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As filed with the Securities and Exchange Commission on February 12, 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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TITAN EXPLORATION, INC.
(Exact name of Registrant as specified in its charter)
Delaware 75-2671582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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Jack D. Hightower
President, Chief Executive Officer and
500 West Texas, Suite 500 Chairman of the Board of Directors
Midland, Texas 79701 Titan Exploration, Inc.
(915) 498-8600 500 West Texas, Suite 500
(Address, including zip code, and Midland, Texas 79701
telephone number, including area code, (915) 498-8600
of registrant's principal executive offices) (Name, address, including zip code, and telephone number,
including area code, of agent for service)
</TABLE>
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Copy to:
Joe Dannenmaier
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
(214) 969-1700 (phone)
(214) 969-1751 (fax)
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
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 statement number of the earlier
effective registration statement for the same offering. [ ]
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. [ ]
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 Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration Fee
Securities to be Registered Registered Per Share (1) Offering Price (1)(2) (2)
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<S> <C> <C> <C> <C>
Common Stock, $.01
par value per share......... 9,768,184 shares $5.15625 $50,367,199 $14,002.08
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(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee, based on the average of
the high and low sale prices of the Common Stock on the Nasdaq National
Market on February 8, 1999.
(2) Pursuant to Rule 429 of the Securities Act of 1933, the prospectus included
herein also covers 1,749,445 shares of common stock from a previous
registration statement (File No. 333-62113), as to which a registration fee
of $3,612.61 was paid.
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 Prospectus contained herein relates to the Registration Statement on
Form S-3 (File No. 333-62113) previously filed with the Commission on August 24,
1998.
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SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
PROSPECTUS
[LOGO]
11,517,629 Shares
TITAN EXPLORATION, INC.
500 West Texas, Suite 500
Midland, Texas 79701
(915) 498-8600
Common Stock
____________________
Certain stockholders of Titan Exploration, Inc. are offering and selling
11,517,629 shares of Titan common stock under this prospectus.
Two of the selling stockholders obtained 9,768,184 of their shares of Titan
common stock in private placements completed prior to Titan's initial public
offering in December 1996. In addition, one such stockholder, along with an
affiliate, obtained 1,749,445 shares of Titan common stock on December 12, 1997
by virtue of Titan's acquisition of Offshore Energy Development Corporation and
Carrollton Resources, L.L.C. Except as described in the discussion of SELLING
STOCKHOLDERS, the selling stockholders expect to sell all of their shares.
The selling stockholders may offer their Titan common stock through public
or private transactions, on or off The Nasdaq Stock Market's National Market
(the "Nasdaq"), at prevailing market prices, or at privately negotiated prices.
The selling stockholders can utilize broker-dealers to facilitate these
transactions.
Titan's common stock is listed on the Nasdaq under the symbol "TEXP." On
February 11, 1999, the last reported sale price of the Titan common stock on the
Nasdaq was $5.3125 per share.
Investing in the Titan common stock involves certain risks. See "Risk
Factors" beginning on page 4.
____________________
The Titan shares of common stock offered or sold under this prospectus have
not been approved by the Securities and Exchange Commission or any state
securities commission, nor have these organizations determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
____________________
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is February , 1999.
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TABLE OF CONTENTS
Page
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About This Prospectus..................................................... 3
Where You Can Find More Information....................................... 3
Titan..................................................................... 4
Use of Proceeds........................................................... 4
Risk Factors.............................................................. 4
Forward Looking Statements................................................ 9
Selling Stockholders...................................................... 10
Unaudited Pro Forma Combined Statement of
Operations of Titan Exploration, Inc.................................... 11
Notes to Unaudited Pro Forma Combined
Statement of Operations of Titan Exploration, Inc....................... 13
Plan of Distribution...................................................... 16
Legal Matters............................................................. 16
Experts................................................................... 16
Glossary of Oil and Gas Terms............................................. 18
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC. This prospectus provides you with a general description of the securities
we are offering. You should read this prospectus together with additional
information described under the heading WHERE YOU CAN FIND MORE INFORMATION.
We are complying with the SEC's plain English program. This is an
initiative launched by the SEC to make prospectuses and other information more
understandable to the general investor. To see more detail, you should read the
exhibits filed with this registration statement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
at 7 World Trade Center, Suite 1300, New York, New York 10048. Our SEC filings
are also available to the public over the Internet at the SEC's web site at
http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities.
. Registration Statement on Form S-4 filed on November 14, 1997 (Registration
No. 333-40215). This filing includes the Consolidated Financial Statements
of Offshore Energy Development Corporation and the Financial Statements for
our 1995 and 1996 acquisitions of Permian Basin oil and gas properties.
. Annual Report on Form 10-K for the year ended December 31, 1997.
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998.
. Current Reports on Form 8-K and Form 8-K/A dated December 29, 1997 and
February 27, 1998, respectively. The Form 8-K/A includes the statements of
revenues and direct operating expenses for the 1997 acquisition of Permian
Basin oil and gas properties.
. Proxy Statement dated April 30, 1998.
. Current Report on Form 8-A dated December 9, 1996 containing a description
of the Common Stock.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address:
Titan Exploration, Inc.
Attn: William K. White Vice President, Finance and Chief Financial
Officer
500 West Texas, Suite 500
Midland, TX 79701
(915) 498-8600
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of this document.
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TITAN
Titan Exploration, Inc. is an independent energy company engaged in the
exploitation, development, exploration and acquisition of oil and gas properties
located in the Permian Basin of West Texas and southeastern New Mexico. In late
1997, we expanded our core operating areas into the Gulf Coast Region through
acquisitions onshore in South Texas and Louisiana and offshore in the Gulf of
Mexico. Since our inception in March 1995, we have increased our reserves,
production and cash flow through (i) the development and exploration of our
properties and (ii) the acquisition of producing properties that provide
exploitation, development and exploration potential. As of December 31, 1997,
we had proved reserves of 527 Bcfe, with a PV-10 of $435.1 million, and operated
821 productive gross (724 net) wells. Natural gas constituted approximately 66%
of our reserves, and approximately 68% of our reserves were classified as proved
developed.
From our inception through December 31, 1998, we have made five significant
acquisitions for an aggregate purchase price of approximately $357.1 million,
approximately $277.2 million of which is attributable to proved reserves and
$53.7 million of which is attributable to mid-stream gas gathering and
processing assets acquired in connection with the acquisition of Offshore Energy
Development Corporation. Through December 31, 1997, these acquisitions have
added approximately 326 Bcfe of reserves at an average cost of $0.85 per Mcfe.
