SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
-----------------
Commission File No. 1-14754
-----------------
PENDARIES PETROLEUM LTD.
(Exact name of registrant as specified in its charter)
-----------------
PROVINCE OF NEW BRUNSWICK, CANADA
(State or other jurisdiction of incorporation)
Internal Revenue Service - Employer Identification No. 52-2051576
8 Greenway Plaza, Suite 910, Houston, Texas 77046
(713) 355-2900
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
The total number of shares of the registrant's Common Shares, no par
value, outstanding on September 30, 1999, was 8,879,470.
1
<PAGE>
PENDARIES PETROLEUM LTD.
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998....................................3
Consolidated Statements of Operations for the
three and nine months ended September 30, 1999
With Comparative Figures for the Preceding Year (Unaudited) .........4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999
With Comparative Figures for the Preceding Year (Unaudited)..........5
Notes to Consolidated Financial Statements (Unaudited)...............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........None
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................15
Item 2. Changes in Securities and Use of Proceeds...................15
Item 3. Defaults Upon Senior Securities.............................15
Item 4. Submission of Matters to a Vote of Security Holders.........15
Item 5. Other Information...........................................15
Item 6. Exhibits and Reports of Form 8-K............................15
SIGNATURES....................................................................15
2
<PAGE>
PART I:
Item 1. FINANCIAL STATEMENTS
PENDARIES PETROLEUM LTD.
------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30, 1999 and December 31, 1998
----------------------------------------
(All figures are in U.S. dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- ------------ -
ASSETS (Unaudited)
------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,286,928 $ 7,873,280
Accounts receivable 186,132 105,750
Prepaid expenses and other assets 222,748 208,451
----------------- -------------
Total current assets 6,695,808 8,187,481
----------------- -------------
PROPERTY AND EQUIPMENT
Oil and gas properties, recorded under the full cost method
Proved 13,245,835 7,890,804
Unproved 8,680,590 13,238,236
Furniture, fixtures and office equipment 168,679 169,938
Accumulated depreciation, depletion and amortization (784,122) (644,449)
----------------- --------------
Net property and equipment 21,310,982 20,654,529
----------------- --------------
Total Assets $ 28,006,790 $ 28,842,010
================= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 39,173 $ 44,627
Accrued liabilities 33,956 115,235
---------------- --------------
Total current liabilities 73,129 159,862
---------------- --------------
SHAREHOLDERS' EQUITY
Common shares
Authorized, unlimited number of common shares
Issued 8,879,470 and 8,781,970 common shares, respectively 32,580,051 32,501,842
Deficit (4,646,390) (3,819,694)
---------------- --------------
Total shareholders' equity 27,933,661 28,682,148
---------------- --------------
Total liabilities and shareholders' equity $ 28,006,790 $ 28,842,010
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
PENDARIES PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All figures are in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three-Month Nine-Month
Period Ended Period Ended
September 30, September 30,
------------------------------------- ------------------------------------
1999 1998 1999 1998
------------------ ------------------ ---------------- ------------------
REVENUE
<S> <C> <C> <C> <C>
Oil and gas income $ 149,726 $ 165,014 $ 321,796 $ 380,732
------------ ------------ ----------- ------------
EXPENSES
Oil and gas operating expenses 56,145 33,528 213,031 125,182
General and administrative expenses 319,021 596,371 1,075,100 1,799,431
Depreciation, depletion and amortization 50,323 86,625 140,374 266,623
Exchange (gain)/loss (4,058) 132,514 (38,721) 103,575
Write-off of registration costs - 299,397 - 299,397
Stock option settlement (Note 4) - - - 450,000
------------ ------------- ------------ -------------
$ 421,431 $ 1,148,435 $ 1,389,784 $ 3,044,208
------------ ------------- ------------ -------------
OTHER INCOME
Interest Income 76,478 118,290 241,292 439,109
------------ ------------- ------------ -------------
NET LOSS $ (195,227) $ (865,131) $ (826,696) $ (2,224,367)
=========== ============ ============ =============
NET LOSS PER SHARE
Basic $ (.02) $ (.10) $ (.09) $ (.25)
=========== ============ ============ =============
Fully Diluted $ (.02) $ (.10) $ (.09) $ (.25)
=========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
