<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
DECEMBER 12, 1997
TITAN EXPLORATION, INC.
(Exact name of registrant as specified in is charter)
Delaware 000-21843 75-2671582
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
500 West Texas, Suite 500, Midland, Texas 79701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(915) 498-8600
<PAGE>
AMENDMENT NO. 1
Amend Item 7. Financial Statements and Exhibits by deleting such item in its
---------------------------------
entirety and substituting therefor the following:
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
Independent Auditors' Report
Audited Statement of Revenues and Direct Operating Expenses for the
Year Ended December 31, 1996
Unaudited Statements of Revenues and Direct Operating Expenses for the
Nine Months Ended September 30, 1996 and 1997
Notes to Statements of Revenues and Direct Operating Expenses
(b) Pro Forma Financial Information.
-------------------------------
Introductory Paragraphs
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997
Unaudited Pro Forma Combined Statements of Operations for the Year
Ended December 31, 1996 and the Nine Months Ended
September 30, 1997
Notes to Unaudited Pro Forma Combined Financial Statements
(c) Exhibits.
--------
Exhibit 2.1 - Amended and Restated Agreement and Plan of Merger
dated November 6, 1997 among Titan, Titan Offshore and
OEDC (filed as Appendix I to the Joint Proxy
Statement/Prospectus and incorporated herein by
reference).
Exhibit 2.2 - Agreement and Plan of Merger dated November 4, 1997
among Titan, Titan Sub and Carrollton (filed as
Exhibit 2.3 to Titan's Registration Statement on Form
S-4, Registration No. 333-40215, and incorporated
herein by reference).
-2-
<PAGE>
Exhibit 99.1 - Sections captioned (i) "The Merger -- Effects of the
Merger," (ii) "The Merger -- Interests of Certain
Persons in the Merger," and (iii) "Certain Provisions
of the Merger Agreement -- Conversion of Shares;
Procedure for Exchange of Certificates; Fractional
Shares," which appear on pages 25-26, 37-38, and
43-44, respectively, of the Joint Proxy Statement/
Prospectus (filed as Exhibit 99.1 to Titan's
Form 8-K dated December 29, 1997 and incorporated
herein by reference).
-3-
<PAGE>
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.
Date: February 27, 1998 TITAN EXPLORATION, INC.
By:/s/ Jack Hightower
--------------------------------
Jack Hightower, President and
Chief Executive Officer
-4-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Titan Exploration, Inc.:
We have audited the accompanying statement of revenues and direct operating
expenses of the oil and gas properties acquired (Pioneer Acquisition) by Titan
Exploration, Inc. for the year ended December 31, 1996. This statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and direct operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in Form 8-K/A Amendment No. 1
of Titan Exploration, Inc. as described in Note 1) and is not intended to be a
complete presentation of the Pioneer Acquisition revenues and expenses.
In our opinion, the statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of the Pioneer Acquisition for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Midland, Texas
February 19, 1998
<PAGE>
TITAN EXPLORATION, INC.
PIONEER ACQUISITION
Statements of Revenues and Direct Operating Expenses
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended September 30,
December 31, -----------------------
1996 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Revenues:
Oil and condensate $16,497 $11,960 $11,129
Natural gas 2,636 1,788 1,960
------- ------- -------
19,133 13,748 13,089
Direct operating expenses:
Lease operating 5,558 4,078 4,320
Production taxes 1,255 948 916
Workover costs 505 383 121
------- ------- -------
7,318 5,409 5,357
------- ------- -------
Revenues in excess of direct operating
expenses
$11,815 $ 8,339 $ 7,732
------- ------- -------
</TABLE>
See the accompanying notes to these statements.
<PAGE>
TITAN EXPLORATION, INC.
PIONEER ACQUISITION
Notes to the Statements of Revenues and Direct Operating Expenses
(1) Basis of Presentation
On December 16, 1997, Titan Exploration, Inc. (the "Company") acquired from
Pioneer Natural Resources USA, Inc. ("Pioneer") certain oil and gas
properties (the "Pioneer Acquisition") for approximately $54.4 million.
The accompanying statements of revenues and direct operating expenses for
the Pioneer Acquisition do not include general and administrative
expenses, interest income or expense, a provision for depreciation,
depletion and amortization, or any provision for income taxes since
historical expenses of this nature incurred by Pioneer are not
necessarily indicative of the costs to be incurred by the Company.