Subsequently, we have spent approximately $32.3 million on the exploitation,
development and exploration of these acquired properties, adding 175 Bcfe of
proved reserves at an average finding cost of $0.18 per Mcfe. As a result, our
finding cost from proved properties on these five acquisitions through December
31, 1997 was $0.62 per Mcfe.
USE OF PROCEEDS
All net proceeds from the sale of the Titan shares will go to the
stockholders who offer and sell their shares. Accordingly, we will not receive
any proceeds from sales of the Titan shares.
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this prospectus, you should carefully consider the risks that we have
highlighted in the next section.
Volatility of Oil and Gas Prices; Marketability of Production
Our revenues, operating results and future rate of growth are highly
dependent upon the prices we receive for our oil and gas. Historically, the
markets for oil and gas have been volatile and may continue to be volatile in
the future. Various factors which are beyond our control such as the worldwide
and domestic supplies of oil and gas, the ability of the members of the
Organization of Petroleum Exporting Countries ("OPEC") to agree to and maintain
oil price and production controls, political instability or armed conflict in
oil-producing regions, the price and level of foreign imports, the level of
consumer demand, the price and availability of alternative fuels, the
availability of pipeline capacity, weather conditions, domestic and foreign
governmental regulations and taxes and the overall economic environment will
affect prices of oil and gas. We are unable to predict the long-term effects of
these and other conditions on the prices of oil. Lower oil and gas prices may
reduce the amount of oil and gas we produce economically which may adversely
affect our revenues and operating income and may require a reduction in the
carrying value of our oil and gas properties. We make substantially all of our
sales of oil and gas in the spot market or pursuant to contracts based on spot
market prices and not pursuant to long-term fixed price contracts. We try to
reduce price risk by entering into hedging transactions with respect to a
portion of our expected future production. We cannot assure you, however, that
such hedging transactions will reduce risk or mitigate the effect of any
substantial or extended decline in oil or natural gas prices.
The marketability of our production depends in part upon the availability,
proximity and capacity of natural gas gathering systems, pipelines and
processing facilities. Most of our natural gas is delivered through gas
gathering systems and gas pipelines that we do not own. Federal and state
regulation of oil and gas production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions all could
adversely affect our ability to produce and market our oil and gas. Any dramatic
change in market factors could have a material adverse effect on our business,
financial condition and results of operations.
Uncertainty of Reserve Information and Future Net Revenue Estimates
There are numerous uncertainties inherent in estimating quantities of
proved reserves and their values, including many factors beyond our control.
The reserve information contained in our filings with the SEC represents
estimates only. Although
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we believe such estimates are reasonable, reserve estimates are imprecise and
you should expect them to change as additional information becomes available.
Estimates of oil and gas reserves, by necessity, are projections based on
the evaluation of available geological, geophysical, economic and 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 expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that are difficult to
measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geological interpretation and judgment.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom may vary substantially from those estimated in our filings
with the SEC. Moreover, we cannot assure you that our reserves will ultimately
be produced or that our proved undeveloped reserves, the recovery of which
requires significant capital expenditures and successful drilling operations,
will be developed within the periods anticipated. Any significant variance in
the assumptions could materially affect the estimated quantity and value of our
reserves. Actual production, revenues and expenditures with respect to our
reserves will likely vary from estimates, and such variances may be material.
Approximately 32% of our total proved reserves on December 31, 1997 were
undeveloped, which are by their nature less certain. Recovery of these reserves
will require significant capital expenditures and successful drilling
operations. The reserve data set forth in our estimates assumes that we will
expend substantial capital to develop these reserves. Although we have prepared
our cost and reserve estimates attributable to our oil and gas reserves in
accordance with industry standards, we cannot assure you that the estimated
costs are accurate, that development will occur as scheduled or that the results
will be as estimated.
In addition, you should not construe the PV-10 referred to in this
prospectus to be the current market value of the estimated oil and gas reserves
attributable to our properties. In accordance with applicable requirements, we
generally base the estimated discounted future net cash flows from proved
reserves on prices and costs as of the date of the estimate, whereas actual
future prices and costs may be materially higher or lower. The amount and
timing of actual production, supply and demand for oil and gas, curtailments or
increases in consumption by gas purchasers, changes in governmental regulations
or taxation and other factors will also affect actual future net cash flows.
The timing of both the production and the incurrence of expenses in connection
with development and production of oil and gas properties will affect the timing
of actual future net cash flows from proved reserves, and thus also affect their
actual present value. In addition, the 10% discount factor, which the SEC
requires us to use in our calculation of the discounted future net cash flows
for reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with us
or the oil and gas industry in general.
Reserve Replacement Risk
Our future success depends upon our ability to find, develop or acquire
additional oil and gas reserves that are economically recoverable. Our proved
reserves will generally decline as a result of continued production, except to
the extent that we conduct successful exploration or development activities or
acquire properties containing proved reserves, or both. In order to increase
reserves and production, we must continue our development and exploration
drilling and recompletion programs or undertake other replacement activities.
Exploratory drilling and, to a lesser extent, development drilling involve
a high degree of risk that we will not obtain commercial production or that our
production will be insufficient to recover drilling and completion costs. We
cannot state the costs of drilling, completing and operating wells with
certainty. Numerous factors, including title problems, weather conditions,
compliance with governmental requirements and shortages or delays in the
delivery of equipment may curtail, delay or cancel our drilling operations.
Furthermore, there is no guarantee that we will recognize a profit on the
investment or that we will recover our drilling, completion and operations cost
upon the completion of a well.
There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques. Part of our inventory of
development prospects consists of waterflood projects. Waterflooding involves
significant capital expenditures and uncertainty as to the total amount of
secondary reserves that we can recover. In waterflood operations, there is
generally a delay between the initiation of water injection into a formation
containing hydrocarbons and any resulting increase in production. The operating
cost per unit of production of waterflood projects is generally higher during
the initial phases of such
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projects due to the purchase of injection water and related costs, as well as
during the later stages of the life of the project as production declines. The
degree of success, if any, of any secondary recovery program depends on a large
number of factors, including the porosity of the formation, the technique used
and the location of injector wells.
