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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COSTILLA ENERGY, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 75-2658940
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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<TABLE>
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BOBBY W. PAGE, SENIOR VICE PRESIDENT
COSTILLA ENERGY, INC.
400 WEST ILLINOIS, SUITE 1000 400 WEST ILLINOIS, SUITE 1000
MIDLAND, TEXAS 79701 MIDLAND, TEXAS 79701
(915) 683-3092 (915) 683-3092
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of telephone number, including area code,
Registrant's principal executive offices) of agent for service)
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Copies to:
RICHARD T. MCMILLAN
COTTON, BLEDSOE, TIGHE & DAWSON,
A PROFESSIONAL CORPORATION
500 WEST ILLINOIS, SUITE 300
MIDLAND, TEXAS 79701
(915) 684-5782
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) PER UNIT(1) REGISTRATION FEE
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Common Stock, $0.10 par value..... 3,000,000 $13,500,000 $4.50 $3,753
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(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for the purpose of calculating the amount of the registration fee on the
basis of the average of the high and low prices of the Common Stock reported
on the Nasdaq National Market on January 4, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 8, 1999
PROSPECTUS
3,000,000 SHARES
COSTILLA ENERGY, INC.
COMMON STOCK
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This Prospectus covers 3,000,000 shares of our common stock. One of our
stockholders, Pioneer Natural Resources USA, Inc., owns all of these shares.
Pioneer acquired these shares in a private transaction with us.
Pioneer may sell any number of these shares at any time and from time to
time in various types of transactions, including sales in the open market and in
private negotiated transactions. These sales may be at market price or at
privately negotiated prices. There are no underwriting arrangements with respect
to this offering. This may result in several sales of a small number of shares.
Pioneer will receive all of the net proceeds from the sale of the shares,
and will pay all brokerage fees and similar sale-related expenses. We will not
receive any of the proceeds from the sale of the shares, but are paying the
costs of registering the shares with the Securities and Exchange Commission.
Our common stock is traded on the Nasdaq National Market under the symbol
COSE. Our principal executive offices are located at:
400 West Illinois, Suite 1000
Midland, Texas 79701
(915) 683-3092
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN RISKS TO
BE CONSIDERED IN CONNECTION WITH THE OFFER AND IN EVALUATING AN INVESTMENT IN
THE OFFERED SHARES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999
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TABLE OF CONTENTS
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PAGE
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Where You Can Find More Information......................... 3
Special Note on Forward-Looking Statements.................. 3
Risk Factors................................................ 4
Selling Stockholder......................................... 8
The Offering................................................ 9
Use of Proceeds............................................. 9
The Company................................................. 9
Material Changes to Reported Information.................... 10
Plan of Distribution........................................ 11
Legal Matters............................................... 12
Experts..................................................... 12
SEC's Position on Indemnification for Securities Act
Liabilities............................................... 12
Certain Definitions......................................... 13
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You should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different. You should not assume that the information in
this Prospectus or any other document is accurate as of any date other than the
date on the front of the documents. This Prospectus is not soliciting an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted or to any person who is not permitted to buy these securities.
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WHERE YOU CAN FIND MORE INFORMATION
Costilla Energy, Inc. (referred to as "us", "we", "Costilla" or the
"Company") files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
can read and copy this information at the Public Reference Room of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
You can also access these materials electronically on the SEC's Internet site
(http:\\www.sec.gov).
We filed a registration statement on Form S-3 with the SEC to register the
shares offered by this Prospectus. As allowed by the SEC, this Prospectus does
not contain all of the information you can find in the registration statement or
the exhibits to the registration statement. The SEC allows us to "incorporate by
reference" the information we file with it, which means that we can disclose
important information to you by referring to those documents. The information we
incorporate by reference is an important part of this Prospectus, and
information that we file later with the SEC will automatically update and
supercede this information. We incorporate by reference the following documents
which have been filed by Costilla with the SEC (File No. 0-21411):
- Costilla's Annual Report on Form 10-K for the year ended December 31,
1997;
- Costilla's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998;
- Costilla's Current Reports on Form 8-K filed on June 5, June 15 and
December 30, 1998;
- Costilla's Form S-4 Registration Statement filed on April 17, 1998 (File
No. 333-50347), as amended or supplemented; and
- The description of Costilla Common Stock contained in our registration
statement on Form 8-A filed on September 23, 1996.
We also incorporate by reference all documents filed by Costilla pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934 (the "Exchange
Act") after the date of this Prospectus until this offering has been completed.
You may obtain copies of these documents upon written or oral request
without charge from Costilla by contacting our Manager, Investor Relations at
400 West Illinois, Suite 1000, Midland, Texas 79705, telephone number
915-683-3092. Copies of the documents may also be accessed electronically on
Costilla's home page on the Internet (http:\\www.costillaenergy.com).
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Prospectus and the documents "incorporated by reference" as discussed
under "Where You Can Find More Information" may contain "forward-looking
statements" within the meaning of federal securities law. Such statements can be
identified by use of forward-looking terms such as may, will, expect, project,
anticipate, believe, estimate, continue or other similar words. These statements
discuss future expectations, such as oil and gas reserves, future drilling and
operations, future production of oil and gas, future net cash flows, future
capital expenditures and other forward-looking matters. We have based these
statements on our assumptions and analysis of historical trends, current
conditions, expected future developments and other factors that we believe are
appropriate in the circumstances. We believe that the expectations reflected in
our forward-looking statements are based on reasonable assumptions. However,
many factors may cause a material difference between actual results and the
forward-looking statements, including the risk factors discussed herein, as well
as general economic and business conditions, the business opportunities (or lack
thereof) that may be presented to and pursued by the Company, and other factors,
many of which are beyond our control.
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RISK FACTORS
In evaluating a potential investment in the shares offered by this
Prospectus, you should consider carefully the following risk factors as well as
the other information contained and incorporated by reference in this
Prospectus.
