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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 1, 2000
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Date of Report (date of earliest event reported)
Pontotoc Production, Inc.
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Exact Name of Registrant as Specified in its Charter
Nevada 0-21313 84-1349552
--------------------------- --------------- ----------------------
State or Other Jurisdiction Commission File IRS Employer Identifi-
of Incorporation Number cation Number
808 E. Main, Ada, Oklahoma 74820
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Address of Principal Executive Offices, Including Zip Code
(580) 436-6100
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Registrant's Telephone Number, Including Area Code
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 1 2000, the Company closed on the acquisition of Oklahoma Basic
Economy Corporation ("OBEC") and the working interests of OBEC's partners for
$10,000,000. Included in the purchase were interests in approximately 49 oil
and gas leases located in the following counties in Oklahoma: Pontotoc,
Pottawatomie, and Seminole. The purchase also included two workover rigs, and
miscellaneous oil field equipment which relates to the ongoing production of
the oil and gas properties.
The purchase was funded with $9,900,000 by advances under the Company's
bank credit agreement and approximately $100,000 in cash from operations.
This acquisition is expected to increase the Company's daily oil
production by 61% to approximately 980 barrels of oil per day, and proven
producing reserves are expected to increase by 94% and proven undeveloped
reserves are expected to increase by 69%.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following
financial statements for the properties acquired in the acquisition of OBEC
and the working interests of OBEC's partners for the years ended March 31,
2000 and 1999 are filed herewith:
INDEX PAGE
Report of Independent Certified Public Accountants ................. 3
Combined Statements of Revenue and Direct Operating Expenses
of Certain Acquired Property Interests ............................ 4
Notes to Financial Statements ...................................... 5-7
(b) PRO FORMA FINANCIAL INFORMATION. The unaudited pro forma combined
balance sheet as of March 31, 2000, and the unaudited pro forma combined
statement of operations for the year ended March 31, 2000, which give effect
to the acquisition of certain property interests which the Company acquired in
the acquisition of OBEC and the working interests of OBEC's partners are filed
herein on pages 8-13.
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Board of Directors
Pontotoc Production, Inc.
We have audited the accompanying Combined Statements of Revenue and Direct
Operating Expenses of Certain Acquired Property Interests (combined
statements) for the years ended March 31, 2000 and 1999. The combined
statements are the responsibility of Pontotoc Production, Inc.'s management.
Our responsibility is to express an opinion on the combined statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the combined statements. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying combined statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K of Pontotoc Production, Inc.) as
described in Note A and are not intended to be a complete presentation of the
Acquired Property Interests' revenue and expenses.
In our opinion, the combined statements referred to above present fairly, in
all material respects, the revenue and direct operating expenses as described
in Note A of the Acquired Property Interests for the years ended March 31,
2000 and 1999, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Oklahoma City, Oklahoma
July 25, 2000
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PONTOTOC PRODUCTION, INC.
COMBINED STATEMENTS OF REVENUE AND DIRECT OPERATING EXPENSES
OF CERTAIN ACQUIRED PROPERTY INTERESTS
Year ended March 31,
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2000 1999
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Revenue - oil and gas sales $3,022,776 $1,862,342
Direct operating expenses
Lease operations 996,666 1,194,438
Production taxes 200,531 119,686
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1,197,197 1,314,124
---------- ----------
Excess of revenue over direct
operating expenses $1,825,579 $ 548,218
========== ==========
The accompanying notes are an integral part of these statements.
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PONTOTOC PRODUCTION, INC.
NOTES TO COMBINED STATEMENTS OF REVENUE AND
DIRECT OPERATING EXPENSES OF CERTAIN
ACQUIRED PROPERTY INTERESTS
March 31, 2000 and 1999
NOTE A - BASIS OF PRESENTATION AND GENERAL INFORMATION
The accompanying combined statements present the revenue and direct
operating expenses of certain oil and gas property interests (the
"Properties") acquired by Pontotoc Production, Inc. (the "Company") from
Oklahoma Basic Economy Corporation ("OBEC") and certain other outside interest
owners.
The accompanying combined statements do not reflect provisions for
depletion, depreciation, and amortization, if any, which may have been
recorded in the financial records of the previous interest owners. The
combined statements do not reflect certain additional expenses that may have
been incurred in connection with the ownership of the Properties such as
interest on indebtedness and general and administrative expenses incurred
individually by the prior interest owners as such costs are not comparable to
those which will result from the future operation of the Properties.
Lease operations expense includes direct costs of operating the
Properties which were charged to the joint account of working interest owners
by the operator of the wells.
The Properties are not taxpaying entities. Any taxable income arising
from the operation of the Properties accrues directly to the interest owners.
Accordingly, no provision for income taxes has been made in the combined
statements of revenue and direct operating expenses.
Oil and gas sales are recognized when the product is transported from the
well site.