Our current strategy includes increasing our reserve base through
acquisitions of producing properties, continued exploitation of our existing
properties and exploration of new and existing properties. We cannot assure
you, however, that our planned development and exploration projects and
acquisition activities will result in significant additional reserves or that we
will have continuing success drilling productive wells at low finding and
development costs. Furthermore, while our revenues may increase if prevailing
oil and gas prices increase significantly, our finding costs for additional
reserves could also increase.
Acquisition Risks
We expect to continue to evaluate and pursue acquisition opportunities
available on terms that our management considers favorable to us. The
successful acquisition of producing properties involves an assessment of
recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors beyond our control. This
assessment is necessarily inexact and its accuracy is inherently uncertain. In
connection with such an assessment of the subject properties, we perform a
review that we believe is generally consistent with industry practices. This
review, however, will not reveal all existing or potential problems, nor will it
permit a buyer to become sufficiently familiar with the properties to assess
fully their deficiencies and capabilities. Inspections may not be performed on
every well, and structural and environmental problems are not necessarily
observable even upon inspection. We generally assume preclosing liabilities,
including environmental liabilities, and generally acquire interests in the
properties on an "as is" basis. With respect to our acquisitions to date, we
have no material commitments for capital expenditures to comply with existing
environmental requirements. In addition, volatile oil and gas prices make it
difficult to estimate the value of producing properties for acquisition and
often cause disruption in the market for oil and gas producing properties, as
buyers and sellers have difficulty agreeing on such value. Price volatility
also makes it difficult to budget for and project the return on acquisitions and
development and exploration projects. We cannot assure you that our
acquisitions will be successful. Any unsuccessful acquisition could have a
material adverse effect on us.
Limited Operating History; Rapid Growth
We began operations in March 1995, and our brief operating history includes
three years of net losses and rapid growth. As a result, our historical results
are not readily comparable to and may not be indicative of future results. We
cannot assure you that we will continue to experience growth in, or maintain our
current level of, revenues, oil and gas reserves or production. Future tax
amounts, if any, will depend on several factors, including, but not limited to,
our results of operations.
Our rapid growth has placed significant demands on our administrative,
operational and financial resources. Any future growth of our oil and gas
reserves, production and operations would place significant further demands on
our financial, operational and administrative resources. Our future performance
and profitability will depend in part on our ability to successfully integrate
the administrative and financial functions of acquired properties and companies
into our operations, to hire additional personnel and to implement necessary
enhancements to our management systems to respond to changes in our business.
We cannot assure you that we will be successful in these efforts. Our inability
to integrate acquired properties and companies, to hire additional personnel or
to enhance our management systems could have a material adverse effect on our
results of operations.
Substantial Capital Requirements
We make, and will continue to make, substantial capital expenditures for
the exploration, development, acquisition and production of our oil and gas
reserves. We intend to finance these capital expenditures primarily with funds
provided by operations, the incurrence of debt, the issuance of equity and the
sale of non-core assets. Our direct capital expenditures for oil and gas
producing activities were $2.0 million for the nine months ended December 31,
1995 and $12.6 million and $47.8 million for the years ended December 31, 1996
and 1997, respectively. If revenues decrease as a result of lower oil or gas
prices or otherwise, we may have limited ability to expend the capital necessary
to replace our reserves or to maintain production at current levels, resulting
in a decrease in production over time. If our cash flow from operations and
availability under our credit agreement are not sufficient to satisfy our
capital expenditure requirements, we cannot assure you that we will be able to
obtain additional debt or equity financing to meet these requirements.
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Effects of Leverage
We have certain debt obligations that may affect our operations, including
(i) our need to dedicate a substantial portion of our cash flow from operations
to the payment of interest on our indebtedness which prevents these funds from
being available for other purposes; (ii) the covenants contained in our credit
facility limit our ability to borrow additional funds or to dispose of assets
and may affect our flexibility in planning for, and reacting to, changes in
business conditions; and (iii) our potential inability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes. Moreover, future acquisition or
development activities may require us to alter our capitalization significantly.
These changes in capitalization may significantly alter our leverage structure.
Our ability to meet our debt service obligations and to reduce our total
indebtedness will depend on our future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting our operations, many of which are beyond our control. We cannot
assure you that economic conditions and financial, business and other factors
will not adversely affect our future performance.
Drilling and Operating Risks; Uninsured Risks
Drilling activities are subject to many risks, including well blow outs,
cratering, uncontrollable flows of oil, natural gas or well fluids, fires,
formations with abnormal pressures, pollution, releases of toxic gases and other
environmental hazards and risks, any of which could result in substantial losses
to us. Our offshore operations are also subject to the additional hazards of
marine operations such as severe weather, capsizing and collision. In addition,
we incur the risk that we will not encounter any commercially productive
reservoirs through our drilling operations. We cannot assure you that the new
wells we drill will be productive or that we will recover all or any portion of
our investment in wells drilled. Drilling for oil and gas may involve
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce net reserves to return a profit after drilling,
operating and other costs. The cost of drilling, completing and operating wells
is often uncertain. Numerous factors, many of which are beyond our control,
including economic conditions, mechanical problems, title problems, weather
conditions, compliance with governmental requirements and shortages and delays
in the delivery of equipment and services may curtail, delay or cancel our
drilling operations. In accordance with industry practices, we maintain
insurance against some, but not all, of these risks. We cannot assure you that
any of our insurance will be adequate to cover losses or liabilities.
Risk of Hedging Activities
Our use of energy swap arrangements and financial futures to reduce our
sensitivity to oil and gas price volatility is subject to a number of risks. If
we do not produce reserves at the rates we estimated due to inaccuracies in the
reserve estimation process, operational difficulties or regulatory limitations,
we would be required to satisfy obligations we may have under fixed price sales
and hedging contracts on potentially unfavorable terms without the ability to
hedge that risk through sales of comparable quantities of our own production.
Further, the terms under which we enter into fixed price sales and hedging
contracts are based on assumptions and estimates of numerous factors such as
cost of production and pipeline and other transportation costs to delivery
points. Substantial variations between the assumptions and estimates we used
and actual results we experience could materially adversely affect our
anticipated profit margins and our ability to manage the risk associated with
fluctuations in oil and gas prices. Additionally, fixed price sales and hedging
contracts limit the benefits we will realize if actual prices rise above the
contract prices. In addition, fixed price sales and hedging contracts are
subject to the risk that the counter-party may prove unable or unwilling to
perform its obligations under such contracts. Any significant nonperformance
could have a material adverse financial effect on us. As of September 30, 1998,
3,864, 11,134 and 1,365 MMcfe of our 1998, 1999 and 2000 production,
respectively, were subject to hedging contracts.