RESERVE REPLACEMENT RISK
The volume of oil or gas produced from a property generally decreases as
more oil and gas is produced from that property. The speed at which the decrease
occurs depends upon geologic characteristics of a particular property. If we do
not find new oil and gas production either by exploration and development or
acquisition, then our proved reserves will decrease as we produce oil and gas.
Our future production is, therefore, highly dependent on finding or acquiring
additional reserves. Finding or acquiring additional reserves requires
significant capital. If the cash flow from operations decreases and other
sources of funds, such as debt or sale of equity, are limited or unavailable, we
may not be able to make sufficient capital investments to replace our oil and
gas reserves. Even if such funds are available, our future exploration,
development and acquisition activities may not add proved reserves or production
at acceptable costs.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
As of September 30, 1998, our total long-term debt was approximately $207.5
million and our stockholders' equity was approximately $19.4 million. Our
substantial debt leverage has several important effects on our future
operations. First, a substantial portion of our cash flow from operations is
used to pay interest on our indebtedness and will not be available for other
purposes. In addition, covenants contained in our revolving credit facility and
the Indenture (the "Indenture") governing our 10 1/4% Senior Notes due 2006 (the
"Notes"), require us to meet certain financial tests and impose restrictions
that may limit our ability to borrow additional funds or to sell assets. Such
requirements and restrictions may affect our flexibility in planning for, and
reacting to, changes in our business, including possible acquisition activities.
Our level of indebtedness may also impair our ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes.
At January 4, 1999, we had $40 million borrowed under our revolving credit
facility, constituting the full amount of the current borrowing base under that
facility. Certain of the financial covenants in the Indenture currently prohibit
us from borrowing funds from sources other than our revolving credit facility.
Therefore, we do not currently have the ability to borrow funds for our capital
needs, and must rely on cash flow, equity sales and other sources. In addition,
the lenders under our revolving credit facility have advised us that a new
borrowing base determination will be made as of December 31, 1998. If the
borrowing base is reduced, we will be required to repay the difference between
the amount borrowed and the new borrowing base in not more than six payments. We
may not have the funds available for such repayment and may be forced to sell
assets or otherwise modify our operations to fund those payments. If we are
required to make a significant repayment due to the borrowing base
redetermination, our ability to fund our 1999 operating plan and other capital
needs may be materially and adversely impaired.
Our ability to timely pay our debt obligations and to reduce our total
indebtedness depends upon our future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting operations, many of which are beyond our control. If we are unable to
generate sufficient cash flow from operations in the future to timely pay our
debt, we may be required to refinance all or a portion of our existing debt,
including the Notes, or to obtain additional financing. We may not be able to
refinance such debt or obtain additional financing. Our revolving credit
facility is secured by substantially all of the assets of the Company which
could impair our ability to obtain other financing. The inability to obtain
additional financing could have a material adverse effect on the Company.
UNCERTAINTY OF ESTIMATES OF PROVED RESERVES AND FUTURE NET CASH FLOWS
There are numerous uncertainties in estimating quantities of proved
reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond our control.
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The reserve data contained and incorporated by reference in this Prospectus are
estimates only. While we believe such estimates are reasonable, oil and gas
reserve estimates are imprecise and will most likely change as additional
information becomes available. Estimates of oil and gas reserves are projections
based on engineering data, and there are uncertainties inherent in the
interpretation of such data as well as the projection of future rates of
production and the timing of development. Reserve engineering is a subjective
process of estimating underground accumulations of oil and gas that cannot be
exactly measured. The accuracy of any reserve estimate depends upon the quality
of available data and the knowledge and skill of the engineers preparing the
estimates. Accordingly, reserve estimates and estimates of the future net cash
flows expected from such reserves prepared by different engineers or by the same
engineers at different times may vary substantially. We cannot provide any
assurance that our proved reserves will ultimately be produced or that the
proved undeveloped reserves will be developed when we expect. The difference
between reserve estimates and the actual production could be material. Estimates
of future net revenues from proved reserves and the present value of such
revenue are based upon certain assumptions about production levels, prices and
costs, which may not be correct. The discounted future net cash flows should not
be considered representative of the fair market value of our proved oil and gas
properties. Discounted future net cash flows are based upon projected cash flows
that do not provide for changes in oil and gas prices or for escalation of
expenses and capital costs. Such estimates are highly dependent upon the
accuracy of the assumptions used in calculating the estimates. If those
assumptions prove to be inaccurate, the estimates based on those assumptions may
be materially different from actual results.
CONCENTRATION OF RESERVE ESTIMATES
While our oil and gas reserves are attributable to in excess of 2,000
proved and proved undeveloped wells and locations, 31% of the Company's total
proved reserves at October 1, 1998 were attributable to three productive wells
and two proved undeveloped locations in the Southwest Speaks Field in Lavaca
County, Texas. Each of the three productive wells were completed in 1998.
Estimates of proved undeveloped reserves, as well as estimates made early in the
productive life of wells, may be less reliable than reserve estimates
attributable to wells which have a longer production history. Any significant
downward revision of the reserve estimates attributable to the Southwest Speaks
Field, or any interference in production from the Field, could have a material
adverse effect on our future cash flows and financial results.
FAILURE TO CLOSE PIONEER ACQUISITION
Our previously-announced agreement to acquire oil and gas properties from
Pioneer Natural Resources USA, Inc. ("Pioneer"), which was originally scheduled
to close on or about December 15, 1998, has been modified to provide us with an
option to purchase the same properties at a reduced purchase price (the "Pioneer
Acquisition"). The option expires on March 31, 1999. For the option, we paid
Pioneer $25 million in cash (borrowed under our revolving credit facility), 3
million shares of Costilla's Common Stock, $0.10 par value (the "Costilla Common
Stock"), (valued at $13 million) and property valued at $3 million. We do not
have a contractual right to recover any of the consideration paid for the
option. If the Pioneer Acquisition does not close, we will not receive any value
for the $41 million of cash, stock and property paid to Pioneer for the option
(but may have certain legal rights and remedies if Pioneer breaches the
agreement). This would limit the amount of funds available to carry out our
operating plans. We may be forced to sell assets or reduce our level of
operations, which could materially and adversely effect our results of
operations and financial condition.
