1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. ONE
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): September 14, 1995
SABA PETROLEUM COMPANY
(Exact name of registrant as specified in charter)
Colorado 1-12322 47-0617589
- -----------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
Incorporation)
17512 Von Karman Avenue, Irvine, California 92714
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 724-1112
--------------
(Former name or former address, if changed since last report) Not applicable
--------------
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SABA PETROLEUM COMPANY FORM 8-K/A REPORT
PAGE TWO
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Saba Petroleum Company (the "Registrant"), through the Registrant's
wholly owned subsidiary, Sabacol, Inc. ("Sabacol"), acquired from a subsidiary
of Texaco Inc. ("Seller") a 25% interest in the Teca and Nare oil producing
fields located in Colombia, S.A. These fields currently produce approximately
12,000 gross barrels of oil per day ("BOPD") from approximately 300 wells in
which 50% of the production will be shared equally between Sabacol and its
venture partner, Omimex de Colombia, Ltd. ("Omimex"). The remaining 50%
interest is owned by Ecopetrol, the Colombia government owned oil company. The
fields will continue to be operated by the Texaco subsidiary until early
October when Omimex will assume the operations. In addition to the producing
fields, the acquired property interests include exploratory and developmental
prospects. Sabacol and Omimex have also jointly acquired a 100% interest in
the 189 kilometer elasquez-Galan ipeline with current throughput of about
27,000 BOPD delivered to Ecopetrol's refinery at Barrancabermejo. The Seller
is not affiliated with the Registrant or Sabacol. The acquisition will
increase the Registrant's oil and gas production by approximately 2,400 BOPD,
representing an addition of approximately 87% to the current oil production of
the Registrant on an annualized basis. It is also anticipated that the
acquisition will add approximately 4,600,000 barrels of oil equivalent ("BOE")
to the Registrant's proved reserves which, as of December 31, 1994 were
8,768,000 BOE.
The transaction closed on September 14, 1995 at the Seller's offices
in Bogota, Colombia. The acquisition cost of $9,223,700, including a
previously released deposit of $1,400,000 and assumption of an oil imbalance
obligation of $932,700, was funded by proceeds from a term loan in the amount
of $4,700,000 from Bank One, Texas, N.A., Houston, Texas, with additional
financing provided by the Registrant's parent company, Capco Resources Ltd.,
through an unsecured loan of $2,191,000. The purchase price was established by
arm's length negotiations between the Seller and the Registrant, and was based
upon the Registrant's analysis of existing operating and reserve information.
The Registrant does not plan to make any material changes in the operations of
the acquired properties, but will implement certain production enhancement
activities.
As part of this transaction, but scheduled to close in the fourth
quarter of 1995, the Registrant will acquire one-half of the Texaco
subsidiary's 100% interest in an adjacent oil field, known as the Cocorna
Field. The approximate purchase price of the Cocorna Field is $750,000 of
which $100,000 has already been released to the Texaco subsidiary. The Cocorna
Field has proved reserves of approximately 132,000 barrels of oil.
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SABA PETROLEUM COMPANY FORM 8-K/A REPORT
PAGE THREE
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Historical Summaries of Gross Revenues and Direct Operating
Expenses for the acquired properties for the years ended
December 31, 1993 and 1994 (audited) and for the six months
ended June 30, 1995 (unaudited)
(b) Proforma Financial Information
(Unaudited) Proforma Financial Information for the year ended
December 31, 1994 and the six months ended June 30, 1995.
(c) Exhibits
2.1 Purchase Agreement, filed as Exhibit 10.7 to the
Registrant's Registration Statement on Form SB-2 (File
No. 33-94678), and incorporated herein by reference.