Gas Gathering, Processing and Marketing
Our gas gathering, processing and marketing operations depend in large part
on our ability to contract with third party producers to produce our gas, to
obtain sufficient volumes of committed natural gas reserves, to maintain
throughput in our processing plant at optimal levels, to replace production from
declining wells, to assess and respond to changing market conditions in
negotiating gas purchase and sale agreements and to obtain satisfactory margins
between the purchase price of our natural gas supply and the sales price for
such residual gas volumes and the natural gas liquids processed. In addition,
our operations are subject to changes in regulations relating to gathering and
marketing of oil and gas. Our inability to attract new sources of third party
natural gas or to promptly respond to changing market conditions or regulations
in connection with our gathering, processing and marketing operations could
materially adversely affect our business, financial condition and results of
operations.
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Compliance with Government Regulations
Our business is subject to federal, state and local laws and regulations
relating to the exploration for, and the development, production and
transportation of, oil and gas, as well as safety matters that change from time
to time in response to economic or political conditions. Although we believe we
are in substantial compliance with all applicable laws and regulations, the
requirements imposed by such laws and regulations change frequently, and these
laws and regulations are subject to interpretation. Consequently, we are unable
to predict the ultimate cost of compliance with these requirements or their
effect on our operations. We may have to expend a significant amount of
resources to comply with government laws and regulations, and these expenditures
may have a material adverse effect on our business, financial condition and
results of operations.
Compliance with Environmental Regulations
Our operations are subject to complex and constantly changing environmental
laws and regulations adopted by federal, state and local governmental
authorities. The implementation of new, or the modification of existing, laws
or regulations could have a material adverse effect on our business, financial
condition and results of operations. The discharge of oil, gas or other
pollutants into the air, soil or water may give rise to significant liability on
our part to the government and third parties and may require us to incur
substantial costs of remediation. Moreover, we have agreed to indemnify sellers
of producing properties purchased in each of our substantial acquisitions
against environmental claims associated with these properties. We cannot assure
you that existing environmental laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations will not materially
adversely affect the results of our operations or our financial condition or
that material indemnity claims will not arise against us with respect to
properties we acquired.
Competition
We operate in the highly competitive areas of oil and gas exploration,
development, acquisition and production with other companies, many of which have
substantially larger financial resources, staffs and facilities. In seeking to
acquire desirable producing properties or new leases for future exploration and
in marketing our oil and gas production, we face intense competition from both
major and independent oil and gas companies. Many of these competitors have
financial and other resources substantially in excess of those available to us.
This highly competitive environment could have a material adverse effect on us.
Dependance on Key Personnel
Our success has been and will continue to be highly dependent on Jack
Hightower, our Chairman of the Board and Chief Executive Officer, and a limited
number of other senior management personnel. Loss of the services of Mr.
Hightower or any of those other individuals could have a material adverse effect
on our operations. We maintain a $3.0 million key man life insurance policy on
the life of Mr. Hightower, but no other senior management personnel. In
addition, as a result of our acquisitions, we have increased our number of
employees and employed 94 employees at December 31, 1998. We cannot assure you
that we will be successful in retaining key personnel. Our failure to hire
additional personnel, if necessary, or retain our key personnel could have a
material adverse effect on our business, financial condition and results of
operations.
Control by Existing Stockholders
Our directors, executive officers and principal stockholders, and certain
of our affiliates, beneficially own approximately 57.70% of our outstanding
common stock on a fully-diluted basis (30.06% assuming the sale of the Titan
shares relating to this prospectus). Accordingly, these stockholders, as a
group, are able to control the outcome of stockholder votes, including votes
concerning the election of directors, the adoption or amendment of provisions in
our Amended Certificate of Incorporation or Bylaws and the approval of mergers
and other significant corporate transactions. The existence of these levels of
ownership concentrated in a few persons makes it unlikely that any other holder
of common stock will be able to affect our management or direction. These
factors may also have the effect of delaying or preventing a change in our
management or voting control.
Anti-Takeover Provisions
Delaware law includes a number of provisions that may have the effect of
delaying or deterring a change in the control of our management and encouraging
persons considering unsolicited tender offers or other unilateral takeover
proposals to negotiate with our Board of Directors rather than pursue non-
negotiated takeover attempts. These provisions may make it more difficult for
our stockholders to benefit from certain transactions which are opposed by the
incumbent Board of Directors.
-8-
<PAGE>
Year 2000 Compliance
We are working to resolve the potential impact of the "Year 2000 Issue" on
the ability of our information technology systems and embedded technology to
accurately process information that may be date-sensitive. Any of our software
programs or embedded technology that recognizes a date using "00" as the year
1900 rather than the year 2000 could result in system failures or
miscalculations causing disruptions of operations.
We have reviewed the effect of the Year 2000 Issue relating to our
information systems. Upgrades or replacement of our software and hardware, if
necessary, to be year 2000 compliant is underway. We plan, once we believe our
systems are year 2000 compliant, to test our systems during the first half of
1999.
We have begun communications with our significant suppliers and purchasers
to determine if they have appropriate plans to remedy the Year 2000 Issue when
their systems interface with our systems or may otherwise impact our operations.
However, we cannot determine what effect, if any, the Year 2000 Issue affecting
our vendors, customers, other businesses and the numerous local, state, federal
and other U.S. and foreign governmental entities with which we conduct business
or by which we are regulated, governed or taxed will have on our business or
financial position. We cannot assure you that the computer systems and software
of such entities will be Year 2000 compliant or that compliance costs or the
impact of our failure to achieve substantial Year 2000 compliance will not have
a material adverse effect on business, financial position and results of
operations. Failure of these outside parties to become Year 2000 compliant
could result in an interruption of our business.
We do not have a formal contingency plan. If we encounter unforeseen
problems that relate to the Year 2000 Issue, we will evaluate possible solutions
and will enact the most efficient.
The costs of our Year 2000 evaluation and modifications and the date on
which we plan to complete the Year 2000 evaluations and modifications are based
on estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no assurance that
these estimates will be achieved. Actual results could differ materially from
the projections. Specific factors that might cause a material change include,
but are not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer programs and
microprocessors, and similar uncertainties.