OTHER ACQUISITION RISKS
Our rapid growth since 1995 has been largely the result of acquisitions of
producing properties. We expect to continue to evaluate and pursue acquisition
opportunities available on terms management considers favorable. In considering
an acquisition of producing properties, we do an assessment of recoverable
reserves, future oil and gas prices, operating costs, potential environmental
and other liabilities and other factors beyond our control. Our assessment is
based upon limited data and we cannot be certain of its accuracy before
completing an acquisition. In connection with the assessment, we perform a
review of the subject properties
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we believe is generally consistent with industry practices. That review does not
reveal all existing or potential problems, and does not permit us to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. We may not be able to inspect every well, and we may not discover
some structural and environmental problems even when we do an inspection. The
Company does not generally receive contractual indemnification for preclosing
liabilities, including environmental liabilities, and generally acquires
interests in the properties on an "as is" basis.
If the Pioneer Acquisition is completed, the size of the Company will be
increased significantly. We will be challenged in managing this larger business.
We cannot be certain how long it may take to assimilate the new properties and
realize any increase in value from our efforts on those properties. We
anticipate that some of the new properties will require workovers, recompletions
and other remedial efforts. These activities may increase our lease operating
expenses without realizing any increase in production or revenue, if any, from
such efforts until a later time.
VOLATILITY OF OIL AND GAS PRICES
The price we receive for our oil and gas production has a significant
effect on our financial results and ability to service debt. Historically, the
markets for oil and gas have been volatile and may continue to be volatile in
the future. Prices of oil and gas are subject to wide fluctuations in response
to market uncertainty, changes in supply and demand and a variety of additional
factors, all of which are beyond our control. These factors include domestic and
foreign political conditions, the overall level of supply and demand for oil and
gas, the price of imported oil and gas, weather conditions, the price and
availability of alternative fuels and overall economic conditions. Currently,
oil and gas prices are at their lowest levels in many years. This has reduced
our cash flow and generally had an adverse effect on our financial results. Our
future financial condition and results of operations depend, in part, upon the
prices received for our oil and gas production, as well as the costs of
acquiring, finding, developing and producing reserves. To reduce our exposure to
price risks in the sale of our oil and gas, we enter into hedging arrangements
from time to time. Although we hedge a significant portion of our production, an
extended period at current prices or any substantial or extended decline in the
price of oil and gas would have a material adverse effect on the our financial
condition and results of operations, as well as reduce the wells that could be
operated economically. Moreover, low oil and gas prices materially and adversely
effect our available funds and ability to repay outstanding amounts of debt.
SHARES ELIGIBLE FOR FUTURE SALE; OWNERSHIP DILUTION
If a substantial number of additional shares of Costilla Common Stock are
available for future sales on the public market, then the market price for the
Common Stock may be adversely affected. Our stockholders recently approved the
issuance of up to 250,000 shares of convertible preferred stock and up to 50
million shares of common stock in connection with financing the Pioneer
Acquisition. The 3,000,000 shares of Common Stock owned by Pioneer are part of
that approved issuance, and increased the total number of shares outstanding by
approximately 30%. Further issuances of the shares approved by the stockholders
would also significantly increase the total number of outstanding shares. The
issuance of such additional shares dilutes the current stockholders' percentage
ownership and may adversely effect the market price of Costilla Common Stock.
Our stockholders have also approved an increase of the number of shares that the
we may use in connection with our 1996 Stock Option Plan from 1,250,000 shares
to 4,000,000 shares. While we have not granted options covering these additional
shares at this time, additional grants of options and issuances of shares upon
exercise of options could also have the effects discussed above.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a large extent on the services of Cadell S. Liedtke,
Chairman of the Board, Michael J. Grella, President and Chief Executive Officer,
and Henry G. Musselman, Executive Vice President and Chief Operating Officer.
The loss of the services of any of Messrs. Liedtke, Grella or Musselman could
have a material adverse effect on our operations. Pursuant to employment
agreements, Messrs. Liedtke, Grella and Musselman have agreed not to compete
with the Company for a one-year period if they voluntarily leave the Company's
employment or if their employment is terminated for cause within the
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initial three-year term of each employment agreement. We believe that our
success is also dependent upon our ability to continue to employ and retain
skilled technical personnel.
CONTROL OF THE COMPANY
Messrs. Liedtke, Grella and Musselman own directly and indirectly, in the
aggregate, approximately 41% of the outstanding Costilla Common Stock.
Accordingly, Messrs. Liedtke, Grella and Musselman may be able to exercise
significant influence over the election of directors and control of management,
operations and affairs.
FOREIGN INVESTMENT
Our investment in Moldova involves risks typically associated with
investments in emerging markets such as foreign exchange restrictions and
currency fluctuations, foreign taxation, changing political conditions, foreign
and domestic monetary and tax policies, expropriation, nationalization,
nullification, modification or renegotiation of contracts, war and civil
disturbances and other risks that may limit or disrupt markets. In addition, if
a dispute arises in our foreign operations, we may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign
persons to the jurisdiction of the United States. While we attempt to conduct
our business and financial affairs to protect the Company against political and
economic risks in Moldova, we cannot assure that such steps will be successful.
DRILLING RISKS
Drilling involves numerous risks, including the risk that no commercially
productive oil or gas will be encountered. The cost of drilling, completing and
operating wells is often uncertain, and drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors, including unexpected
drilling conditions, pressure or irregularities in formations, equipment
failures or accidents, adverse weather conditions and shortages or delays in the
delivery of equipment. Our future drilling activities may not be successful and,
if unsuccessful, such failure may have a material adverse effect on our future
results of operations and financial condition.