2.2 Amendment No. 1 to Purchase Agreement (previously filed
with initial filing)
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SABA PETROLEUM COMPANY FORM 8-K/A REPORT
PAGE FOUR
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SABA PETROLEUM COMPANY
Date: November 14, 1995 By: Ilyas Chaudhary
------------------ --------------------------
Ilyas Chaudhary
President
Date: November 14, 1995 By: Walton C. Vance
-------------------- --------------------------
Walton C. Vance
Chief Financial Officer
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Item 7(a) Financial Statements
THE TEXACO PROPERTIES
(TO BE ACQUIRED BY SABACOL, INC., A WHOLLY-OWNED SUBSIDIARY
OF SABA PETROLEUM COMPANY)
------------
REPORT ON HISTORICAL SUMMARIES
OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Saba Petroleum Company
We have audited the accompanying historical summaries of gross revenues and
direct operating expenses of The Texaco Properties (to be acquired by Sabacol,
Inc., a wholly-owned subsidiary of Saba Petroleum Company, from Texas Petroleum
Company) for each of the two years in the period ended December 31, 1994.
These historical summaries are the responsibility of the management of Texas
Petroleum Company. Our responsibility is to express an opinion on the
historical summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the historical
summaries are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the historical
summaries. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the historical summaries. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying historical summaries were prepared for the purposes of
complying with the rules and regulations of the U.S. Securities and Exchange
Commission (for inclusion in Saba Petroleum Company's registration statement on
Form SB-2) and are not intended to be a complete presentation of the revenues
and expenses of The Texaco Properties. They exclude certain material expenses,
described in Note 1, that were incurred in connection with the operations of
the properties.
In our opinion, the historical summaries referred to in the first paragraph
(prepared on the basis described in Note 1) present fairly, in all material
respects, the gross revenues and direct operating expenses of The Texaco
Properties for each of the two years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Santafe de Bogota, Colombia
July 7, 1995
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THE TEXACO PROPERTIES
(To be acquired by Sabacol, Inc., a wholly-owned subsidiary
of Saba Petroleum Company)
HISTORICAL SUMMARIES OF GROSS EXPENSES
AND DIRECT OPERATING EXPENSES
(Expressed in US Dollars)
Six Months
Year Ended December 31, Ended
-------------------------- June 30,
1993 1994 1995
----------- ----------- ----------
Gross revenues:
Sales of oil $11,487,853 $ 9,935,207 $6,284,734
Pipeline revenues 2,004,916 1,580,448 1,038,025
----------- ----------- ----------
Total gross revenues 13,492,769 11,515,655 7,322,759
----------- ----------- ----------
Direct operating expenses:
Operating expenses (1) 2,779,143 3,138,646 1,483,965
Pipeline operating expenses (1) 1,353,710 1,480,534 316,362
Production and other taxes (2) 539,139 627,835 636,830
Loss on sale of fixed assets 58,553 -- --
----------- ----------- ----------
Total direct operating expenses 4,730,545 5,247,015 2,437,157
----------- ----------- ----------
Excess of gross revenues over
direct operating expenses $ 8,762,224 $ 6,268,640 $4,885,602
=========== =========== ==========
- ----------------
(1) Excludes depreciation, depletion and amortization expenses.
(2) Includes war and pipeline transportation taxes; does not include provision
for income taxes.
The accompanying notes are an integral part of these financial statements.
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THE TEXACO PROPERTIES
(TO BE ACQUIRED BY SABACOL, INC., A WHOLLY-OWNED SUBSIDIARY
OF SABA PETROLEUM COMPANY)
NOTES TO HISTORICAL SUMMARIES OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
Sabacol, Inc. has entered into an agreement with Texas Petroleum Company,
a subsidiary of Texaco Inc. ("Texaco"), to acquire a 25% interest in the
Teca and Nare oil fields and a 50% interest in the Cocorna oil field and
the Velasquez-Galan pipeline. All of these properties are located in
Colombia, South America and are collectively referred to as "The Texaco
Properties." The pipeline transports crude oil from these fields to a
refinery at Barrancabermeja, Colombia, owned by Empresa Colombiana de
Petroleos ("Ecopetrol"), which is owned by the Colombian government. Prior
to the acquisitions, The Texaco Properties have been included in the
consolidated financial statements of Texaco Inc. and were not accounted for
as a separate entity. The Cocorna Concession expires in 1997 and the Teca
and Nare Association contracts expire in the year 2008, at which time they
revert to Ecopetrol.