FORWARD-LOOKING STATEMENTS
Certain statements contained in or incorporated by reference into this
prospectus, including, but not limited to, those regarding our financial
position, business strategy and other plans and objectives for future operations
and any other statements which are not historical facts constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause our actual
results, performance or achievements, or industry results, to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that the actual results or developments we anticipate will be realized or,
even if substantially realized, that they will have the expected effects on our
business or operations. Among the factors that could cause actual results to
differ materially from our expectations are inherent uncertainties in
interpreting engineering and reserve data, operating hazards, delays or
cancellations of drilling operations for a variety of reasons, competition,
fluctuations and volatility in oil and gas prices, our ability to successfully
integrate the business and operations of acquired companies, compliance with
government and environmental regulations, increases in our cost of borrowing or
inability or unavailability of capital resources to fund capital expenditures,
dependence on key personnel, changes in general economic conditions and/or in
the markets in which we compete or may, from time to time, compete and other
factors including but not limited to those set forth in "Risk Factors" or in
"Titan." These factors expressly qualify all subsequent oral and written
forward-looking statements attributable to us or persons acting on our behalf.
We assume no obligation to update any of these statements.
-9-
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the
aggregate number of shares owned by each selling stockholder prior to this
offering, the percentage of our outstanding common stock owned by each such
selling stockholder prior to this offering, the aggregate number of shares to be
offered by each selling stockholder, the aggregate number of shares to be owned
by each selling stockholder after the sale of all shares in this offering and
the percentage of our outstanding common stock that will be owned by each such
selling stockholder thereafter, in each case assuming the offering of and sale
of all shares in this offering.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to Offering After Offering
------------------------- -------------------------
Number of Number of Shares Number of
Selling Stockholders Shares Percent (1) Being Offered (2) Shares Percent (1)
- ------------------------------------- --------- ----------- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Natural Gas Partners, L.P. (3)
777 Main Street, Suite 2250
Fort Worth, Texas 76102 6,159,366 16.2% 6,159,366 -- --
Natural Gas Partners II, L.P.(4)
777 Main Street, Suite 2250
Fort Worth, Texas 76102 5,000,777 13.2% 5,000,777 -- --
NGP Louisiana Partners, L.P. (5)(6)
777 Main Street, Suite 2250
Fort Worth, Texas 76102 357,486 * 357,486 -- --
---------- ---- ---------- --------- -----
Total 11,517,629 13.4% 11,517,629 -- --
========== ==== ========== ========= =====
</TABLE>
____________________
*Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Based on 37,934,675 shares of Common Stock issued and outstanding as of
December 31, 1998.
(2) An indeterminate number of the shares being offered by each selling
stockholder is allocable to the interests of the general partners of
Natural Gas Partners, L.P. and Natural Gas Partners II, L.P. and will not
be sold pursuant to this prospectus.
(3) 1,391,959 of the shares being offered were acquired from us pursuant to
the Amended and Restated Merger Agreement among Titan, Offshore Energy
Development Corporation and our wholly-owned subsidiaries. We are
registering such shares pursuant to certain registration requirements
contained in a registration rights agreement entered into pursuant to such
merger agreements to permit secondary trading of the acquired shares. See
"Plan of Distribution." 4,767,407 of the shares being offered were
acquired from us in a private placement that was completed in April 1995.
(4) These shares were acquired from us in a private placement that was
completed in April 1995.
(5) The shares being offered were acquired from us pursuant to the Carrollton
Merger Agreement. We are registering the shares received pursuant to the
Carrollton Merger Agreement pursuant to certain registration requirements
contained in a registration rights agreement entered into pursuant to such
merger agreements to permit secondary trading of the acquired shares. See
"Plan of Distribution."
(6) Natural Gas Partners, L.P. ("NGP") is the sole limited partner of NGP-
Louisiana Partners, L.P. ("NGP-Louisiana") and owns a 95.07% economic
interest in NGP-Louisiana. A corporation serves as the general partner and
owns the remaining 4.93% of NGP-Louisiana.
Each of the selling stockholders is offering to sell its shares in Titan in
accordance with its obligations to its limited partners under the limited
partnership agreement governing such selling stockholder. A portion of the Titan
shares owned by Natural Gas Partners, L.P. and Natural Gas Partners II, L.P., as
listed in the above table, is allocable to the interest of the general partner
of each of these partnerships. The number of shares attributable to the
interests, which could range from under 5% to 20% of the shares, subject to this
offering, cannot be specifically calculated until final disposition of the Titan
shares. The Titan shares allocable to each general partner will not be sold
pursuant this prospectus, but instead will be distributed to such general
partner on or after the proceeds of the sale of the shares sold pursuant hereto
are distributed to the limited partners of the selling stockholders.
-10-
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF
TITAN EXPLORATION, INC.
The unaudited pro forma combined statement of operations has been prepared
to give effect to (i) the acquisition of certain oil and gas properties from
Pioneer Natural Resources Company (the "Pioneer Acquisition") on December 16,
1997, (ii) the acquisition of all the membership units of Carrollton Resources,
L.L.C. (the "Carrollton Acquisition") on December 12, 1997 and (iii) the
acquisition of all the capital stock of Offshore Energy Development Corporation
(the "OEDC Acquisition") on December 12, 1997 as if each transaction had taken
place on January 1, 1997 with respect to the unaudited pro forma combined
statement of operations.
The unaudited pro forma combined statement of operations included herein is
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
statement of operations because of normal production declines, changes in
product prices, future acquisitions and divestitures, and other factors.
The following unaudited pro forma combined statement of operations should
be read in conjunction with the consolidated financial statements and the
related notes of Titan Exploration, Inc. (the "Company") included in the
Company's Annual Report on Form 10-K, the consolidated financial statements and
the related notes of Offshore Energy Development Corporation ("OEDC") included
in the Company's Registration Statement on Form S-4 dated November 14, 1997, and
the statement of revenues and direct operating expenses and the related notes of
the Pioneer Acquisition included in the Company's Current Report on Form 8-K, as
amended, dated December 29, 1997.