PENDARIES PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All figures are in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine-Month Nine-Month
Period Ended Period Ended
September 30, September 30,
1999 1998
------------- ------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (826,696) $ (2,224,367)
Items not affecting cash:
Depreciation, depletion and amortization 140,374 266,623
Loss on sale of fixed assets - 34,514
Changes in non-cash working capital items-
Accounts receivable (80,382) 68,539
Accounts payable (5,454) (70,657)
Accrued liabilities (53,069) (144,515)
Prepaid expenses and other assets (14,297) (128,553)
---------------- ---------------
Net cash used in operating activities (839,524) (2,198,416)
---------------- ---------------
CASH FLOW USED IN INVESTING ACTIVITIES
Net Additions to proved and unproved oil and
gas properties (797,385) (4,246,494)
Additions to furniture, fixtures and office equipment 557 (41,563)
Proceeds from disposal of fixed assets - 6,454
---------------- ---------------
Net cash used in investing activities (796,828) (4,281,603)
---------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from exercise of common stock options 50,000 42,000
Cumulative translation effects - (4,180)
--------------- ---------------
Net cash provided by financing activities 50,000 37,820
--------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,586,352) (6,442,199)
CASH AND CASH EQUIVALENTS, beginning of period 7,873,280 15,133,285
---------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 6,286,928 $ 8,691,086
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
PENDARIES PETROLEUM LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
(All figures are in U.S. dollars)
1. Nature of Operations
--------------------
Pendaries Petroleum Ltd. ("Pendaries" or the "Company"), a New Brunswick,
Canada corporation, is a holding company whose primary interests are in
exploration, development and production of oil and gas properties in the
People's Republic of China.
2. NATURE OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
------------------------------------------------------
The Company completed an initial public offering and became a public
company in Canada on December 12, 1996.
The consolidated interim financial statements included herein have been
prepared by Pendaries without audit and reflect all adjustments which are,
in the opinion of management, necessary to present a fair statement of the
results of the interim period. These statements are presented on a basis
consistent with annual audited consolidated financial statements. Certain
information, accounting policies and footnote disclosures normally included
in consolidated financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. These consolidated interim financial statements
should be read in conjunction with the consolidated financial statements
and the summary of significant accounting policies and notes thereto
included in the Company's latest annual financial statements.
The consolidated financial statements include the accounts of Pendaries,
Pendaries Production, Inc., Sino-American Energy Corporation
(Sino-American) and Sino-American Overseas Energy Corporation. All
significant intercompany transactions and balances have been eliminated.
The Company's registration statement filed on Form 20-F was declared
effective by the U.S. Securities and Exchange Commission in June 1998. This
permitted the Company to list its common shares for trading on the American
Stock Exchange.
3. OIL AND GAS PROPERTIES - BOHAI BAY, CHINA
-----------------------------------------
Laopu Block Relinquishment - During the first quarter of 1999, the
petroleum contract on the Laopu Block in the Bohai Bay, China, covering
approximately 78,000 gross acres was terminated by Pendaries and the other
foreign contractors. All obligations had been fulfilled on this block.
Block 05/36 - On March 4, 1999, the Operator, Kerr-McGee, and China
National Offshore Oil Corp. ("CNOOC") agreed to extend the petroleum
contract on Block 05/36 into its second phase which covers the period March
31, 1999 to February 28, 2001. Block 05/36 is located in the Bohai Bay,
China and covers approximately 415,000 gross acres. Under the terms of the
petroleum contract, the foreign contractors are required to relinquish 25%
of the acreage in the block upon electing to proceed to the second
exploration phase. The foreign contractors have submitted the acreage to be
relinquished to CNOOC and all approvals have been obtained. The Company
does not believe that the relinquishment will materially affect the future
potential of the block. Entry into the second exploration phase carries
with it a bonus payment to CNOOC of $250,000 ($37,500 net to Pendaries) and
a one well commitment to be drilled during the second phase by the foreign
contractors.