OPERATING HAZARD AND UNINSURED RISKS
Our operations are subject to hazards and risks inherent in the drilling
for and production and transportation of oil and gas, including fires, natural
disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures, and spills, any of which can result in
loss of oil and gas, environmental pollution, personal injury or loss of life,
severe damage to and destruction of our properties and others', and suspension
of operations. We maintain insurance coverage that we consider adequate and
customary in the industry, but we are not fully insured against certain of these
risks, either because such insurance is not available or because of high premium
costs. The occurrence of a significant event not fully covered by insurance
could have a material adverse effect on the Company's financial condition and
results of operations.
COMPETITION
We have substantial competition in acquiring properties, marketing oil and
gas and securing trained personnel. Many of our competitors have substantially
larger financial resources, staffs and facilities.
GOVERNMENT LAWS AND REGULATIONS
Our operations are affected from time to time in varying degrees by
political developments and federal, state and local laws and regulations. In
particular, oil and gas production, operations and economics are or have been
significantly affected by price controls, taxes and other laws relating to the
oil and gas industry, by changes in such laws and by changes in administrative
regulations. We cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional laws
and
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regulations will be adopted, or the effect such changes may have on our
business, financial condition or results of operations.
ENVIRONMENTAL REGULATIONS
Our operations are subject to complex and constantly changing environmental
laws and regulations adopted by federal, state and local governmental
authorities. We believe that compliance with such laws has not had a material
adverse effect upon the Company's operations to date and that the cost of such
compliance has not been material. Nevertheless, the discharge of oil, gas or
other pollutants into the air, soil or water may result in significant
liabilities for the Company to the government and third parties and may require
the Company to incur substantial costs of remediation. In past acquisitions, we
have agreed to indemnify sellers of producing properties against certain
liabilities for environmental claims associated with the properties we have
purchased. We cannot assure that existing environmental laws or regulations or
future laws or regulations, will not materially adversely affect our results of
operations and financial condition or that material indemnity claims will not
arise against us with respect to properties we have acquired.
YEAR 2000
The third-party software vendor for our integrated oil and gas information
system has modified the system to accurately handle the Year 2000 issue. These
modifications were part of the routine updates we receive from our third-party
software vendor as part of the systems support contract, and we have not, and do
not believe that we will, incur any material costs in addition to the ordinary
software maintenance costs in preparing our information systems for the Year
2000 issue. In addition to our information systems, we are conducting an
assessment of the Year 2000 issues with respect to the production and other
field equipment associated with our properties. A significant failure of such
equipment may cause delays in production and product transportation which could
have a material adverse effect on the Company. Following this assessment, we
intend to establish a plan to make such equipment Year 2000 compliant or develop
a contingency plan for a possible failure of such equipment.
The Year 2000 issues also affect service companies, purchasers of
production, utility providers and other companies with whom we have a business
relationship. We have submitted Year 2000 compliance questionnaires to many of
these companies, but are currently not aware of the preparations undertaken by
these companies. A material and widespread failure of the utility service,
transportation of oil or gas, or similar service we utilize could have a
material effect on our production, cash flow and overall financial condition.
Therefore, failure of such third parties to adequately prepare for Year 2000
issues may have a material adverse effect on the Company, notwithstanding our
actions to prepare our own information systems. We do not currently have a
contingency plan in the event such third parties are unable to provide services
or productions to us.
SELLING STOCKHOLDER
Pioneer Natural Resources USA, Inc. ("Pioneer") owns all of the 3,000,000
shares of Costilla Common Stock offered pursuant to this Prospectus. We issued
these shares to Pioneer as a portion of the consideration for the option to
purchase oil and gas properties in the Pioneer Acquisition pursuant to an Option
to Purchase Agreement and a Purchase and Sale Agreement, each dated as of
December 16, 1998 between Costilla, Pioneer and Pioneer Resources Producing,
L.P. (collectively, the "Purchase and Sale Agreement"). Under the Purchase and
Sale Agreement, we agreed to register the sale of these shares by Pioneer.
Pioneer does not own any shares of Costilla Common Stock other than the
3,000,000 shares offered hereby. Pioneer may sell any or all of these shares.
Pioneer does not have, and has not had during the last three years, a material
relationship with us other than the Purchase and Sale Agreement and other
acquisition transactions between the parties described under "The Company".
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THE OFFERING
Pioneer may sell any number of the 3,000,000 shares covered by this
Prospectus at any time and from time to time in public market or
privately-negotiated transactions. However, Pioneer has agreed not to sell these
shares prior to May 30, 1999 if the Pioneer Acquisition is completed. Pioneer
has also granted us the right to repurchase these shares for a total purchase
price of $13 million at any time prior to May 30, 1999. These shares may be sold
by Pioneer at the market price for Costilla Common Stock at the time of sale or
at privately negotiated prices. This offering may continue until all of the
3,000,000 shares covered hereby are sold.
USE OF PROCEEDS
All of the 3,000,000 shares of Costilla Common Stock covered by this
Prospectus will be offered and sold by Pioneer as a selling stockholder, and
Pioneer will receive all of the net proceeds from such sales. We will not
receive any proceeds from these sales, but we will pay expenses for registering
the sales. Pioneer will pay any brokerage fees or commissions in connection with
the sales.
THE COMPANY
Costilla is an independent energy company engaged in the exploration,
acquisition and development of oil and gas properties. Our primary operations
are in the Gulf Coast region, the Rocky Mountain region and the Permian Basin.
Our strategy focuses on utilizing current and developing technological
advancements to increase reserves through a targeted exploration program,
strategic property acquisitions and development of producing properties. Certain
terms of the oil and gas industry used herein are defined under "Certain
Definitions".
We began operating in 1988 and completed the initial public offering of
Costilla Common Stock in October 1996. As of October 1, 1998, we had total
estimated net proved reserves of 11 Mmbbls of oil and 165 Bcf of gas,
aggregating 232 Bcfe (29% attributable to oil and 71% attributable to gas), with
a PV-10 Value of approximately $180 million. We also have a substantial acreage
position consisting, at June 30, 1998, of 1,007,479 gross (760,529 net) acres,
715,038 gross (653,296 net) of which are undeveloped.