The accompanying historical summaries include only the gross revenues and
direct operating expenses attributable to the production, sale and
transportation of hydrocarbons from the acquired interests in The Texaco
Properties. The historical summaries do not include certain material
expenses that were incurred in connection with the operations of the
properties and that were recorded in the Texaco financial statements.
Those expenses were not included because the information was not obtainable
as Texaco did not allocate such expenses to individual properties. Items
excluded are depreciation, depletion and amortization, provisions for
dismantlement, abandonment and restoration of wells, interest expense which
may have been incurred for any debt directly or indirectly associated with
The Texaco Properties, provision for pensions, allocated income taxes,
exploration and technical support, engineering, land, materials support,
accounting, legal, marketing and other general and administrative costs.
The 1994 historical summary of gross revenues and direct operating expenses
does not include 186,092 barrels of crude oil valued at US $1,994,868
invoiced by Texas Petroleum Company during 1994, but related to an
imbalance obligation to Ecopetrol (see Note 4).
Revenue Recognition
Sales of oil are recorded when oil is delivered to the refinery and invoiced
to Ecopetrol. Pipeline revenues are recognized when oil is received at the
pump station. Of the sales 75% are invoiced in US dollars and the
remaining 25% in Colombian pesos, which is determined based on the market
representative exchange rate in effect at the date of each delivery.
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THE TEXACO PROPERTIES
(TO BE ACQUIRED BY SABACOL, INC., A WHOLLY-OWNED SUBSIDIARY
OF SABA PETROLEUM COMPANY)
NOTES TO HISTORICAL SUMMARIES OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES (CONTINUED)
1. BASIS OF PRESENTATION (Continued)
Foreign Currency Translation
Expenses originated in Colombian pesos are translated into US dollars at the
average market representative exchange rate of Col. Ps. 788.87 per US $1 for
1993 and Col. Ps. 827.24 per US $1 for 1994. Unaudited: The exchange rate
for the six months ended June 30, 1995 was Col. Ps. 864.40 per US $1.
Interim Financial Information (Unaudited)
The historical summary of gross revenues and direct operating expenses
for the six months ended June 30, 1995 is unaudited but includes all
adjustments (consisting of normal recurring accruals only) which management
considers necessary to present fairly the gross revenues and direct
operating expenses of The Texaco Properties for the six months ended June
30, 1995.
2. SALES PRICE CALCULATION
Sale of Oil
The price of crude oil is determined based on Platt's Oilgram Price Report,
considering the price basket of fuels - Fuel Oil Gulf Coast 3% and
Ecopetrol Fuel Oil for Exportation - (Basket A) and the price basket for
international crude oil - Maya, Mandji and Isthmus crudes - (Basket B).
For the Teca and Nare Association contracts the price is calculated by
taking the prior monthly average of Basket A and B prices, after adjusting
the Basket B price for API grades and sulfur content. The resulting price
is reduced by US $1.45 per barrel. This procedure has been agreed to up to
December 31, 1995.
For the Cocorna Concession contract the price is the weighted average of
the prices obtained from the following procedures:
o A fixed price for the basic production, as agreed to between the
Ministry of Mines and Energy, Ecopetrol and Texas Petroleum Company.
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THE TEXACO PROPERTIES
(TO BE ACQUIRED BY SABACOL, INC., A WHOLLY-OWNED SUBSIDIARY
OF SABA PETROLEUM COMPANY)
NOTES TO HISTORICAL SUMMARIES OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES (CONTINUED)
2. SALES PRICE CALCULATION (Continued)
o For incremental production (barrels produced in excess of the basic
production agreed to), the average price from the following: a) The
prior quarter average of Baskets A and B prices, after adjusting the
Basket B price for API grades and sulfur content, and b) the average
adjusted international price of the crude oil from the Velasquez and
Tisquirama (Distrito Magdalena) fields.
The above mentioned adjustment reduces the price of Cocorna Concession
crude oil to approximately 50% of market price.