6
<PAGE>
4. COMMON SHARES
-------------
Issuance of Stock Options
-------------------------
On March 9, 1999, options to purchase 84,500 common shares were issued to
certain outside directors of Pendaries under the Company's Stock Option
Plan. The exercise price is $0.59 per common share, the market price on the
date of issuance, with an expiration date of March 9, 2004. On October 4,
1999, certain directors, officers and employees of Pendaries were issued
options to purchase an aggregate of 106,500 common shares. The exercise
price is $0.9375 per common share, the market price on the date of
issuance, with an expiration date of October 4, 2004.
Issuance of Common Shares
-------------------------
In February 1999, certain outside directors of Pendaries were granted
62,500 common shares as compensation for directors' fees. The value of the
share compensation was $36,875 and was accrued at December 31, 1998. On
March 9, 1999, only 47,500 of the 62,500 common shares were issued under
the February 1999 grant as a result of two former directors electing to
forego their respective stock compensation grants. The value of the shares
issued was $28,209. There were no shares issued under the Stock
Compensation Plan in the second and third quarters of 1999.
Stock Option Exercise and Cancellations
---------------------------------------
In June 1999, a director exercised 50,000 Sino-American options at an
exercise price of $1.00 per share, for total proceeds to the Company of
$50,000. Pursuant to the Exchange Rights Agreement between the Company and
Sino-American, the 50,000 Sino-American shares issued as a result of the
exercise were converted to 50,000 common shares of the Company. On June 30,
1999, 80,000 Sino-American options, 50,000 of which were owned by the same
director, expired unexercised. Additionally, 3,500 options to purchase
shares of the Company, granted under the Company's Stock Option Plan, and
held by a former employee expired unexercised. On August 17, 1999, 170,000
Sino-American options held by four individuals and having exercise prices
of $1.50 and $2.00 expired unexercised. As a result of the expiration of
253,500 shares over the last two quarters of unexercised options, the
number of fully diluted shares of the Company is reduced to 9,798,470 from
10,051,970.
Stock Option Settlement
-----------------------
In connection with litigation with the former president of Sino-American
over the number of stock options to which the former president was
entitled, in April 1998, the parties entered into a Settlement Agreement
pursuant to which the former president received $450,000 (which was accrued
as of March 31, 1998) and agreed to execute a new Stock Option Agreement
reflecting a grant of 100,000 stock options (the number of stock options
the Company claimed had originally been granted) and, with the exception
of certain restrictions not imposed on other option holders, contains
terms substantially similar to those contained in the Stock Option
Agreements of all other option holders who had been granted options prior
to 1996.
7
<PAGE>
Net Loss Per Share
------------------
Basic net loss per share is calculated on the basis of the weighted average
common shares outstanding for the three and nine month periods ended
September 30, 1999 and 1998, respectively. The Company's stock options were
not included in the computation of fully diluted net loss per share because
to do so would have been antidilutive for the periods presented.
5. MURPHY AGREEMENT
----------------
On April 24, 1998, Sino-American and the Company entered into an agreement
with Murphy Exploration & Production Company ("Murphy") to purchase its 45%
interest in Block 04/36 (the "Murphy Agreement"), which was extended to
December 21, 1998 and then to March 22, 1999. The Murphy Agreement provided
that the Company would pay a total of $38 million for Murphy's interest;
$35 million of the consideration was to be paid in cash and $3 million in
Pendaries Common Shares. Due to the adverse change in the condition of the
oil and gas industry subsequent to the signing of the Murphy Agreement, the
Company elected on March 22, 1999 to let the agreement expire. The
Company's non-refundable deposit of $1 million paid to Murphy in April 1998
was recorded as an additional investment in its oil and gas properties
related to this opportunity to increase its interest in Block 04/36.
6. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
------------------------------------------------------------------------
These consolidated financial statements are expressed in U.S.dollars, which
is the functional currency in all areas of operation, and are prepared
in accordance with generally accepted accounting principles in Canada
("Canadian GAAP") which conform in all material respects with those in the
United States ("U.S. GAAP") for the periods presented, except as outlined
below.