Historical financial information reflecting financial position, results of
operations, and cash flows of the Pioneer Acquisition, are not presented
because the purchase price was assigned to the oil and gas property
interests acquired. Other assets acquired and liabilities assumed were
not material. Accordingly, the historical statements of revenues and
direct operating expenses of the Pioneer Acquisition are presented in
lieu of the financial statements required under Rule 3-05 of Securities
and Exchange Commission Regulation S-X.
Revenues in the accompanying statements of revenues and direct operating
expenses are recognized on the sales method. Under this method, revenues
are recognized based on actual volumes of oil and gas sold to purchasers.
Direct operating expenses are recognized on the accrual method.
Interim Statements of Revenues and Direct Operating Expenses
The interim financial information for the nine months ended September 30,
1996 and 1997, is unaudited. However, in the opinion of management, the
interim statements of revenues and direct expenses include all the
necessary adjustments to fairly present the results of the interim period
and all such adjustments are of a normal recurring nature. The interim
statements of revenues and direct operating expenses should be read in
conjunction with the audited statement of revenues and direct operating
expenses for the year ended December 31, 1996.
(2) Supplementary Financial Information for Oil and Gas Producing Activities
(Unaudited)
Estimated Quantities of Proved Oil and Gas Reserves
Reserve information presented below for the Pioneer Acquisition, as of
January 1, 1996 and December 31, 1996, is based on reserve estimates
prepared by the Company, using prices and costs in effect at each date.
Changes in reserve estimates were derived by adjusting such quantities
and values for actual production using historical prices and costs.
(Continued)
<PAGE>
TITAN EXPLORATION, INC.
PIONEER ACQUISITION
Notes to the Statements of Revenues and Direct Operating Expenses
Proved reserves are estimated quantities of crude oil and natural gas 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 developed reserves are those
which are expected to be recovered through existing wells with existing
equipment and operating methods. Oil and gas reserve quantity estimates
are subject to numerous uncertainties inherent in the estimation of
quantities of proved reserves and in the projection of future rates of
production and the timing of development expenditures. The accuracy of
such estimates is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of
subsequent drilling, testing and production may cause either upward or
downward revision of previous estimates. Further, the volumes considered
to be commercially recoverable fluctuate with changes in prices and
operating costs. The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more
imprecise than those of currently producing oil and gas properties.
Accordingly, these reserve estimates are expected to change as additional
information becomes available in the future.
Below are the net estimated quantities of proved reserves and proved
developed reserves for the Pioneer Acquisition:
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------- ----------
<S> <C> <C>
Proved reserves at January 1, 1996 9,963 14,596
Production (786) (1,374)
Revisions of previous estimates 1,024 1,046
------ ------
Proved reserves at December 31, 1996 10,201 14,268
Production (596) (990)
Revisions of previous estimates (65) (665)
------ ------
Proved reserves at September 30, 1997 9,540 12,613
------ ------
Proved developed reserves:
January 1, 1996 9,764 14,529
------ ------
December 31, 1996 9,935 14,185
------ ------
September 30, 1997 9,285 12,532
------ ------
</TABLE>
(Continued)
<PAGE>
TITAN EXPLORATION, INC.
PIONEER ACQUISITION
Notes to the Statements of Revenues and Direct Operating Expenses
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and
Gas Reserves
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting
Standards Board through its Statement No. 69. The estimates of future
cash flows and future production and development costs are based on year-
end sales prices of $24.02 per Bbl for oil and $3.46 per Mcf for gas,
estimated future production of proved reserves, and estimated future
production and development costs of proved reserves, based on current
costs and economic conditions. The estimated future net cash flows are
then discounted at a rate of 10%
Discounted future net cash flow estimates like those shown below are not
intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value should also consider probable
reserves, anticipated future oil and gas prices, interest rates, changes
in development and production costs and risks associated with future
production. Because of these and other considerations, any estimate of
fair market value is necessarily subjective and imprecise.
The following are the Company's estimated standardized measure of
discounted future net cash flows from proved reserves attributable to the
Pioneer Acquisition (in thousands):
<TABLE>
<CAPTION>
December 31,
1996
----
<S> <C>
Future:
Cash inflows $294,337
Production and development costs 139,690
--------
Future net cash flows 154,647
10% annual discount for estimated timing of cash flows (74,851)
--------
Standardized measure of discounted future net cash flows $ 79,796
--------
</TABLE>
(Continued)
<PAGE>
TITAN EXPLORATION, INC.