Crude Oil Transportation
For crude oil transportation of others, the price set forth by the
Colombian Ministry of Mines and Energy was US $0.77 per barrel. By
agreement with Ecopetrol dated August 14, 1993, the transportation fee was
negotiated at US $0.50 per barrel (for Ecopetrol's oil from the Teca, Nare
and Cocorna fields).
Beginning February 10, 1995, the price for the transportation of crude oil
of others through pipelines was increased to US $0.82 per barrel. The
price for the transportation of Ecopetrol's crude oil has not changed.
3. ROYALTIES
Royalties on the sale of crude oil from the Teca and Nare fields are 20%
of the production. The Cocorna Concession is subject to a royalty interest
of 7.59%.
4. IMBALANCE OBLIGATION TO ECOPETROL
During 1994, 253,650 barrels valued at US $2,814,572 were invoiced by
Texas Petroleum Company in connection with an imbalance obligation to
Ecopetrol. As of December 31, 1994, 67,558 barrels valued at US 819,704
had been returned.
June 30, 1995 (Unaudited)
During the six months ended June 30, 1995, 61,390 barrels valued at US
$842,476 were returned by Texas Petroleum Company in connection with the
imbalance obligation to Ecopetrol. As of June 30, 1995, the imbalance
obligation to Ecopetrol had been reduced to 124,702 barrels.
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THE TEXACO PROPERTIES
(TO BE ACQUIRED BY SABACOL, INC., A WHOLLY-OWNED SUBSIDIARY
OF SABA PETROLEUM COMPANY)
NOTES TO HISTORICAL SUMMARIES OF GROSS REVENUES
AND DIRECT OPERATING EXPENSES (CONTINUED)
5. TRANSPORTATION TAX
In the third quarter of 1994, a new transportation tax of 6% of the value
invoiced for barrels transported through the pipeline was enacted. The
amount of transportation tax incurred in 1994 was US $49,067.
6. SUBSEQUENT EVENTS
War Tax
As of July 1, 1995, the war tax applied to produced barrels was increased
from Col. Ps. 500 (approximately US $0.60) to Col. Ps. 700 (approximately
US $0.80).
Environmental Compliance
The Colombian Ministry of the Environment issued a resolution dated June 7,
1995 that set forth a number of measures aimed at correcting certain
deficiencies that the Ministry has allegedly found in environmental aspects
of The Texaco Properties. Among such measures, the Ministry ordered the
temporary closing of one of five production modules and of any wells
processed in that module until Texas Petroleum Company provided a document
detailing the timetable to implement some of the measures described above.
This closing of the module had no effect on total production as crude oil
from wells formerly treated there was diverted to other facilities. The
document containing the requested timetable was presented to the ministry
of the Environment on July 6, 1995.
Texas Petroleum Company currently estimates that the cost of compliance with
the resolution will not exceed US $250,000. Texas Petroleum Company has
formally appealed the resolution and is currently awaiting a response from
the Ministry of the Environment.
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THE TNC FIELDS
(To be acquired by Sabacol, Inc., a wholly-owned subsidiary
of Saba Petroleum Company)
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED)
Information with respect to oil and gas producing activities is
presented in the following tables. Reserve information is based on reserve
reports and other information prepared by independent petroleum engineers. The
information presented for the years 1993 and 1994 is based on a January 1, 1995
reserve report, which has been adjusted for production in the years 1993 and
1994.
The following table sets forth The TNC Fields' proved oil reserves
(all located in Colombia, South America) at December 31, 1994 and 1993 and the
related changes in such reserves for each of the two years in the period ended
December 31, 1994.