Oil and Gas Properties
----------------------
In Canada, if the net capitalized costs of oil and gas properties in a cost
center exceed an amount equal to the sum of estimated future net revenues
from proved oil and gas reserves in the cost center and the costs of
properties not being amortized, both adjusted for income tax effects, such
excess is charged to expense. Also, the total capitalized costs of all cost
centers are subject to a further recoverability test which includes, among
other things, provision for site development and restoration and future
general, administrative and financial costs. This is not consistent with
U.S. GAAP. For U.S. GAAP, if the net capitalized costs of oil and gas
properties in a cost center exceed an amount equal to the sum of estimated
discounted present value at 10% of future net revenues from proved oil and
gas reserves in the cost center and the costs of properties not being
amortized, both adjusted for income tax effects, such excess is charged to
expense. Included in the estimated future net cash flows are Canadian
provincial tax credits expected to be realized beyond the date at which the
legislation, under its provisions, could be repealed. To date, the Canadian
provincial government has not indicated an intention to repeal this
legislation.
If U.S. GAAP had been applied instead of Canadian GAAP, the Company would
have recognized an impairment of its oil and gas properties in Canada in
the amount of $549,555 and $2,195,799 in China in 1998. There were no
material differences between Canadian GAAP and U.S. GAAP during the nine
months ended September 30, 1999.
8
<PAGE>
7. SUBSEQUENT EVENTS
-----------------
Block 04/36 - Effective October 1, 1999 the Company increased its foreign
-----------
contractor's interest in Block 04/36 in the Bohai Bay, China from 10% to
18.2% following the withdrawal of the other non-operating partner from the
block. Kerr-McGee China, Ltd., the operator of the block, increased its
foreign contractor's interest from 45% to 81.8%. There was no monetary
consideration associated with acquiring the increased interest.
Also effective October 1, 1999, the Company, along with its partner
Kerr-McGee China Ltd., voted to enter into Phase Three on Block 04/36.
Entry into the third exploration phase carries with it a commitment to
drill one exploration well, which the parties expect to drill in the fourth
quarter of 1999. Upon election to enter the third phase, the foreign
contractors are required to relinquish twenty-five percent (25%) of the
acreage in the block. The parties have selected the areas for
relinquishment and submitted them to CNOOC for approval. The Company does
not believe that the relinquishment will materially affect the future
potential of the block.
Alberta, Canada Properties - On October 6, 1999, the Company entered into
----------------------------
an agreement to sell its oil and gas properties located in Alberta, Canada
at a price yet to be determined, but expected to approximate book value.
The transaction is subject to satisfactory due diligence by the purchaser
and there can be no assurance that the transaction will close.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The following discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements included elsewhere and with the
Company's Form 10-K for the year ended December 31, 1998.
ACCOUNTING POLICIES
- -------------------
The unaudited consolidated financial statements and notes thereto included
herein have been prepared in accordance with Canadian GAAP.
As of September 30, 1999, the Company's revenues were derived from interest
income and oil and gas production related to its activities in Canada.
Accumulated losses are presented on the balance sheet as "Deficit." The
unaudited statements of operations present revenues and expenses for the quarter
and year to date in comparison with the same periods for the previous year. The
unaudited statements of cash flows show the inflows and outflows for the period
comparatively with those of the previous year.
9
<PAGE>
The Company follows the full-cost method of accounting for oil and gas
properties. Under this method, all costs incurred in connection with the
exploration and development of oil and gas reserves are capitalized in separate
cost centers on a country-by-country basis. Such capitalized costs include
contract and concession acquisition; geological, geophysical and other
exploration work; drilling, completing and equipping oil and gas wells;
constructing production facilities and pipelines; and other related costs. The
Company also capitalizes interest costs related to unevaluated oil and gas
properties.
Capitalized costs associated with the acquisition and evaluation of unproved
properties are excluded from amortization until it is determined whether proved
reserves can be assigned to such properties, or until the value of the
properties is impaired. Unproved properties are assessed periodically to
determine whether any impairment has occurred. If the net capitalized costs of
oil and gas properties in a cost center exceed an amount equal to the sum or
estimated future net revenues from proved oil and gas reserves in the cost
center and the costs of properties not being amortized, both adjusted for income
tax effects, such excess is charged to expense. The total capitalized costs of
all cost centers is subject to a further recoverability test which includes,
among other things, provisions for site development and restoration, and future
general, administrative and financial costs.