We began active efforts to acquire and develop oil and gas properties in
1993 and, from January 1, 1993 to December 31, 1998, closed nine acquisitions
for an aggregate purchase price of approximately $149 million. The three most
significant acquisitions completed to date have been:
- The acquisition of 36 Bcfe of proved reserves (at July 1, 1997),
extensive undeveloped acreage and seismic data located in the Rocky
Mountain region from Ballard Petroleum, L.L.C. in August 1997 for
approximately $41 million.
- The acquisition from a predecessor of Pioneer of 64 Bcfe of proved
reserves and undeveloped acreage located in the Permian Basin and the
Gulf Coast region in June 1996 for approximately $39 million.
- The acquisition from a predecessor of Pioneer of 86 Bcfe of proved
reserves and undeveloped acreage in the Permian Basin, Gulf Coast and
Rocky Mountain regions in June 1995 for approximately $47 million.
We intend to continue our strategy to increase oil and gas reserves,
production and cash flow from operations by utilizing a three-pronged approach
which combines an active exploration program using 3-D seismic and other
technological advances with strategic property acquisitions and focused
development drilling. Our management and technical staff have significant oil
and natural gas experience in the areas of drilling and completions, production
operations, acquisitions and divestitures and reservoir engineering. Most
members of the our technical staff, having spent substantial portions of their
careers specializing in our core operating regions, have in-depth knowledge of
these regions. We have sought to reduce our operating and commodity risks by
holding a geographically diverse portfolio of properties.
9
<PAGE> 11
MATERIAL CHANGES TO REPORTED INFORMATION
Other than as described below, there have been no material changes in the
information contained in the documents or reports incorporated by reference in
this Prospectus as of the date hereof.
As previously reported, Costilla and Pioneer entered into a Purchase and
Sale Agreement dated September 4, 1998 ("September 4 Agreement") with respect to
our purchase of oil and gas properties from Pioneer. The transaction was
originally scheduled to close on or about December 15, 1998 (effective October
1, 1998) with a purchase price of $410 million, including a $25 million deposit
we made with Pioneer upon execution of the September 4 Agreement. On December
16, 1998, Costilla and Pioneer entered into the new Purchase and Sale Agreement
with respect to the Pioneer Acquisition, which grants us an option to purchase
the same oil and gas properties included in the earlier agreement. As payment
for the option, we paid Pioneer $25 million in cash, 3,000,000 shares of
Costilla Common Stock (valued at $13 million), and property interests valued at
$3 million (collectively, the "Option Consideration"). The $25 million in cash
was paid with the $25 million deposit that we made with Pioneer upon the
execution of the September 4 Agreement. The purchase price for the oil and gas
properties, exclusive of the Option Consideration, is $294 million. Our option
to purchase the properties expires on March 31, 1999. When completed, the
transaction will have a January 1, 1999 effective date.
We do not have a contractual right to recover any of the Option
Consideration. If the Pioneer Acquisition is not completed, we will have paid
$41 million in cash, stock and property and will not receive any value in return
(although we may have certain legal rights and remedies if Pioneer breaches the
Purchase and Sale Agreement). The $25 million cash portion of the Option
Consideration was funded through borrowings under our revolving credit facility.
If we do not receive any value for that $25 million expenditure, our debt
leverage will remain substantial. In addition, the loss of the Option
Consideration for no value in return may significantly and adversely affect our
ability to generate or obtain capital resources sufficient to fund our operating
plans.
Pioneer has agreed not to sell or otherwise transfer the 3,000,000 shares
of Costilla Common Stock it received as a portion of Option Consideration prior
to May 30, 1999 if the Pioneer Acquisition closes. In addition, we have the
right to repurchase those 3,000,000 shares for a total purchase price of $13
million at any time prior to May 30, 1999. We also have the right to repurchase
the property we transferred to Pioneer as part of the Option Consideration for
$3 million.
We intend to fund the $294 million purchase price of the Pioneer
Acquisition through a combination of bank debt and the sale of equity
securities. On November 30, 1998, our stockholders approved the issuance of up
to 250,000 shares of convertible preferred stock and up to 50 million shares of
Costilla Common Stock in connection with the Pioneer Acquisition. The 3,000,000
shares issued to Pioneer were a portion of the issuance approved by the
stockholders. We may issue any or all of the remaining 47 million shares of
Costilla Common Stock or the 250,000 shares of convertible preferred stock, or a
combination thereof, to fund a portion of the acquisition purchase price. We do
not currently have any agreements, commitments or similar arrangements with
respect to either the bank debt or the issuance of such equity securities to
fund the Pioneer Acquisition.
Due to the delay in completing the Pioneer Acquisition, the Company's
senior lenders are in the process of redetermining our borrowing base under our
revolving credit facility as of December 31, 1998. We do not presently have any
available borrowing capacity under our current borrowing base of $40 million. In
redetermining the borrowing base, it is probable that the lenders will utilize
pricing assumptions for future sale of oil and gas production that are
substantially lower than the assumptions utilized in prior borrowing base
reviews. If, as a result of the borrowing base redetermination, our outstanding
indebtedness exceeds the redetermined borrowing base, we will be required to
repay this difference in not more than six (6) equal installments. If the
Pioneer Acquisition is not consummated, such a required repayment could have a
material adverse effect on our ability to carry out our 1999 business plan and
capital expenditure budget.
The foregoing information is in addition to, and will be supplemented and
replaced by, the information contained in the documents and reports incorporated
herein by reference, both those already filed and those to be filed, as
described herein under "Where You Can Find More Information."
10
<PAGE> 12
PLAN OF DISTRIBUTION
Pioneer may sell some or all of the 3,000,000 shares of Costilla Common
Stock offered by this Prospectus from time to time:
- through dealers, brokers or other agents;
- directly to one or more purchasers, including pledgees;
- in transactions (which may involve cross or block transactions) on the
Nasdaq National Market;
- in privately negotiated transactions (including sales pursuant to
pledges);
- in the over-the counter market; or
- in a combination of such transactions.