-11-
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro forma
Pioneer Combined Pro forma
Titan OEDC Carrollton Acquisition Adjustments Combined
---------- ---------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues -
Oil and gas sales $ 73,827 $ 10,396 $ 2,806 $17,311 $ (421) (a) $103,919
-------- -------- ------- ----------- --------
Expenses:
Oil and gas production 21,846 1,291 1,025 7,080 (99) (a) 31,143
General and administrative 5,372 3,886 1,130 - 10,388
Amortization of stock option awards 5,053 - - - 5,053
Exploration and abandonment 3,055 10,945 - - 291 (b) 14,291
Depletion, depreciation and amortization 19,972 11,022 836 - (7,999) (c) 28,009
4,178 (d)
Impairment expense 68,997 - - - 68,997
-------- -------- ------- ----------- --------
Total expenses 124,295 27,144 2,991 7,080 157,881
-------- -------- ------- ----------- --------
Operating income (loss) (50,468) (16,748) (185) 10,231 (53,962)
-------- -------- ------- ----------- --------
Other income (expense):
Interest expense (1,524) (694) (87) - (3,712) (e) (6,017)
Interest and other income (expense) 258 56 (1,196) - (882)
Equity in net loss of affiliates - (1,426) - - (632) (f) (2,058)
-------- -------- ------- ----------- --------
Income (loss) before income taxes (51,734) (18,812) (1,468) 10,231 (62,919)
Income tax (benefit) expense (18,267) (1,443) 2,659 - (4,971) (g) (22,022)
-------- -------- ------- ----------- --------
Net income (loss) $(33,467) $(17,369) $(4,127) $10,231 $(40,897)
======== ======== ======= =========== ========
Net loss per share $(.99) $(2.00) $(1.01)
======== ======== ========
Net loss per share-assuming dilution $(.99) $(2.00) $(1.01)
======== ======== ========
Weighted average common shares outstanding 33,942 8,702 40,329
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations.
-12-
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
December 31, 1997
Note 1. Basis of Presentation
The unaudited pro forma combined statement of operations has been prepared
to give effect to (i) the Pioneer Acquisition, (ii) the Carrollton Acquisition
and (iii) the OEDC Acquisition as if each transaction had taken place on January
1, 1997 with respect to the unaudited pro forma combined statement of
operations. Each acquisition is recorded using the purchase method of
accounting, any future adjustments to the initial allocation of the purchase
price are not anticipated to be material to the unaudited pro forma combined
statement of operations.
Following is a description of the individual columns included in the
unaudited pro forma combined statement of operations:
Titan. Represents the consolidated statement of operations of Titan
Exploration, Inc. (the "Company") for the year ended December 31, 1997.
OEDC. Represents the consolidated statement of operations of Offshore
Energy Development Corporation ("OEDC") for the period from January 1, 1997
through December 12, 1997.
Carrollton. Represents the consolidated statement of operations of
Carrollton Resources, L.L.C. ("Carrollton") for the period from January 1, 1997
through December 12, 1997.
Pioneer Acquisition. Represents the revenues and direct operating expenses
of the properties acquired in the Pioneer Acquisition for the period from
January 1, 1997 through December 16, 1997.
Note 2. Pro Forma Entries
(a) To adjust oil and gas sales and production expenses for properties
sold by Carrollton in May and July of 1997.
(b) To expense exploration and abandonment costs of Carrollton previously
capitalized to conform to the successful efforts method of accounting
used by the Company.
(c) To adjust depreciation, depletion and amortization expense ("DD&A")
for the basis allocated to the properties acquired in the Carrollton
Acquisition and OEDC Acquisition, using the successful efforts method
of accounting. The adjustment to Carrollton was to increase DD&A by
$16,000 and to decrease DD&A by $8,015,000 for OEDC.
(d) To record estimated DD&A for the properties acquired in the Pioneer
Acquisition, utilizing the successful efforts method of accounting.
(e) To adjust interest expense related to the financing of the Pioneer
Acquisition.
(f) To record the amortization the Company's allocated cost in excess of
the historical net assets of OEDC's investments accounted for on the
equity method.
(g) To adjust income tax expense (benefit).
-13-
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS-(Continued)
December 31, 1997
Note 3. Income Taxes
The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
Note 4. Supplemental Oil and Gas Reserve Information (Unaudited)
The following unaudited pro forma combined supplemental information
regarding the oil and gas activities of the Company is presented pursuant to the
disclosure requirements promulgated by the Securities and Exchange 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 Acquisition, Pioneer Acquisition and the Carrollton
Acquisition had occurred on January 1, 1997.
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, 1997.
Oil and
Natural Condensate
Gas (MMcf) (MBbls)
---------- -----------
Total Proved Reserves:
Balance, January 1, 1997 353,366 30,773
Revisions of previous estimates (20,192) 2,209
Extensions and discoveries 40,633 20
Production (28,435) (2,727)
------- ------
Balance, December 31, 1997 345,372 30,275
======= ======
Proved Developed Reserves:
January 1, 1997 221,271 26,653
December 31,1997 219,307 23,604
-14-
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS-(Continued)
December 31, 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 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,
1997
--------------
(in thousands)
Future cash inflows $1,121,526
Future production and development costs (392,475)
Future income tax expense (153,100)
----------
Future net cash flows 575,951
10% annual discount factor (226,901)
----------
Standardized measure of discounted future net
cash flows $ 349,050
==========
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, 1997
are as follows (in thousands):
Standardized Measure, beginning of year $ 530,985
Revisions of previous quantity estimates (5,191)
Extensions and discoveries less related costs 36,439
Net changes in income tax 40,115
Net changes in prices and production costs (265,534)
Sales, net of production costs (72,776)
Accretion of discount 53,098
Other 31,914
----------
Standardized Measure, end of year $ 349,050
==========
-15-
<PAGE>
PLAN OF DISTRIBUTION
The Titan common stock may be sold from time to time by the selling
stockholders, subject to certain restrictions. All sales may be made by the
selling stockholders on the Nasdaq, in privately negotiated transactions or
otherwise. The selling stockholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices at negotiated prices or at fixed prices. The common stock may be sold by
one or more of the following methods:
. A block trade in which the broker or dealer so engaged will attempt to
sell the common stock as agent, but may position and resell a portion
of a block as principal to facilitate the transaction;
. Underwritten public offering;
. Purchases by a broker or dealer as principal, and resale by such
broker or dealer, for its account pursuant to this prospectus;
. Ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
. Privately negotiated transactions.
The selling stockholders may affect such transactions by selling the common
stock through or to brokers or dealers, and such brokers or dealers will receive
compensation in the form of discounts or commissions from the selling
stockholders, and may receive commissions from the purchasers of the common
stock for whom they may act as agent (which discounts or commissions from the
selling stockholders or such purchasers might exceed those customary in the
types of transactions involved).
Any of the shares covered by this prospectus which qualifies for sale
pursuant to Rule 144 or Rule 145 under the Securities Act of 1933 may be sold
under that rule rather than pursuant to this prospectus.