Substantially all of the Company's exploration, development and production
activities are conducted jointly with others, and accordingly, the Company's
financial statements reflect only its proportionate interest in such activities.
The Company owns an interest in producing oil and gas properties in Alberta,
Canada. Depletion is provided based on the Company's proportionate interest of
production in respect of proved reserves.
The Company currently has no producing oil and gas properties in the People's
Republic of China. Therefore, related capitalized costs of oil and gas
properties are not currently subject to depletion.
CHINESE TAXES
- -------------
The Company's future net income, as defined under Chinese law, from Chinese
sources, will be subject to Chinese corporate income tax at a rate of 33%. In
accordance with the terms of the tax treaty between the U.S. and China, such
taxes are creditable to U.S.corporate income taxes.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended September 30, 1999 and 1998:
- -----------------------------------------------
The Company incurred a net loss of $195,227 and $865,131 for the three months
ended September 30, 1999 and 1998, respectively. The $669,904 decrease in net
loss was a result of the following:
Oil and gas income from the Company's properties located in Alberta, Canada,
decreased from $165,014 for the three months ended September 30, 1998 to
$149,726 for the same period in 1999. The $15,288 decrease was due to loss of
income from the Wintering Hills Field in Alberta, Canada, relating to workover
operations carried out on that field and normal reservoir depletion.
Oil and gas operating expenses increased from $33,528 for the three months ended
September 30, 1998 to $56,145 for the same period in 1999. The increase was due
to the plugging of a non-producing well in the Grand Forks Field, in Alberta,
Canada.
General and administrative expenses decreased from $596,371 in the third three
months of 1998 to $319,021 for the comparable period of 1999. The $277,350
decrease was due primarily to reductions in staff, reduced salaries and related
costs, cost savings in connection with the closing of the Toronto, Canada
office, and reduced outside legal and professional costs.
10
<PAGE>
The exchange gain for the three month period ending September 30, 1999, as
opposed to the exchange loss for the comparable period in 1998, was due to the
strengthening of the Canadian dollar in relation to the U.S. dollar.
In the third quarter of 1998, the Company wrote-off $299,397 in deferred
registration costs related to the Company's postponed initial cross-border
offering in the United States. There were no such costs in the third quarter of
1999. Interest income decreased by $41,812 from $118,290 in the three month
period ended September 30, 1998 to $76,478 for the comparable period of 1999.
The decrease was due to the reduction of cash available for investment in 1999.
Nine Months Ended September 30, 1999 and 1998:
- ----------------------------------------------
The Company incurred a net loss of $826,696 and $2,224,367 for the nine months
ended September 30, 1999 and 1998, respectively. The $1,397,671 decrease in net
loss was a result of the following:
Oil and gas income from the Company's properties located in Alberta, Canada,
decreased from $380,732 for the nine months ended September 30, 1998 to $321,796
for the same period in 1999. The $58,936 decrease was due to loss of income from
the Wintering Hills Field and the Morinville Field in Alberta, Canada, relating
to workover operations carried out on the two fields as well as natural
reservoir depletion.
Oil and gas operating expenses increased from $125,182 for the nine months ended
September 30, 1998 to $213,031 for the same period in 1999. The increase was due
to workover operations carried out in 1999 on one well located in each of the
Wintering Hills and Morinville fields as well as the plugging of a non-producing
well in the Grand Fords Field, all in Alberta, Canada.
General and administrative expenses decreased from $1,799,431 in the first nine
months of 1998 to $1,075,100 for the comparable period of 1999. The $724,331
decrease was due primarily to reductions in staff, reduced salaries and related
costs, cost savings in connection with the closing of the Toronto, Canada
office, and reduced outside legal and professional costs.
The exchange gain for the nine month period ending September 30, 1999, as
opposed to the exchange loss for the comparable period in 1998, was due to the
strengthening of the Canadian dollar in relation to the U.S. dollar.