NOTE B - OIL AND GAS RESERVE DATA (UNAUDITED)
The following estimates of proved developed and proved undeveloped
reserve quantities and related standardized measure of discounted future net
cash flows are estimates only, and do not purport to reflect realizable values
or fair market values of the Properties' reserves. It is emphasized that
reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future information
becomes available. All of the Properties' reserves are located in the United
States.
Proved reserves are estimated reserves of crude oil (including condensate
and natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
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PONTOTOC PRODUCTION, INC.
NOTES TO COMBINED STATEMENTS OF REVENUE AND
DIRECT OPERATING EXPENSES OF CERTAIN
ACQUIRED PROPERTY INTERESTS - CONTINUED
March 31, 2000 and 1999
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price
changes only to the extent provided by contractual arrangements) to the
estimated future production of proved oil and gas reserves, less estimated
future expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, and assuming continuation of existing economic
conditions. The estimated future net cash flows are then discounted using a
rate of 10% a year to reflect the estimated timing of the future cash flows.
The following summaries of changes in reserves and standardized measure
of discounted future net cash flows were prepared from estimates of proved
reserves developed by the Company's engineer.
Summary of Changes in Proved Reserves
Year ended March 31,
2000 1999
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Bbls Mcf Bbls Mcf
--------- --------- --------- ---------
Proved developed and unde-
veloped reserves
Beginning of year 5,393,511 1,004,189 5,546,938 1,004,189
Production (142,489) - (153,427) -
--------- --------- ---------- ---------
End of year 5,251,022 1,004,189 5,393,511 1,004,189
========= ========= ========= =========
Proved developed reserves
Beginning of year 2,376,775 1,004,189 2,530,202 1,004,189
End of year 2,234,286 1,004,189 2,376,775 1,004,189
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
March 31,
2000 1999
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Future oil and gas revenues $128,283,949 $85,326,619
Future production and development costs (36,056,884) (34,084,846)
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Future net cash flows 92,227,065 51,241,773
Discounted at 10% for estimated timing of
cash flows (37,693,621) (21,002,876)
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Standardized measure of discounted future
net cash flows $ 54,533,444 $30,238,897
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PONTOTOC PRODUCTION, INC.
NOTES TO COMBINED STATEMENTS OF REVENUE AND
DIRECT OPERATING EXPENSES OF CERTAIN
ACQUIRED PROPERTY INTERESTS - CONTINUED
March 31, 2000 and 1999
NOTE B - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
Changes in Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
Year ended March 31,
2000 1999
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Sales and transfers of oil and gas
produced, net of production costs $(1,825,579) $ (548,218)
Accretion of discount 3,023,890 3,305,241
Net changes in sales and transfer price,
net of related production costs 25,025,824 (2,773,950
Net changes in production rates and other (1,929,588) (2,796,587)
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Net increase 24,294,547 (2,813,514)
Balance at beginning of year 30,238,897 33,052,411
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Balance at end of year $54,533,444 $30,238,897
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PONTOTOC PRODUCTION, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined balance sheet as of March 31, 2000 and the
unaudited pro forma combined statement of operations for the year ended March
31, 2000 give effect to the acquisition of certain property interests acquired
in the acquisition of OBEC and the working interests of OBEC's partners by
Pontotoc Production, Inc. ("Pontotoc"), which has been accounted for using the
purchase method of accounting. The pro forma combined financial statements
are presented for illustrative purposes only and are not necessarily
indicative of the operating results that would have occurred if the
transactions given pro forma effect herein had been consummated as of the time
reflected herein, nor are they necessarily indicative of the future operating
results or financial position of Pontotoc. The pro forma adjustments are
based upon available information and certain assumptions that Pontotoc
believes are reasonable. This information should be read in conjunction with
the historical financial statements and related notes of Pontotoc and the
combined statements of Revenue and Direct Operating Expenses of Certain
Acquired Property Interests.
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PONTOTOC PRODUCTION, INC.
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
March 31, 2000
Historical Pro forma
ASSETS Pontotoc Adjustments Combined
----------- ------------- -----------
Cash and cash equivalents $1,773,797 $ (112,297)(1) $ 1,661,500
Accounts receivable and other
current assets 723,014 134,465 (1) 857,479
Property and equipment, net 397,587 77,539 (1) 475,126
Oil and gas properties, net 5,816,147 14,405,130 (1) 20,221,277
Other assets 178,261 - 178,261
---------- ----------- -----------
Total assets $8,888,806 $14,504,837 $23,393,643
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 91,960 $ - $ 91,960
Accrued and other current
liabilities 255,156 - 255,156
Long-term debt - 9,893,713 (1) 9,893,713
Deferred income taxes 1,148,365 4,611,124 (1) 5,759,489
Stockholders' equity 7,393,325 - 7,393,325
---------- ----------- -----------
$8,888,806 $14,504,837 $23,393,643
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See notes to pro forma combined financial statements.