We cannot assure you that the selling stockholders will sell any or all of
the common stock offered by them hereunder.
We will pay all fees and expenses incident to the preparation and filing of
the Registration Statement and this prospectus, including legal and accounting
fees and expenses and any printing expenses other than any underwriting
discounts, any selling commissions payable in respect of sales of the common
stock, all of which will be paid by the selling stockholders. We will receive
no part of the proceeds from sales of the common stock. We intend to keep the
Registration Statement effective until the earlier of such time as the amount of
common stock held by the selling stockholders represents less than 10% of the
initial number amount of common stock and December 31, 1999.
The selling stockholders and any broker-dealer acting in connection with
the sale of the common stock offered hereby may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, in which event any discounts,
concessions or commissions received by them, which are not expected to exceed
those customary in the types of transactions involved, or any profit on resales
of the common stock by them, may be deemed to be underwriting commissions or
discounts under the Securities Act of 1933.
LEGAL MATTERS
The legality of the common stock offered hereby will be passed upon for us
by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The consolidated financial statements of Titan Exploration, Inc. as of and
for the years ended December 31, 1997 and 1996 and for the period March 31, 1995
(date of inception) through December 31, 1995, the statements of revenues and
direct operating expenses for the 1996 Acquisition for the years ended December
31, 1995, 1994, and 1993, and the statements of revenues and direct operating
expenses for the 1995 Acquisition for the period ended December 11, 1995 and the
years ended December 31, 1994 and 1993, have been incorporated herein by
reference in reliance upon the report of KPMG LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Offshore Energy Development
Corporation and its predecessors as of December 31, 1995 and 1996 and for each
of the years in the three year period ended December 31, 1996, have been
incorporated herein by
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<PAGE>
reference in reliance upon the report of KPMG LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
The statement of revenues and direct operating expenses for the Pioneer
Acquisition for the year ended December 31, 1996 has been incorporated herein by
reference in reliance upon the report of KPMG LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
-17-
<PAGE>
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and in this prospectus. Unless otherwise indicated in
this prospectus, natural gas volumes are stated at the legal pressure base of
the state or area in which the reserves are located and at 60 degrees Fahrenheit
and in most instances are rounded to the nearest major multiple. BOEs are
determined using the ratio of six Mcf of natural gas to one Bbl of oil.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcfe" means billion cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
"BOE" means barrels of oil equivalent.
"Completion" means the installation of permanent equipment for the
production of oil or gas.
"Gross," when used with respect to acres or wells, refers to the total
acres or wells in which the Company has a working interest.
"MBbls" means thousands of barrels of oil.
"Mcf" means thousand cubic feet of natural gas.
"Mcfe" means 1,000 cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
"MMcf" means million cubic feet of natural gas.
"MMcfe" means million cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
"Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by the
Company.
"Oil" means crude oil or condensate.
"Present Value of Future Revenues" or "PV-10" means the pretax present
value of estimated future revenues to be generated from the production of proved
reserves calculated in accordance with SEC guidelines, net of estimated
production and future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect to non-property
related expenses such as general and administrative expenses, debt service and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.
"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
"Proved reserves" means 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, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
i. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the
-18-
<PAGE>
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the
reservoir.
ii. Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project, or
the operation of an installed program in the reservoir, provides support
for the engineering analysis on which the project or program was based.
iii. Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.
"Proved undeveloped reserves" means 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. Reserves on
undrilled acreage shall be limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved reserves
for other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.
"Reserves" means proved reserves.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"Workover" means operations on a producing well to restore or increase
production.
-19-
<PAGE>
================================================================================
You should rely only on the information contained in this document or that
to which we have referred you. We have not authorized anyone to provide you
with information that is different. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front cover.
[LOGO]
TITAN EXPLORATION, INC.
$
Common Stock
----------------
Prospectus
----------------
February , 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Except for the SEC registration fee, all expenses are estimated. All such
expenses will be paid by the Registrant.
SEC registration fee*................................. $ 17,614.69
Accounting fees and expenses.......................... 5,500.00
Legal fees and expenses............................... 7,500.00
Miscellaneous......................................... 3,385.31
------------
Total............................................ $ 34,000.00
============
---------------
* Includes $3,612.61 previously paid in connection with the filing of the
Registrant's Registration Statement on Form S-3 (SEC File No. 333-62113).
Item 15. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") enables
a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of members of its board of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Such a provision may not eliminate or limit
the liability of a director (1) for any breach of a director's duty of loyalty
to the corporation or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of a law,
(3) for paying an unlawful dividend or approving an illegal stock repurchase (as
provided in Section 174 of the DGCL), or (4) for any transaction from which the
director derived an improper personal benefit.
Under Section 145 of the DGCL, a corporation has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify applies only if the person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court of chancery or the court in which
such action or suit was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Section 145 of the DGCL further
provides that to the extent a director or officer of a corporation has been
successful in the defense of any action, suit or proceeding referred to above or
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
A corporation also has the power to purchase and maintain insurance on
behalf of any person covering any liability incurred by such person in his
capacity as a director, officer, employee or agent of the corporation, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability.
The Registrant's Certificate of Incorporation and Bylaws provide that no
director of the Registrant will be personally liable to the Registrant or any of
its stockholders for monetary damages arising from the director's breach of
fiduciary duty as a director. However, this does not apply with respect to any
action in which the director would be liable under Section 174 of Title 8 of the
DGCL nor does it apply with respect to any liability in which the director (i)
breached his duty of loyalty to the Registrant; (ii) did not act in good faith
or, in failing to act, did not act in good faith; (iii) acted in a manner
involving intentional misconduct or a knowing violation of law or, in failing to
act, shall have acted in a manner involving intentional misconduct or a knowing
violation of law; or (iv) derived an improper personal benefit.
II-1
<PAGE>
The Certificate of Incorporation and Bylaws provide that the Registrant
will indemnify its officers and directors and former officers and directors
against any expenses, judgments or settlement payments sustained or paid by such
persons as a result of having acted as an officer or director of the Registrant,
or, at the request of the Registrant, as an officer, director, agent or employee
of another business entity. The Certificate of Incorporation and Bylaws further
provide that the Registrant may, by action of its Board of Directors, provide
indemnification to employees and agents of the Registrant, individually or as a
group, with the same scope and effect as the indemnification of directors and
officers.
Item 16. Exhibits.
The information required by this Item 16 is set forth in the Index to
Exhibits accompanying this Registration Statement.