These transactions may be at market prices prevailing at the time of sale,
at prices related to prevailing market prices, at negotiated prices, or at fixed
prices, which may be changed. Brokers, dealers, or other agents participating in
these transactions may receive compensation in the form of discounts,
concessions or commissions from Pioneer (and, if they act as agent for the
purchaser of such shares, from such purchaser).
Pioneer and any such brokers, dealers or other agents that participate in
such distribution may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act"), and any discounts, commissions or
concessions received by them might be deemed to be underwriting discounts and
commissions under the Securities Act. We cannot, nor can Pioneer, presently
estimate the amount of any such compensation. We do not know of any existing
arrangements between Pioneer and any broker, dealer or other agent relating to
the sale or distribution of its shares of Costilla Common Stock.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with. Also, the anti-manipulative
provisions of Regulation M promulgated under the Securities Exchange Act of 1934
may apply to sales by Pioneer in the public market.
We have not engaged any underwriter, broker, dealer or agent in connection
with the distribution of the shares. We will pay all of the expenses incident to
the registration of the shares, other than discounts, commissions and
concessions of brokers dealers or other agents, if any.
Any shares covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this Prospectus. There is no assurance that Pioneer will sell any of
the shares. Pioneer may transfer, devise or gift shares by other means not
described herein. Pioneer may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of shares
against certain liabilities, including liabilities under the Securities Act.
If we are notified by Pioneer that any material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a supplement to this Prospectus, if
required, pursuant to Rule 424(b) under the Securities Act. The supplement will
disclose (i) the name of the selling stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such shares will be sold, (iv) the commissions to be paid or discounts or
concessions to be allowed to such broker-dealer)s), where applicable, (v) that
such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this Prospectus, and (vi)
other facts material to the transaction.
11
<PAGE> 13
LEGAL MATTERS
Certain legal matters related to the shares of Costilla Common Stock
offered hereby will be passed upon for the Company by Cotton, Bledsoe, Tighe and
Dawson, a Professional Corporation, Midland, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the years in the three-year period ended December
31, 1997 have been incorporated herein by reference in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated herein by
reference, and upon the authority of said firm as experts in accounting and
auditing.
The statement of revenues and direct operating expenses of the business
acquired from Ballard Petroleum LLC for the year ended December 31, 1996 and the
statement of revenues and direct operating expenses of the 1995 Acquisition from
a Pioneer predecessor for the period ended June 12, 1995, incorporated herein by
reference in reliance upon the reports of KPMG LLP, independent certified public
accountants, incorporated herein by reference, and upon the authority of said
firm as experts in accounting and auditing.
Certain information appearing in reports and documents incorporated by
reference in this Prospectus regarding estimated quantities of oil and gas
reserves and the discounted present value of future pre-tax cash flows therefrom
attributable to certain of the Company's properties at January 1, 1997 and
January 1, 1998 are based on reports prepared or reviewed by Williamson
Petroleum Consultants, Inc. and W. Scott Epley, P.E.
SEC'S POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation and Bylaws provide
indemnification for the Company's officers and directors under the circumstances
defined in Section 145 of the General Corporation Law of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
12
<PAGE> 14
CERTAIN DEFINITIONS
The terms defined in this section are used throughout this Prospectus.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bcf. One billion cubic feet.
Bcfe. One billion cubic feet of gas equivalent.
BOE. Barrels of oil equivalent. Determined using the ration of six Mcf of
gas to one Bbl of crude oil, condensate or gas liquids.
Cfe. Cubic feet of gas equivalent. Determined using the ratio of six Mcf of
gas to one Bbl of crude oil, condensate or gas liquids.
Developed Acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Gross Acres or Gross Wells. The total acres or wells, as the case may be,
in which a working interest is owned.
Mbbl. One thousand barrels of crude oil or other liquid hydrocarbons.
MBOE. One thousand barrels of oil equivalent.
MMBOE. One million barrels of oil equivalent.
Mmbbls. One million barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet of gas equivalent.
Mmcf. One million cubic feet.
Mmcfe. One million cubic feet of gas equivalent.
Net acres. The sum of the fractional working interests owned in gross
acres.
PV-10 Value or Present Value of Estimated Future Net Revenues. The present
value of estimated future net revenues is an estimate of future net revenues
from a property at its acquisition date, at a specified date, after deducting
production and ad valorem taxes, future capital costs and operating expenses,
but before deducting federal income taxes. The future net revenues have been
discounted at an annual rate of 10% to determine their "present value." The
present value is shown to indicate the effect of time on the value of the
revenue stream and should not construed as being the fair market value of the
properties. Estimates have been made using constant oil and natural gas prices
and operating costs at the specified date.
Proved Developed Reserves. Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Proved Reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved Undeveloped Reserves. Reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
3-D Seismic. Advanced technology method of detecting accumulations of
hydrocarbons identified by the collection and measurement of the intensity and
timing of sound waves transmitted into the earth as they reflect back to the
surface.
13
<PAGE> 15
Undeveloped Acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
14
<PAGE> 16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COSTILLA ENERGY, INC.
3,000,000 SHARES
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of estimated expenses in connection with the
issuance and distribution of the securities being registered, with the exception
of underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee............................................ $ 3,753
Legal fees and expenses (other than Blue Sky)............... $10,000
Accounting fees and expenses................................ $ 2,000
Nasdaq listing fee.......................................... $17,500
Miscellaneous............................................... $ 3,000
-------
Total............................................. $36,253
=======
</TABLE>
All of the above expenses other than the Registration fee and the Nasdaq
listing fee are estimates. All of the above expenses will be borne by Costilla.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify certain persons, including officers and directors and
former officers and directors, and to purchase insurance with respect to
liability arising out of their capacity or status as officers and directors.
Such law provides further that the indemnification permitted hereunder shall not
be deemed exclusive of any other rights to which officers and directors may be
entitled under the corporation's bylaws, any agreement or otherwise. Article IX
of the Company's Certificate of Incorporation and Article VI of the Company's
Bylaws provide, in general, that the Company shall indemnify its directors and
officers under the circumstances defined in Section 145 of the General
Corporation Law of the State of Delaware and gives authority to the Company to
purchase insurance with respect to such indemnification. The Company may in the
future seek to obtain insurance providing for indemnification of officers and
directors of the Company and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions.