In the nine month period ending September 30, 1998 the Company wrote-off
$299,397 in deferred registration costs related to the Company's postponed
initial cross-border offering in the United States. There were no such costs
recorded in the nine month period ending September 30, 1999.
During the nine months ended September 30, 1998, the Company recorded the
settlement of litigation with the former president of its wholly owned
subsidiary, Sino-American Energy Corporation, over the number of stock options
to which the former president was entitled, and in April 1998, the parties
entered into a Settlement Agreement pursuant to which the former president
received $450,000 and agreed to execute a new Stock Option Agreement reflecting
a grant of 100,000 stock options (the number of stock options the Company
claimed had originally been granted) and, with the exception of certain
restrictions not imposed on other option holders, contains terms substantially
similar to those contained in the Stock Option Agreements of all other option
holders who had been granted options prior to 1996. The $450,000 settlement
amount was charged to expense as of March 31, 1998. There were no such expenses
in the first nine month period of 1999.
Interest income decreased by $197,817 from $439,109 in the nine month period
ended September 30, 1998 to $241,292 for the comparable period of 1999. The
decrease was due to the reduction of cash available for investment in 1999.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From inception (July 5, 1994) the Company's capital by year is shown below. Of
the total, $31,027,761 represents cash raised by issuance of common shares,
$1,325,000 represents oil and gas properties paid for by issuance of common
shares, and $227,290 represents services paid for by issuance of common shares.
<TABLE>
<CAPTION>
Common
Share Exercise of Exercise of
Period Equity Warrants Options Total
------ ------ -------- ------- -----
<S> <C> <C> <C> <C>
Year - 1995 $ 3,287,500 $ - $ - $ 3,287,500
Year - 1996 22,812,658 - 20,000 22,832,658
Year - 1997 68,000 944,488 5,196,115 6,208,603
Year - 1998 131,081 - 42,000 173,081
Year - 1999 28,209 - 50,000 78,209
----------- ------------ ------------ ------------
Totals $ 26,327,448 $ 944,488 $ 5,308,115 $ 32,580,051
============ ============ ============ ============
</TABLE>
During the same periods, the Company incurred capital expenditures as follows:
<TABLE>
<CAPTION>
Oil and Gas Oil and Gas Furniture,
Properties Properties Fixtures and
Period Canada China Equipment Total
------ ------ ----- --------- -----
<S> <C> <C> <C> <C>
Year - 1995 $ - $ 3,597,631 $ 59,758 $ 3,657,389
Year - 1996 1,966,088 2,981,853 62,613 5,010,554
Year - 1997 - 7,739,641 105,286 7,844,927
Year - 1998 - 4,843,827 (57,719) 4,786,108
Year - 1999 - 797,385 (1,259) 796,126
------------ ------------ ----------- ------------
Totals $1,966,088 $19,960,337 $ 168,679 $ 22,095,104
========== =========== =========== ============
</TABLE>
After capital expenditures and funds used in operations the Company had cash of
$6,286,928 at September 30, 1999. There is no credit facility with a financial
institution or any other outstanding debt.
YEAR 2000 DISCLOSURE
- --------------------
The Year 2000 issue relates to the problems associated with the inability of
computer programs and equipment to properly calculate, store or use dates after
December 31, 1999. Hardware and software systems which only use a two-digit
convention for keeping track of dates would improperly interpret the Year 2000
as the Year 1900. Errors of this type can result in system failures,
miscalculations and the disruption of operations, including, among other things,
a temporary inability to engage in normal business. In response to the Year 2000
issue, the Company has developed a strategic plan divided into the following
phases: inventory assessment and review of vendor representations, in-house
testing, third party integration and development of a contingency plan.
12
<PAGE>
The Company has completed its initial assessment phase by compiling an inventory
listing of all in-house systems and reviewing all vendor representations
regarding the Year 2000 issue that the Company has received to date. The
licensor of the Company's in-house software system has certified that such
software is programmed to properly address Year 2000 scenarios. In addition, the
initial assessment has shown that less critical in-house software and
non-information technology or equipment are either not date specific or are
capable of addressing the Year 2000. Based on the initial review and reliance on
vendor representations, the Company expects that all such in-house systems will
perform their respective functions in a customary manner when faced with Year
2000 scenarios. In addition, the Company has determined that functions which
have been out-sourced to third parties, consisting mainly of processing needs,
are performed by systems purchased within the last few years and are programmed
to recognize the Year 2000.