Item 17. Undertakings.
(a) Rule 415 Offering.
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
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(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 information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 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.
(b) Filings incorporating subsequent Exchange Act documents by reference.
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 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>
(h) Request for acceleration of effective date.
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 Act 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 Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 February 12, 1999.
TITAN EXPLORATION, INC.
(Registrant)
By: /s/ Jack D. Hightower
---------------------------
Jack D. Hightower
Chairman of the Board,
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jack D.
Hightower and William K. White, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign on his behalf individually and in each
capacity stated below any amendment, including post-effective amendments, to
this Registration Statement under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents and either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- -------------------------------------------- -----------------
<S> <C> <C>
/s/ Jack D. Hightower President, Chief Executive Officer and February 12, 1999
- ---------------------------- Chairman of the Board (principal executive
Jack D. Hightower officer)
/s/ George G. Staley Executive Vice President and Director February 12, 1999
- ----------------------------
George G. Staley
/s/ William K. White Vice President, Finance and Chief Financial February 12, 1999
- ---------------------------- Officer (principal financial and accounting
William K. White officer)
/s/ David R. Albin Director February 12, 1999
- ----------------------------
David R. Albin
/s/ Kenneth A. Hersh Director February 12, 1999
- ----------------------------
Kenneth A. Hersh
/s/ William J. Vaughn, Jr. Director February 12, 1999
- ----------------------------
William J. Vaughn, Jr.
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
4.1 Certificate of Incorporation (filed as Exhibit 3.1 to our Registration
Statement on Form S-1 (SEC No. 333-14029) and incorporated herein by
reference).
4.2 Bylaws (filed as Exhibit 3.2 to our Registration Statement on Form S-1
(SEC No. 333-14029) and incorporated herein by reference).
5.1* Opinion of Thompson & Knight, P.C.
10.1 Amended and Restated Registration Rights Agreement, dated September
30, 1996, by and among Titan Exploration, Inc., Jack Hightower,
Natural Gas Partners, L.P., Natural Gas Partners II, L.P., Joint
Energy Development Investments Limited Partnership, First Union
Corporation and Selma International Investment Limited (filed as
Exhibit 10.3 to our Registration Statement on Form S-1 (SEC No. 333-
14029) and incorporated herein by reference).
10.2 Letter Agreement, dated November 6, 1997, among Titan Exploration,
Inc. and certain stockholders of Titan Exploration, Inc. (filed as
Exhibit 10.29 to our Registration Statement on Form S-4 (SEC No. 333-
40215) and incorporated herein by reference).
23.1* Consent of counsel (included in the opinion of Thompson & Knight, P.C.
filed herewith as Exhibit 5.1).
23.2* Consent of independent auditors.
23.3* Consent of independent auditors.
24* Power of Attorney (a power of attorney pursuant to which amendments to
this Registration Statement may be filed is included on the signature
page hereof).
- ---------------
* Filed herewith.
II-5
<PAGE>
Exhibit 5.1
============================================================
TITAN EXPLORATION, INC.
EXHIBIT 5.1
to
Form S-3
Registration Statement
Under
The Securities Act of 1933
============================================================
<PAGE>
EXHIBIT 5.1
(214) 969-1700
February 12, 1999
Titan Exploration
500 West Texas, Suite 500
Midland, Texas 79701
Re: Titan Exploration, Inc.; Form S-3 Registration Statement
Gentlemen:
We have acted as counsel for Titan Exploration, Inc. (the "Company"), in
connection with the preparation of its Registration Statement on Form S-3 (the
"Registration Statement"), filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), covering the proposed sale of up to 9,768,184 shares (the "Shares") of
Common Stock, par value $.01 per share, of the Company by the selling
stockholders named therein (the "selling stockholders"). Pursuant to Rule 429
of the Securities Act, the prospectus included in the Registration Statement
(the "Prospectus") will also be used in connection with registration statement
No. 333-62113 filed on August 24, 1998, by the Company on Form S-3, pursuant to
which the Company registered 1,749,445 shares of common stock. The Shares are
proposed to be sold by the selling stockholders in the manner set forth in the
prospectus constituting Part I of the Registration Statement under the caption
"Plan of Distribution."
In connection with the foregoing, we have examined the originals or copies,
certified or otherwise authenticated to our satisfaction, of such corporate
records of the Company, certificates of public officials and other instruments
and documents as we have deemed necessary to require as a basis for the opinion
hereinafter expressed. As to questions of fact material to such opinion, we
have, where relevant facts are not independently established, relied upon
statements of officers of the Company.
On the basis of the foregoing and in reliance thereon, we advise you that
in our opinion the Shares to be sold by the selling stockholders pursuant to the
Registration Statement have been duly and validly authorized by the Company and,
when sold by the selling stockholders as described in the Registration
Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 of the Registration Statement and to the reference to us in the
prospectus under the caption "Legal Matters." In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules or regulations of
the Commission thereunder.
Respectfully submitted,
THOMPSON & KNIGHT, P.C.
A Professional Corporation
By: /s/ Joe Dannenmaier
-------------------------------
Joe Dannenmaier, Attorney
<PAGE>
EXHIBIT 23.2
============================================================
TITAN EXPLORATION, INC.
EXHIBIT 23.2
to
Form S-3
Registration Statement
Under
The Securities Act of 1933
============================================================
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Offshore Energy Development Corporation
We consent to the use of our report dated March 17, 1997 on the
consolidated financial statements of Offshore Energy Development Corporation and
its predecessors as of December 31, 1995 and 1996 and for each of the years in
the three-year period ended December 31, 1996 incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Houston, Texas
February 12, 1999
<PAGE>
EXHIBIT 23.3
============================================================
TITAN EXPLORATION, INC.
EXHIBIT 23.3
to
Form S-3
Registration Statement
Under
The Securities Act of 1933
============================================================
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Titan Exploration, Inc.
We consent to the use of our report dated March 6, 1998 on the consolidated
financial statements of Titan Exploration, Inc. and subsidiaries as of and for
the years ended December 31, 1997 and 1996 and for the period from March 31,
1995 (date of inception) through December 31, 1995, our report on the 1996
Acquisition for the years ended December 31, 1995, 1994 and 1993, our report on
the 1995 Acquisition for the period ended December 11, 1995 and the years ended
December 31, 1994 and 1993, and our report on the Pioneer Acquisition for the
year ended December 31, 1996, each incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Midland, Texas
February 12, 1999