PIONEER ACQUISITION
Notes to the Statements of Revenues and Direct Operating Expenses
The following are the sources of changes in the standardized measure of
discounted net cash flows before income taxes (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
1996
----
<S> <C>
Standardized measure, beginning of period $ 51,682
Sales, net of production costs (11,815)
Net change in sales prices, net of production costs 35,208
Revisions of quantity estimates 7,535
Accretion of discount 5,168
Changes of production rates, timing and other (7,982)
--------
Standardized measure, end of period $ 79,796
--------
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
TITAN EXPLORATION, INC.
The accompanying unaudited pro forma combined financial information of
Titan Exploration, Inc. is presented to reflect (i) merger of Offshore Energy
Development Corporation ("OEDC Merger") in December 1997, (ii) the acquisition
of certain oil and gas properties from Pioneer Natural Resources USA, Inc.
("Pioneer Acquisition") in December 1997 and (iii) the acquisition of certain
oil and gas properties from a major integrated company ("1996 Acquisition") in
October 1996. The unaudited pro forma combined balance sheet is presented as if
the OEDC Merger and Pioneer Acquisition occurred at the balance sheet date and
the unaudited pro forma combined statements of operations are presented as if
the OEDC Merger, Pioneer Acquisition and 1996 Acquisition occurred on January 1,
1996.
The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transactions taken place at the date specified and are not intended to be a
projection of future results. In addition, future results may vary
significantly from the results reflected in the accompanying unaudited pro forma
combined financial statements because of normal production declines, changes in
product prices, future acquisitions and divestitures, and other factors.
The following unaudited pro forma combined financial statements should be
read in conjunction with the consolidated financial statements and the related
notes of the Company, Offshore Energy Development Corporation (OEDC), the 1996
Acquisition and the Pioneer Acquisition.
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
as of September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro forma
Combined Pro forma
ASSETS Titan OEDC Adjustments Combined
------ ----- ---- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,146 $ 2,024 $ 3,170
Accounts receivable:
Oil and gas 7,766 3,042 1,474 (a) 12,282
Affiliate - 329 329
Other 2,225 1,506 3,731
Prepaid expenses and other current assets 747 501 1,248
-------- -------- --------
Total current assets 11,884 7,402 20,760
Property, plant and equipment, at cost:
Oil and gas properties
Proved and unproved 238,775 60,416 (19,116)(b) 333,109
53,034 (a)
Accumulated depletion, depreciation and amortization (21,263) (15,653) 15,653 (b) (21,263)
-------- -------- --------
217,512 44,763 311,846
Other property and equipment, net 921 689 1,610
-------- -------- --------
218,433 45,452 313,456
Investments in affiliates and others - 1,656 67,492 (b) 69,148
Investments in certificates of deposits, restricted - 2,204 2,204
Other assets, net of accumulated amortization 721 574 (574)(b) 721
-------- -------- --------
$231,038 $ 57,288 $406,289
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities:
Trade $ 5,178 $ 7,956 $ 13,134
Other 4,436 1,473 5,909
-------- -------- --------
Total current liabilities 9,614 9,429 19,043
Long-term debt 14,700 8,800 54,733 (a) 78,233
Other liabilities 1,805 1,060 (225)(a) 2,640
Deferred income tax payable 7,359 - 27,127 (b) 34,486
-------- -------- --------
Total liabilities 33,478 19,289 134,402
Stockholders' equity:
Preferred stock - - -
Common Stock 339 87 (32)(b) 394
Additional paid-in capital 203,433 42,646 31,626 (b) 277,705
Deferred compensation (11,371) - (11,371)
Retained earnings (deficit) 5,159 (4,734) 4,734 (b) 5,159
-------- -------- --------
Total stockholders' equity 197,560 37,999 271,887
-------- -------- --------
$231,038 $ 57,288 $406,289
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
1996 Pioneer Combined Pro forma
Titan OEDC Acquisition Acquisition Adjustments Combined
----- ---- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $23,824 $ 9,835 $36,004 $19,133 $ 88,796
Other 144 10,715 - - 10,859
Pipeline operating and marketing - 1,014 - - 1,014
------- ------- ------- ------- --------
Total revenues 23,968 21,564 36,004 19,133 100,669
Expenses:
Oil and gas production 9,199 1,973 10,515 7,318 29,005
General and administrative 2,270 2,325 - - 2,110 (c) 6,705
Amortization of stock option awards 1,839 - - - 1,839
Exploration and abandonment 184 3,598 - - 3,782
Depletion, depreciation and amortization 5,789 4,898 - - 1,518 (d) 27,040
10,813 (e)
4,022 (f)
------- ------- ------- ------- --------
Total expenses 19,281 12,794 10,515 7,318 68,371
------- ------- ------- ------- --------