In addition, Section 102(b)(7) of the General Corporation Law of the State
of Delaware permits a corporation to limit the liability of its directors
subject to certain exceptions. In accordance with Section 102(b)(7), Article VI
of the Company's Certificate of Incorporation provides, in general, that no
director of the Company shall be personally liable for breach of fiduciary duty
as a director, provided that such limitation of liability shall not apply to (i)
any breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the General
Corporation Law of the State of Delaware or (iv) any transaction from which the
director derived an improper personal benefit.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <C> <S>
5.1 -- Opinion of Cotton, Bledsoe, Tighe & Dawson, P.C.
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Williamson Petroleum Consultants
23.3 -- Consent of W. Scott Epley, P.E.
</TABLE>
II-1
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <C> <S>
23.4 -- Consent of Cotton, Bledsoe, Tighe & Dawson, P.C. (included
as part of Exhibit 5.1)
24.1 -- Power of Attorney
24.2 -- Certified copy of resolution of Board of Directors of
Costilla Energy, Inc. authorizing signature by Power of
Attorney
</TABLE>
- ---------------
All of the above exhibits are filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE> 19
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 15 above, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication
of such issue.
II-3
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Midland, State of Texas on this 8th day of January,
1999.
COSTILLA ENERGY, INC.
By: /s/ MICHAEL J. GRELLA*
----------------------------------
Michael J. Grella
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MICHAEL J. GRELLA* President, Chief Executive January 8, 1999
- ----------------------------------------------------- Officer and Director
Michael J. Grella
/s/ CADELL S. LIEDTKE* Chairman of the Board and January 8, 1999
- ----------------------------------------------------- Director
Cadell S. Liedtke
/s/ HENRY G. MUSSELMAN* Executive Vice President and January 8, 1999
- ----------------------------------------------------- Director
Henry G. Musselman
/s/ JERRY J. LANGDON* Director January 8, 1999
- -----------------------------------------------------
Jerry J. Langdon
/s/ W. D. KENNEDY* Director January 8, 1999
- -----------------------------------------------------
W. D. Kennedy
/s/ SAMUEL J. ATKINS, III* Director January 8, 1999
- -----------------------------------------------------
Samuel J. Atkins, III
/s/ TIMOTHY J. DETMERING* Director January 8, 1999
- -----------------------------------------------------
Timothy J. Detmering
/s/ BOBBY W. PAGE Senior Vice President and January 8, 1999
- ----------------------------------------------------- Chief Financial Officer
Bobby W. Page
*By: /s/ BOBBY W. PAGE
------------------------------------------------
Bobby W. Page,
Attorney in Fact
</TABLE>
II-4
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
5.1 -- Opinion of Cotton, Bledsoe, Tighe & Dawson, P.C.
23.1 -- Consent of KPMG LLP
23.2 -- Consent of Williamson Petroleum Consultants
23.3 -- Consent of W. Scott Epley, P.E.
23.4 -- Consent of Cotton, Bledsoe, Tighe & Dawson (included as
part of Exhibit 5.1)
24.1 -- Power of Attorney
24.2 -- Certified copy of resolution of Board of Directors of
Costilla Energy, Inc. authorizing signature by Power of
Attorney
</TABLE>
- ---------------
All of the above exhibits are filed herewith.
<PAGE> 1
COTTON, BLEDSOE, TIGHE & DAWSON
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
500 W. ILLINOIS
MIDLAND, TEXAS 79701-4337
P. O. BOX 2776 ZIP 79702-2776
DAN G. LEROY ----------------
TELEPHONE (915) 684-5782
FAX (915) 682-3672
EXHIBIT 5.1
January 8, 1999
Costilla Energy, Inc.
400 West Illinois, Suite 1000
Midland, Texas 79701
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for Costilla Energy, Inc., a Delaware
corporation (the "Company") in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 3,000,000 shares of the
Company's Common Stock, $0.10 par value (the "Shares"). A Registration Statement
on Form S-3 covering the sale of the Shares was filed under the Act with the
Securities and Exchange Commission (the "Commission") on January 8, 1999 (the
"Registration Statement").
In reaching the conclusions expressed in this opinion, we have examined
signed copies of the Registration Statement and all exhibits thereto. We have
also examined and relied upon originals, or copies certified to our
satisfaction, of (i) the Certificate of Incorporation and Bylaws of the Company,
(ii) minutes and records of the corporate proceedings of the Company with
respect to the issuance of the Shares and related matters, and (iii) such other
agreements and instruments relating to the Company as we have deemed necessary
or appropriate for the purposes of the opinions hereinafter expressed. In
rendering such opinions, we have relied, to the extent we deemed reasonable, on
certificates and certain other information provided to us by officers of the
Company and public officials as to matters of fact of which the maker of such
certificates or the person providing such information had knowledge, without
investigation into or verification of such information. Furthermore, we have
assumed that the signatures on all documents examined by us are genuine, that
all documents and corporate record books submitted to us as originals are
authentic, accurate and complete, and that all documents submitted to use as
copies are true, correct and complete copies of the originals thereof.
<PAGE> 2
Costilla Energy, Inc.
January 8, 1999
Page 2
Based solely upon the foregoing, subject to the assumptions,
limitations and qualifications set forth herein, and specifically limited in all
respects to the laws of the State of Texas, of the United States of America and
the General Corporation Law of the State of Delaware, we are of the opinion that
the Shares registered pursuant to the Registration Statement have been duly and
validly authorized by the Company and have been legally issued, fully paid and
nonassessable. Please note in this regard that we are not licensed to practice
law in the State of Delaware, but have reviewed Delaware law in connection with
the opinions expressed herein.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving this consent we do not thereby admit that we come within the category
of persons whose consent is required under the Act or the rules and regulations
of the Commission promulgated thereunder.