Crude oil (MBbls)
1994 1993
-------- --------
Proved reserves at beginning of year
6,335 7,443
Increases (decreases) due to:
Revisions of previous estimates - -
Production (1,033) (1,108)
------- -------
Proved reserves at end of year 5,302 6,335
======= =======
Proved developed reserves at end of year 5,302 6,335
======= =======
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following disclosures concerning the standardized measure of
future cash flows from proved oil and gas reserves are presented in accordance
with Statement of Financial Accounting Standards No. 69. The standardized
measure of discounted future net cash flows at December 31, 1994 and 1993 is
presented in the following table (in thousands of dollars):
1994 1993
---------- ----------
Future cash inflows $ 65,203 $ 75,138
Future production and development costs (36,652) (40,418)
Future income tax expenses (8,071) (9,951)
--------- ---------
Future net cash flows 20,480 24,769
Discount at 10% for timing of cash flows (4,363) (5,998)
--------- ---------
Standardized measure of discounted
future net cash flows $ 16,117 $ 18,771
========= =========
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The standardized measure of discounted future net cash flows
represents an estimate of future net revenues from the production of proved
reserves using estimated period-end sales prices and estimates of the
production costs, ad valorem and production taxes, and future development costs
necessary to produce such reserves. Operating costs and ad valorem and
production taxes are estimated based on current costs. Future development
costs are based on the best estimate of such costs assuming current economic
and operating conditions. No deduction has been made for depletion,
depreciation or any indirect costs such as general corporate overhead or
interest expense.
The information presented with respect to estimated future net cash
flows and the present value thereof is not intended to represent the fair value
of oil and gas reserves. Actual future sales prices and production and
development costs may vary significantly from those used in the reserve study
and actual future production may not occur in the periods or amounts projected.
This information is presented to allow a reasonable comparison of reserve
values prepared using standardized measurement criteria and should be used only
for that purpose.
The following table sets forth the changes in the standardized measure
of discounted future net cash flows for each of the two years in the period
ended December 31, 1994 (in thousands of dollars):
1994 1993
---------- ----------
Balance at beginning of year $ 18,771 $ 22,297
Increase (decrease) due to:
Acquisitions, discoveries and extensions - -
Sales and transfers of oil and gas produced,
net of production costs (6,169) (8,170)
Net changes in prices and costs - -
Revisions of previous quantity estimates - -
Accretion of discount 2,278 2,723
Timing and other - -
Development costs incurred during the period - -
Net change in income taxes 1,237 1,921
---------- ----------
Balance at end of year $ 16,117 $ 18,771
========== ==========
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed balance sheet as of June
30, 1995 gives effect to the acquisition of the TNC Fields ("Acquisition"), as
if it had occurred on June 30, 1995. The unaudited pro forma condensed
statements of operations for the year ended December 31, 1994 and for the six
months ended June 30, 1995, give effect to the Acquisition as if it had
occurred on January 1, 1994. The Acquisition has been accounted for using the
purchase method of accounting. Such unaudited pro forma financial information
has been prepared based on estimates and assumptions deemed by the Company to
be appropriate and does not purport to be indicative of the financial position
or results of operations which would actually have been obtained if the
Acquisition had occurred as presented in such statements or which may be
obtained in the future. In addition, future results may vary significantly
from the results reflected in such statements due to oil and gas production
declines, price changes, future supply and demand, future acquisitions and
other factors.
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Saba Petroleum Company
Pro Forma Condensed Balance Sheet
June 30, 1995
(dollars in thousands)
(unaudited)
Pro Forma
Historical adjustments Pro Forma
---------- ----------- ----------
Current assets:
Accounts receivable $ 2,766 $ $ 2,766
Other 1,006 1,006
---------- ---------
3,772 3,772
---------- ---------
Property and equipment:
Oil and gas properties 23,212 7,725 (a) 30,937
Land, plant and equipment 2,790 1,500 (a) 4,290
---------- --------- ---------
26,002 9,225 35,227
Accumulated depletion and depreciation (8,563) (8,563)
---------- --------- ---------
17,439 9,225 26,664
---------- --------- ---------
Other assets 2,182 (1,400)(a) 782
---------- --------- ---------
$ 23,393 $ 7,825 $ 31,218
========== ========= =========
Current liabilities:
Accounts payable and accrued
liabilities $ 3,567 $ 933 (a) $ 4,500
Current portion of long-term debt 3,381 4,700 (a) 8,081
---------- --------- ---------
6,948 5,633 12,581
Long-term debt, net 9,434 2,192 (a) 11,626
Other liabilities 501 501
---------- --------- ---------
Total liabilities 16,883 7,825 24,708
Stockholders' equity 6,510 6,510
---------- --------- ---------
$ 23,393 $ 7,825 $ 31,218
========== ========= =========
See accompanying notes to unaudited pro forma condensed financial statements.