Operating income 4,687 8,770 25,489 11,815 32,298
------- ------- ------- ------- --------
Other income (expense):
Interest expense (2,965) (783) - - (3,712)(g) (7,460)
Interest and other income (expense) 359 (94) - - 265
------- ------- ------- ------- --------
Income before income taxes 2,081 7,893 25,489 11,815 25,103
Income tax expense 3,484 1,443 - - 3,859 (h) 8,786
------- ------- ------- ------- --------
Net income (loss) $(1,403) $ 6,450 $25,489 $11,815 $ 16,317
======= ======= ======= ======= ========
Preference unit payments and accretion
of discount - (2,617) - - 2,617 (i) -
------- ------- ------- ------- --------
Income (loss) available to common
unitholders and stockholders $(1,403) $ 3,833 $25,489 $11,815 $ 16,317
------- ------- ------- ------- --------
Net income (loss) per share $ (0.07) $ .68 $ 0.69
======= ======= ========
Weighted average common shares
outstanding 20,140 5,602 23,669
======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Nine months ended September 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
Pioneer Combined Pro forma
Titan OEDC Acquisition Adjustments Combined
----- ---- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $52,011 $ 7,033 $13,089 $72,133
Other 99 145 - 244
Pipeline operating and marketing - 823 - 823
------- ------- ------- -------
Total revenues 52,110 8,001 13,089 73,200
Expenses:
Oil and gas production 16,627 1,650 5,357 23,634
General and administrative 3,637 2,483 - 6,120
Amortization of stock option awards 3,790 - - 3,790
Exploration and abandonment 1,342 5,734 - 7,076
Depletion, depreciation and amortization 15,927 4,042 - 1,234 (d) 24,016
2,813 (f)
------- ------- ------- -------
Total expenses 41,323 13,909 5,357 64,636
------- ------- ------- -------
Operating income 10,787 (5,908) 7,732 8,564
------- ------- ------- -------
Other income (expense):
Interest income 134 1,046 - 1,180
Interest expense (825) (153) - (2,784)(g) (3,762)
------- ------- ------- -------
Income (loss) before income taxes 10,096 (5,015) 7,732 5,982
Income tax (benefit) expense $ 3,534 $(1,443) $ - 3 (h) $ 2,094
------- ------- ------- -------
Net income (loss) $ 6,562 $(3,572) $ 7,732 $ 3,888
======= ======= ======= =======
Net income (loss) per share $ 0.18 $ (0.41) $ 0.09
======= ======= =======
Weighted average common shares outstanding 35,714 8,702 41,196
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements have been
prepared to give effect to the 1996 Acquisition, the Pioneer Acquisition and the
OEDC Merger as if each transaction had taken place on September 30, 1997, with
respect to the unaudited pro forma combined balance sheet, and as of January 1,
1996, with respect to the unaudited pro forma combined statements of operations.
Each acquisition is recorded using the purchase method of accounting.
Following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
TITAN Represents the consolidated balance sheet of Titan Exploration,
Inc. as of September 30, 1997 and the related consolidated statements of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997.
OEDC Represents the consolidated balance sheet of Offshore Energy
Development Corporation as of September 30, 1997 and the related consolidated
statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997.
1996 ACQUISITION Represents the revenues and direct operating expenses
of the properties acquired in the 1996 Acquisition for the ten months ended
October 31, 1996. The 1996 Acquisition was consummated on October 31, 1996.
PIONEER ACQUISITION Represents the purchase of the properties acquired
in the Pioneer Acquisition and the revenues and direct operating expenses of the
properties acquired in the Pioneer Acquisition for the nine months ended
September 30, 1997 and the year ended December 31, 1996. The acquisition was
completed on December 31, 1997.
NOTE 2. PRO FORMA ENTRIES
(a) To record the Pioneer Acquisition using the purchase method of
accounting. Any future adjustments to the allocation of the purchase price are
not anticipated to be material to the unaudited pro forma combined financial
statements.
(b) To record the acquisition of OEDC using the purchase method of
accounting. The allocation of the purchase price to the acquired assets and
liabilities is preliminary and, therefore, subject to change. Any future
adjustments to the allocation of the purchase price are not anticipated to be
material to the unaudited pro forma combined financial statements.
(c) To record estimated incremental general and administrative expenses
necessary to administer the properties acquired in the 1996 Acquisition of
$1,764,000 per year, and to increase public reporting and administration costs
by approximately $337,000 per year.
(d) To adjust depreciation, depletion and amortization expense for the
additional basis allocated to the properties acquired in the OEDC Merger, of
which the oil and gas properties are accounted for using the successful efforts
method of accounting.