This opinion is rendered only to the Company and solely for the benefit
of the Company and the Commission in connection with the registration of the
Shares pursuant to the Registration Statement. This opinion may not be otherwise
used, circulated, quoted, relied upon, or referred to by you or the Commission
for any other purpose or by any other person, firm or corporation for any
purpose, without our prior written consent.
Yours very truly,
COTTON, BLEDSOE, TIGHE & DAWSON
By: /s/ Dan G. LeRoy
Dan G. LeRoy
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Costilla Energy, Inc.
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Prospectus.
KPMG LLP
Midland, Texas
January 8, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ENGINEERS
As independent engineering consultants, we hereby consent to the use of
our reports and data extracted therefrom (and all references to our Firm)
incorporated by reference in or otherwise made a part of this Registration
Statement on Form S-3 relating to the registration of 3,000,000 shares of the
Common Stock, $0.10 par value, of Costilla Energy, Inc. to be filed with the
Securities and Exchange Commission on or about January 8, 1999.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
Houston, Texas
January 8, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ENGINEER
As an independent engineering consultant, I hereby consent to the use
of my reports and data extracted therefrom (and all references to me and my
Firm) incorporated by reference in or otherwise made a part of this Registration
Statement on Form S-3 relating to the registration of 3,000,000 shares of the
Common Stock, $0.10 par value, of Costilla Energy, Inc.
W. SCOTT EPLEY, P.E.
Midland, Texas
January 8, 1999
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned, being certain of the
Officers and all of the Directors of Costilla Energy, Inc., a Delaware
Corporation, do hereby constitute and appoint Michael J. Grella and Bobby W.
Page, or either of them, with full power of substitution, our true and lawful
attorneys and agents, to do any and all acts and things in our names in the
capacities indicated which Michael J. Grella and Bobby W. Page, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act of 1933, as amended, any state securities laws and any rules,
regulations and requirements of the Securities and Exchange Commission or state
securities commission in connection with a Registration Statement or
Registration Statements on Form S-3 or other appropriate form seeking to
register 3,000,000 shares of Common Stock, $0.10 par value, of Costilla Energy,
Inc., for sale by Pioneer Natural Resources USA, Inc., the owner of said shares,
including specifically, but not limited to, the power and authority to sign such
Registration Statement, any and all amendments (including post-effective
amendments) to such Registration Statement and any other forms or documents
related to such Registration Statement which are required under federal or state
securities laws for us, or any of us, in our names in the capacities indicated;
and we do hereby ratify and confirm all that Michael J. Grella and Bobby W.
Page, or either of them, shall do or cause to be done by virtue hereof. This
Power of Attorney may be signed in any number of counterparts, and each such
counterpart shall be considered an original hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 5th day of January,
1999.
\s\ Cadell S. Liedtke
--------------------------------------------------
CADELL S. LIEDTKE, Chairman of the Board
and Director
\s\ Michael J. Grella
--------------------------------------------------
MICHAEL J. GRELLA, President, Chief
Executive Officer and Director
\s\ Henry G. Musselman
--------------------------------------------------
HENRY G. MUSSELMAN, Executive Vice
President, Chief Operating Officer and Director
\s\ Bobby Page
--------------------------------------------------
BOBBY W. PAGE, Senior Vice President,
Treasurer, Chief Financial Officer and Secretary
\s\ Jerry Langdon
--------------------------------------------------
JERRY LANGDON, Director
\s\ W. D. Kennedy
--------------------------------------------------
W. D. KENNEDY, Director
\s\ Samuel J. Atkins, III
--------------------------------------------------
SAMUEL J. ATKINS, III, Director
\s\ Timothy J. Detmering
--------------------------------------------------
TIMOTHY J. DETMERING, Director
<PAGE> 1
EXHIBIT 24.2
CERTIFICATE OF RESOLUTION
I, Bobby W. Page, Secretary of Costilla Energy, Inc., a Delaware
Corporation, do hereby certify that the Board of Directors of Costilla Energy,
Inc., duly adopted the following resolutions as of January 5, 1999.
BE IT RESOLVED that the directors and officers of the Company are
hereby authorized and directed to execute and deliver a Power of Attorney to
Michael J. Grella and Bobby W. Page in the following form:
"KNOW ALL MEN BY THESE PRESENTS, the undersigned, being certain of the
Officers and all of the Directors of Costilla Energy, Inc., a Delaware
Corporation, do hereby constitute and appoint Michael J. Grella and Bobby W.
Page, or either of them, with full power of substitution, our true and lawful
attorneys and agents, to do any and all acts and things in our names in the
capacities indicated which Michael J. Grella and Bobby W. Page, or either of
them, may deem necessary or advisable to enable the Company to comply with the
Securities Act of 1933, as amended, any state securities laws and any rules,
regulations and requirements of the Securities and Exchange Commission or state
securities commission in connection with a Registration Statement or
Registration Statements on Form S-3 or other appropriate form seeking to
register 3,000,000 shares of Common Stock, $0.10 par value, of Costilla Energy,
Inc., for sale by Pioneer Natural Resources USA, Inc., the owner of said shares,
including specifically, but not limited to, the power and authority to sign such
Registration Statement, any and all amendments (including post-effective
amendments) to such Registration Statement and any other forms or documents
related to such Registration Statement which are required under federal or state
securities laws for us, or any of us, in our names in the capacities indicated;
and we do hereby ratify and confirm all that Michael J. Grella and Bobby W.
Page, or either of them, shall do or cause to be done by virtue hereof. This
Power of Attorney may be signed in any number of counterparts, and each such
counterpart shall be considered an original hereof."
BE IT FURTHER RESOLVED that the officers of the Company are hereby
authorized and directed to take all such further action as they may deem
advisable in order to carry out the intent and purposes of the foregoing
resolution.
IN WITNESS WHEREOF, I have hereunto set my hand on behalf of this
corporation this 8th day of January, 1999.
/s/ Bobby W. Page
-------------------------------------------
Bobby W. Page, Secretary