The Company conducted its in-house testing phase, reviewing core systems and
core-non-information technology. To date, the Company has not encountered any
material system disruption during in-house testing, and therefore, the Company
expects that the performance of such systems will not be substantially disrupted
by Year 2000 scenarios. However, being primarily involved in the acquisition,
development and exploration of oil and gas internationally, the Company's
"mission critical" equipment and technology is off-site under the control of the
operators of the Company's properties. Although these systems are primarily
non-information technology systems which are not date specific, they rely on
external power sources, such as electricity, supplied by third parties. The
Company is relying upon representations by these operators and their third party
suppliers that no material disruption of services is anticipated as a result of
the Year 2000. However, the most reasonably likely worst case Year 2000 scenario
for the Company would involve a prolonged disruption of third party services
affecting the productivity of core equipment, which could result in substantial
decreases in the Company's oil and gas production. It may not be economically
feasible for the operator to maintain a separate and duplicate secondary power
supply for every major component of the operator's "mission critical" equipment.
Therefore, unanticipated prolonged losses of certain services could cause
material disruptions for which no economically feasible contingency plan has
been developed. Such event could result in a business interruption that could
have a material adverse effect on the Company's production payments from its
properties and the Company's results of operations and financial condition.
In addition to its internal review and testing, the Company has communicated
with its third party suppliers, service providers and customers to determine the
status of their Year 2000 compliance programs. The Company has received and is
relying on Year 2000 readiness reports periodically issued by various third
parties, such as financial services providers. The Company will continue to have
formal communications with its significant suppliers and business partners to
determine the extent to which the Company is vulnerable to either the third
parties' or its own failure to correct Year 2000 issues. Third party
notification and integration was completed during the second quarter of 1999.
All of these third parties have responded and have provided favorable
representations as to their Year 2000 readiness. These third parties have
received similar representations from the Company. While there can be no
guarantee that the systems of other companies on which the Company relies will
be timely converted or that the conversion will be compatible with the Company's
systems, based on representations received to date, the Company does not foresee
material disruptions in the Company's business as a result of Year 2000 issues
involving third parties.
During its assessment, the Company has taken steps to prevent anticipated Year
2000 disruptions. However, based on the readiness surveys received through the
second quarter of 1999 from its third party suppliers and service providers, the
Company does not believe it will need to further develop its existing
contingency plan to address Year 2000 related disruptions. Although the effects
of Year 2000 issue cannot be predicted with certainty, to date, all systems
tested have performed adequately, and therefore, the Company believes that the
potential impact, if any, of such disruption will, at most, require employees to
manually complete otherwise automated tasks of calculations. The Company does
not expect that any additional training would be required to perform these tasks
on a manual basis. The Company does not believe that such event would materially
affect the Company's ability to continue business activities, although
performing such tasks may require additional time or personnel. In addition, if
needed, the Company will identify and arrange for other vendors, purchasers and
third party contractors to provide such services in order to maintain normal
business operations.