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Saba Petroleum Company
Pro Forma Condensed Statement of Operations
Year Ended December 31, 1994
(dollars in thousands except per share amounts)
(unaudited)
Pro Forma
Historical adjustments Pro Forma
----------- ------------ ----------
Total revenues $ 12,954 $ 11,516 (b) $ 24,470
----------- ----------- ----------
Expenses:
Production and operating costs 7,547 5,247 (b) 12,794
General and administrative 1,882 135 (c) 2,017
Depletion, depreciation and
amortization 2,041 1,301 (d) 3,509
167 (e)
----------- ----------- ----------
Total expenses 11,470 6,850 18,320
----------- ----------- ----------
Operating income 1,484 4,666 6,150
Other income (expense) 43 43
Interest expense (634) (813)(f) (1,447)
----------- ----------- ----------
Income before income taxes 893 3,853 4,746
Provision (benefit) for taxes on income 384 1,657 (g) 2,041
----------- ----------- ----------
Net income $ 509 $ 2,196 $ 2,705
=========== =========== ==========
Net income per common share $ 0.13 $ 0.68
=========== ==========
Weighted average common and common
equivalent shares outstanding 3,997,787 3,997,787
=========== ==========
See accompanying notes to unaudited pro forma condensed financial statements.
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Saba Petroleum Company
Pro Forma Condensed Statement of Operations
Six Months Ended June 30, 1995
(dollars in thousands except per share amounts)
(unaudited)
Pro Forma
Historical adjustments Pro Forma
---------- ----------- -----------
Total revenues $ 7,132 $ 7,323 (b) $ 14,455
---------- --------- ----------
Expenses:
Production and operating costs 4,368 2,437 (b) 6,805
General and administrative 985 70 (c) 1,055
Depletion, depreciation and amortization 1,219 658 (d) 1,960
83 (e)
---------- --------- ----------
Total expenses 6,572 3,248 9,820
---------- --------- ----------
Operating income 560 4,075 4,635
Other income (expense) 48 48
Interest expense (437) (407)(f) (844)
---------- --------- ----------
Income before income taxes 171 3,668 3,839
Provision (benefit) for taxes on income 61 1,590 (g) 1,651
---------- --------- ----------
Net income $ 110 $ 2,078 $ 2,188
========== ========= ==========
Net income per common share $ 0.03 $ 0.51
========== ==========
Weighted average common and common
equivalent shares outstanding 4,289,041 4,289,041
========== ==========
See accompanying notes to unaudited pro forma condensed financial statements.
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Saba Petroleum Company
Notes to Pro Forma Condensed Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed balance sheet as of June 30, 1995
gives effect to the acquisition of the TNC Fields ("Acquisition"), as if it had
occurred on June 30, 1995. The unaudited pro forma condensed statements of
operations for the year ended December 31, 1994 and for the six months ended
June 30, 1995, give effect to the Acquisition as if it had occurred on January
1, 1994. The Acquisition has been accounted for using the purchase method of
accounting. Such unaudited pro forma financial information has been prepared
based on estimates and assumptions deemed by the Company to be appropriate and
does not purport to be indicative of the financial position or results of
operations which would actually have been obtained if the Acquisition had
occurred as presented in such statements or which may be obtained in the
future. In addition, future results may vary significantly from the results
reflected in such statements due to oil and gas production declines, price
changes, future supply and demand, future acquisitions and other factors.
2. Adjustments
The pro forma adjustments included in the pro forma condensed
financial statements are described as follows by the alphabetical notation:
(a) Reflects acquisition of the producing oil and gas properties and
related oil field equipment, based on the following purchase price
allocation: oil and gas properties, $7,725,000; oil transmission
pipeline, $1,000,000; and other equipment, $500,000.