(e) To record estimated incremental depletion expense for the
properties acquired in the 1996 Acquisition from January 1, 1996 through October
31, 1996.
(f) To record estimated depletion expense for the properties acquired
in the Pioneer Acquisition.
(g) To record the interest related to the financing of the Pioneer
Acquisition.
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS-(CONTINUED)
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(h) To adjust income tax expense.
(i) To eliminate OEDC's preference units (redeemed in November 1996)
and the related accretion of discount.
NOTE 3. INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of
SFAS 109. At September 30, 1997, the pro forma book basis of the Company's
assets and liabilities exceeded the pro forma tax basis by approximately
$50,378,000 giving rise to an estimated deferred tax liability of approximately
$27,127,000. The temporary differences are primarily related to the differences
in book and tax basis of oil and gas properties due to the expensing of
intangible development costs for tax purposes and other income tax differences
arising from the tax treatment of oil and gas producing activities.
NOTE 4. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The following unaudited pro forma supplemental information regarding
the oil and gas activities of the Company is presented pursuant to the
disclosure requirements promulgated by the Commission and Statement of Financial
Accounting Standards No. 69, "Disclosures About Oil and Gas Producing
Activities". The pro forma combined reserve information is presented as if the
OEDC Merger, Pioneer Acquisition, and the 1996 Acquisition had occurred on
January 1, 1996.
Management emphasizes that reserve estimates are inherently imprecise
and subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.
Quantities of oil and gas reserves
Set forth below is a pro forma summary of the changes in the net
quantities of oil and natural gas reserves for the year ended December 31, 1996.
OIL AND
NATURAL CONDENSATE
GAS (MMcf) (Mbbls)
---------- ----------
Balance, January 1, 1996 276,946 26,423
Purchases of minerals-in-place 6,503 771
Revisions of previous estimates 78,879 4,969
Extensions and discoveries 9,352 -
Production (22,835) (2,506)
------- ------
Balance, December 31, 1996 348,845 29,657
======= ======
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS(CONTINUED)
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
Standardized measure of discounted future net cash flows
The pro forma combined 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 oil and gas reserves less
estimated future expenditures (based on year-end costs) to be incurred in
developing and producing the proved reserves, discounted using a rate of 10% per
year to reflect the estimated timing of the future cash flows. Future income
taxes are calculated by comparing discounted future cash flows to the tax basis
of oil and gas properties, plus available carryforwards and credits, and
applying the current tax rate to the difference.
DECEMBER 31,
1996
-------------
(IN THOUSANDS)
Future cash inflows $1,716,354
Future production and development costs (526,198)
Future income tax expense (286,226)
----------
10% annual discount factor (385,105)
----------
Standardized measure of discounted future net cash flows $ 518,825
==========
Changes relating to the standardized measure of discounted future net cash flows
The principal sources of the change in the pro forma combined
standardized measure of discounted future net cash flows for the year ended
December 31, 1996 are as follows (in thousands):
Standardized Measure, Beginning of year $ 254,547
Purchases of Reserves in place 13,373
Revisions of previous quantity estimates 141,057
Extensions and discoveries less related costs 19,985
Net changes in income tax (123,667)
Net changes in prices and production costs 260,000
Revisions of estimated future development (7,942)
Sales, net of production costs (59,791)
Accretion of discount 25,454
Other (4,191)
----------
Standardized Measure, End of year $ 518,825
==========
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- --------- --------------------------------------------------------------------
2.1 - Amended and Restated Agreement and Plan of Merger dated November 6,
1997 among Titan, Titan Offshore and OEDC (filed as Appendix I to
the Joint Proxy Statement/Prospectus and incorporated herein by
reference).
2.2 - Agreement and Plan of Merger dated November 4, 1997 among Titan,
Titan Sub and Carrollton (filed as Exhibit 2.3 to Titan's
Registration Statement on Form S-4, Registration No. 333-40215, and
incorporated herein by reference).
99.1 - Sections captioned (i) "The Merger -- Effects of the Merger," (ii)
"The Merger -- Interests of Certain Persons in the Merger," and
(iii) "Certain Provisions of the Merger Agreement -- Conversion of
Shares; Procedure for Exchange of Certificates; Fractional Shares,"
which appear on pages 25-26, 37-38, and 43-44, respectively, of the
Joint Proxy Statement/Prospectus (filed as Exhibit 99.1 to Titan's
Form 8-K dated December 29, 1997 and incorporated herein by
reference).