13
<PAGE>
The Company has, and will continue to, utilize both internal and external
resources to complete tasks and perform testing necessary to address the Year
2000 issue. The Company has not incurred, and does not anticipate that it will
incur, any significant costs relating to the assessment and remediation of Year
2000 issues.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
The statements contained in this Quarterly Report on Form 10-Q ("Quarterly
Report") that are not historical facts, including, but not limited to,
statements found in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements, as that
term is defined in Section 21E of the Securities and Exchange Act of 1934, as
amended, that involve a number of risks and uncertainties. Such forward-looking
statements may be or may concern, among other things, capital expenditures,
drilling activity, acquisition plans and proposals and dispositions, development
activities, cost savings, production efforts and volumes, hydrocarbon reserves,
hydrocarbon prices, liquidity, regulatory matters and competition. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "expect," "predict," "anticipate," "projected," "should," "assume,"
"believe," or other words that convey the uncertainty of future events or
outcomes. Such forward-looking information is based upon management's current
plans, expectations, estimates and assumptions and is subject to a number of
risks and uncertainties that could significantly affect current plans,
anticipated actions, the timing of such actions and the Company's financial
condition and results of operations. As a consequence, actual results may differ
materially from expectations, estimates or assumptions expressed in or implied
by any forward-looking statements made by or on behalf of the Company. Among the
factors that could cause actual results to differ materially are: fluctuations
of the prices received or demand for the Company's oil and natural gas, the
uncertainty of drilling results and reserve estimates, operating hazards,
acquisition risks, requirements for capital, general economic conditions,
competition and government regulations, as well as the risks and uncertainties
discussed in this Quarterly Report, including, without limitation, the portions
referenced above, and the uncertainties set forth from time to time in the
Company's other public reports, filings and public statements.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - N/A
Item 6. Exhibits and Reports on Form 8-K During the Third Quarter of 1999
Exhibits:
99.1 Press Release - Dated September 27, 1999
Reports on Form 8-K:
On September 27, 1999, the Company reported the acquisition of
an additional 8.2% interest in Block 04/36 due to the
withdrawal from the block of the other non-operating partner.
There was no monetary consideration associated with acquiring
the increased interest.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PENDARIES PETROLEUM LTD.
Date: October 27, 1999 By: /s/Bobby J. Fogle
---------------------------------------
Bobby J. Fogle
Vice President, Finance and
Chief Financial Officer
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PENDARIES PETROLEUM LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED June 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,287
<SECURITIES> 0
<RECEIVABLES> 186
<ALLOWANCES> 223
<INVENTORY> 0
<CURRENT-ASSETS> 6,696
<PP&E> 20,527
<DEPRECIATION> (784)
<TOTAL-ASSETS> 28,007
<CURRENT-LIABILITIES> 73
<BONDS> 0
0
0
<COMMON> 32,580
<OTHER-SE> (4,646)
<TOTAL-LIABILITY-AND-EQUITY> 28,007
<SALES> 150
<TOTAL-REVENUES> 226
<CGS> 0
<TOTAL-COSTS> 421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (195)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (195)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
EXHIBIT 99.1
Pendaries Petroleum Ltd. Announces Increased Interest
and Entrance into Phase Three in Block 04/36, Bohai Bay, China
HOUSTON, TEXAS - September 27, 1999
AMEX SYMBOL: PDR
TSE SYMBOL: PDQ
- --------------------------------------------------------------------------------
HOUSTON, TEXAS - Pendaries Petroleum Ltd. (AMEX: PDR / TSE: PDQ) today announced
that effective October 1, 1999, it will increase its foreign contractors'
interest in Block 04/36 in the Bohai Bay, China from 10% to 18.2%, following the
withdrawal by a partner from the block. The remaining 81.8% of the foreign
contractors' interest will be owned by a subsidiary of Kerr-McGee Corporation
(NYSE:KMG), the operator. There will be no monetary consideration associated
with acquiring the increased interests.
Kerr-McGee and Pendaries also agreed to enter into Phase Three of the Block
04/36 Petroleum Sharing Contract which covers the period from October 1, 1999 to
September 30, 2001. Entry into the third exploration phase carries with it a
commitment to drill one exploration well, which the parties expect to drill in
the fourth quarter of 1999.
Pendaries Petroleum is an independent oil and gas company with its primary focus
in the Bohai Bay, China. Further information on Pendaries' holdings in China is
available on its website address shown below.
This material includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The opinions, forecasts,
projections or other statements, other than statements of historical fact, are
forward-looking statements. Although Pendaries believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Certain risks
and uncertainties inherent in Pendaries' business are set forth in the filings
of Pendaries with the Securities and Exchange Commission.
For further information please contact:
Pendaries Petroleum Ltd. - Houston
Philip R. Henry
Vice President - Investor Relations
(713) 355-2900
(713) 355-3511 (Fax)
[email protected]
website: www.pendariespetroleum.com
- 30 -