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PONTOTOC PRODUCTION, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
Year ended March 31, 2000
Historical Pro forma
Pontotoc Properties Adjustments Combined
---------- ---------- ----------- -----------
Operating revenues
Oil and gas sales $4,832,805 $3,022,776 $ - $7,855,581
Well supervision fees and
overhead reimbursements 129,265 - - 129,265
---------- --------- ----------- ----------
4,962,070 3,022,776 - 7,984,846
Operating costs and expenses
Production 1,533,360 1,197,197 - 2,730,557
Depreciation, depletion,
and amortization 361,552 - 543,000(2) 904,552
General, administrative,
and other 340,522 - - 340,522
---------- --------- ----------- ----------
2,235,434 1,197,197 543,000 3,975,631
Earnings from opera-
tions 2,726,636 1,825,579 (543,000) 4,009,215
Other income 226,336 - - 226,336
Interest expense (107,146) - (722,000)(4)
(829,146)
---------- --------- ----------- ----------
Earnings before income
taxes 2,845,826 1,825,579 (1,265,000) 3,406,405
Provision for income taxes 851,066 - 168,000 (2) 1,019,066
---------- --------- ----------- ----------
NET EARNINGS $1,994,760 $1,825,579 $(1,433,000) $2,387,339
========== ========== =========== ==========
Earnings per share - basic .41 .49
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Earnings per share diluted .40 .48
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Weighted average common
shares outstanding:
Basic 4,823,521 4,823,521
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Diluted 5,009,576 5,009,576
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See notes to pro forma combined financial statements.
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PONTOTOC PRODUCTION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
On June 1, 2000, the Company acquired Oklahoma Basic Economy Corporation
("OBEC") and the working interests of OBEC's partners for cash of
approximately $10,000,000. The accompanying pro forma combined balance sheet
has been presented as if the acquisition occurred on March 31, 2000 and the
accompanying pro forma combined statement of operations for the year ended
March 31, 2000 has been prepared as if the acquisition was consummated on
April 1, 1999.
Basic earnings per share are based upon the weighted average number of common
shares outstanding. Diluted earnings per common share are based on the
assumption that all of the common stock options are converted into common
shares using the treasury stock method. There are no differences in net
earnings for purposes of computing basic and diluted earnings per share as
conversion of the common stock options would have no effect on net earnings.
NOTE B - PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the assumed effect of the
combination on the balance sheet as of March 31, 2000 and statement of
operations assuming the acquisition was consummated on April 1, 1999. The
accompanying pro forma balance sheet and statement of operations reflect the
following adjustments:
(1) To record the acquisition of OBEC and the working interest of OBEC's
partners for cash and assumption of deferred tax liabilities and to record
bank borrowing of $9,893,713 to fund the acquisition.
(2) To record depreciation, depletion, and amortization expense on oil
and gas properties acquired.
(3) To record estimated income tax expense at the combined effective
rate.
(4) To record interest expense for the year ended March 31, 2000 at the
effective rate of 7.3%.
NOTE C - OIL AND GAS RESERVE DATA (UNAUDITED)
The following tables contain certain oil and gas disclosures reflecting the
pro forma combined oil and gas activities as of and for the year ended March
31, 2000.
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PONTOTOC PRODUCTION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE C - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
Summary of Changes in Proved Reserves
Year ended March 31, 2000
Bbls Mcf
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Proved developed and undeveloped reserves
Beginning of year 9,680,775 10,487,239
Extensions and discoveries 169,786 1,006,052
Purchase of minerals in place 361,231 2,298,029
Sales of minerals in place (389,816) (1,664,883)
Production (301,602) (637,387)
Revisions of estimates 289,519 4,395,514
--------- ----------
End of year 9,809,893 15,884,564
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Proved developed reserves
Beginning of year 5,188,075 9,230,673
End of year 5,024,958 11,479,173
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
Year ended
March 31, 2000
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Future oil and gas revenues $271,276,530
Future production and development costs (70,839,582)
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Future net cash flows before income taxes 200,436,948
Future income taxes (67,420,046)
------------
Future net cash flows after income taxes 133,016,902
Discounted at 10% for estimated timing of cash flows (54,365,010)
------------
Standardized measure of discounted future net
cash flows $ 78,651,892
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PONTOTOC PRODUCTION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE C - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
Changes in Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
Year ended
March 31, 2000
--------------
Sales and transfers of oil and gas produced, net
of production costs $ (5,125,024)
Development costs incurred during year which were
previously estimated 1,075,410
Extensions and discoveries, net of related development
costs 2,802,453
Net change in income taxes (19,075,510)
Accretion of discount 6,688,618
Purchase of minerals in place 6,586,269
Sales of minerals in place (3,856,612)
Net changes in production rates and other (526,898)
Revisions in quantity estimates 9,290,864
Net change in sales and transfer prices, net of
related production costs 37,344,183
------------
Net increase 35,203,753
Balance at beginning of year 43,448,139
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Balance at end of year $ 78,651,892
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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, hereunto duly authorized.
PONTOTOC PRODUCTION, INC.
Dated: August 13, 2000 By:/s/ James Robby Robson, Jr.
James Robby Robson, Jr., President
