incorporated herein by reference).
10.32.1 -- Letter Amendment to Anadarko Basin Seismic Operations Agreement
II, dated March 20, 1997, between Brigham Oil & Gas, L.P. and
Veritas DGC Land, Inc. (filed as Exhibit 10.37 to the Company's
Registration Statement on Form S-1 (Registration No. 333-22491), and
incorporated herein by reference).
10.33 -- Expense Allocation and Participation Agreement II, dated April 1,
1997, between Brigham Oil & Gas, L.P., and Gasco Limited Partnership
(filed as Exhibit 10.31 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, and incorporated herein by
reference).
10.36 -- Credit Agreement dated as of January 26, 1998 among Brigham Oil &
Gas, L.P., Bank of Montreal, as Agent, and the lenders signatory
thereto (filed as Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, and incorporated
herein by reference).
10.36.1+ -- First Amendment to Credit Agreement dated as of August 20, 1998
among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the
lenders signatory thereto.
10.36.2++ -- Second Amendment to Credit Agreement dated as of March 26, 1999
among Brigham Oil & Gas, L.P., Bank of Montreal, as Agent, and the
lenders signatory thereto.
10.37 -- Guaranty Agreement dated January 26, 1998 by Brigham Exploration
Company in favor of Bank of Montreal, as Agent, and each of the
Lenders party to the Credit
66
Number Description
- ------ -----------
Agreement (filed as Exhibit 10.33.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-53873), and incorporated
herein by reference).
10.37.1 -- First Amendment to Guaranty Agreement dated as of March 30, 1998
between Brigham Exploration Company and Bank of Montreal, as Agent
for the Lenders party to the Credit Agreement (filed as Exhibit
10.33.2 to the Company's Registration Statement on Form S-1
(Registration No. 333-53873), and incorporated herein by reference).
10.37.2+ -- Second Amendment to Guaranty Agreement dated as of August 20,
1998 between Brigham Exploration Company and Bank of Montreal, as
Agent for the Lenders party to the Credit Agreement.
10.37.3++ -- Third Amendment to Guaranty Agreement dated as of March 26, 1999
between Brigham Exploration Company and Bank of Montreal, as Agent
for the Lenders party to the Credit Agreement.
10.38+ -- Securities Purchase Agreement dated as of August 20, 1998 among
Brigham Exploration Company, Enron Capital & Trade Resources Corp.
and Joint Energy Development Investments II Limited Partnership.
10.39+ -- Registration Rights Agreement dated as of August 20, 1998, by and
among Brigham Exploration Company, Enron Capital & Trade Resources
Corp. and Joint Energy Development Investments II Limited
Partnership.
10.39.1++ -- Amendment to Registration Rights Agreement dated as of March 26,
1999, by and among Brigham Exploration Company, Enron Capital &
Trade Resources Corp., ECT Merchant Investments Corp. and Joint
Energy Development Investments II Limited Partnership.
10.40+ -- Form of Guaranty for subsidiaries.
10.41++ -- Exchange Agreement dated as of March 30, 1999 by and between
Brigham Exploration Company and Veritas DGC Land, Inc.
10.42++ -- Registration Rights Agreement dated as of March 30, 1999 by and
between Brigham Exploration Company and Veritas DGC Land, Inc.
21+ -- Subsidiaries of the Registrant.
23.1++ -- Consent of Pricewaterhouse Coopers LLP, independent public
accountants.
23.2+ -- Consent of Cawley, Gillespie & Associates, Inc., independent
petroleum engineers.
27+ -- Financial Data Schedule.
- ----------
* Management contract or compensatory plan.
+ Previously filed
++ Filed herewith.