The total acquisition cost of $9,225,000 was funded by a bank term
loan in the amount of $4,700,000, a loan in the amount of $2,192,000
from the Company's parent company, assumption of an oil imbalance
obligation in the amount of $933,000, and credit from a previously
released deposit in the amount of $1,400,000.
(b) Reflects an adjustment for the cash flow components of the
Acquisition's operations, consisting principally of oil and gas sales,
pipeline tariff revenues and operating expenses for the producing oil
and gas properties and the oil transmission pipeline.
(c) Reflects an increase in general and administrative expenses
resulting from the maintenance of an office location in Bogota,
Colombia and additional professional fees for accounting, auditing and
engineering services.
(d) Reflects an increase in cost depletion based on depletable basis
of the Acquisition and production of oil reserves during the
respective periods as follows: 1994, 1,033,000 barrels; and six months
ended June 30, 1995, 523,000 barrels.
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(e) Reflects an increase in depreciation expense based on the basis
of other assets included in the Acquisition, which are depreciated
over their estimated useful lives, ranging from 5 to 15 years.
(f) Reflects an increase in interest expense due to indebtedness
incurred in connection with the Acquisition, including a bank term
loan in the amount of $4,700,000 with an assumed interest rate of
12.75%, and a loan from the Company's parent company in the amount of
$2,192,000 with an assumed interest rate of 9.75%.
(g) Reflects an adjustment to the historical tax provision in an
amount sufficient to provide for a pro forma tax provision equivalent
to an effective tax rate (including Federal, state and foreign) of
43%.
3. Pro Forma Reserve Information
The following table sets forth an analysis of the Company's pro forma
estimated quantities of proved reserves and proved developed reserves, which
are located in the United States, Colombia, S.A., and Canada in the year 1994.
Such pro forma information has been prepared assuming the Acquisition had
occurred on January 1, 1994. Pro forma adjustments for reserve information
attributable to the Acquisition are based on an engineering report as of
January 1, 1995 which has been adjusted for production for the year 1994.
Oil Natural Gas
------- -----------
(MBbl) (MMcf)
Proved reserves as of January 1, 1994
9,387 7,013
Acquisition, exploration and development
of minerals in place 1,640 3,537
Revisions of previous estimates 3,308 765
Production (1,771) (1,453)
Sales of minerals in place (126) (70)
------ ------
Proved reserves as of December 31, 1994
12,438 9,792
====== ======
Proved developed reserves:
as of December 31, 1994
10,297 8,503
====== ======
20
The following table presents the pro forma standardized measure of
future net cash flows related to proved oil and gas reserves together with
changes therein. The oil, condensate and gas price structure utilized to
project future net cash flows reflects current prices as of the date specified
and have been escalated only where known and determinable price changes are
provided by contracts and law. Future production and development costs are
based on current costs with no escalations. Estimated future cash flows have
been discounted to their present values based on a 10% annual discount rate.
Pro forma adjustments attributable to the Acquisition are based on an
engineering report as of January 1, 1995 which has been adjusted for production
for the year 1994.
Standardized Measure (dollars in thousands)
As of
December 31,
1994
-----------
Future cash inflows $ 166,883
Future production, development and abandonment costs (98,166)
Future income tax expenses (16,526)
---------
Future net cash flows 52,191
10 percent annual discount (14,947)
---------
Standardized measure of discounted future net cash flows $ 37,244
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Changes in Standardized Measure (dollars in thousands)
Year Ended
December 31,
1994
-----------
Balance at beginning of year $ 29,616
Acquisitions, discoveries and extensions 7,356
Sales and transfers of oil and gas produced,
net of production costs (10,792)
Changes in estimated future development costs (3,393)
Net changes in prices, net of production costs 1,908
Sales of reserves in place (363)
Change in production rates and other (191)
Revisions of previous quantity estimates 12,235
Accretion of discount 3,468
Net change in income taxes (2,600)
--------
Balance at end of year $ 37,244
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