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Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Filing By:
Beta Oil & Gas, Inc. (File No 000-25717)
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
Beta Company common stock, par value $.001 per share.
2) Aggregate number of securities to which transaction applies:
2,250,000 shares
3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
/1/ $6.74
4) Proposed maximum aggregate value of transaction: $15,165,000
5) Total fee paid: $ 0
[X] Fee paid previously with preliminary materials
[_]Check box if any part of
the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify
the filing for which the offsetting fee was paid
previously. Identify the
previous filing by registration statement number, or
the Form or Schedule
and the date of its filing.
1) Amount Previously Paid: $ 3,033
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
---------------------------------------------------------/1/ Estimated pursuant to Rule 0-11(c)(1) and 0-11(a)(4) under the Exchange Act solely for the purpose of calculating the filing fee, based on the average of the high and low sale prices for shares of Beta Common Stock on the Nasdaq Small Cap Market on January 11, 2000 ($6.74 per share) multiplied by the 2,250,000 shares of Beta common stock to be issued in connection with the merger.
------------------------------------------------------------------------The board of directors of Beta Oil & Gas, Inc. has unanimously approved a merger with Red River Energy, Inc. designed to strengthen Betas position in the oil and gas industry and recommends that you approve the merger. The board of directors also unanimously approved the Beta Amended and Restated 1999 Incentive and Non-statutory Stock Option Plan and recommends that you vote to approve the stock option plan.
Upon completion of the merger, Red River shareholders will receive a total of 2,250,000 shares of Beta common stock in exchange for their shares of Red River common stock. Beta shareholders will continue to own their existing shares of Beta common stock. After the merger, the Red River shareholders will hold approximately 18 of Betas outstanding common stock.
We are requesting the shareholders of Beta to consent to the merger agreement and the stock issuance in the merger. In addition, we are asking you to approve the adoption of the Beta Amended and Restated 1999 Incentive and Non-statutory Stock Option Plan. We plan on obtaining such stockholder approval by the written consent of our shareholders owning a majority of Beta common stock on or before September 11, 2000 as permitted under Nevada law. This date may be extended by Betas management until no later than September 25, 2000. As such, we do not plan on holding a meeting of our shareholders to vote on these matters.
Please take the time to indicate your approval of the merger and the stock option plan by completing and mailing the enclosed consent forms to Beta Oil & Gas, Inc., 6120 S. Yale St., Suite 813, Tulsa, OK 74136. The consent forms are the printed cards which accompany this proxy statement. Instructions relating to the completion of the consent forms are inside.
Steve A. Antry, President and Chairman
Beta Oil & Gas, Inc.
For a discussion of risks which you should consider in evaluating the merger see Risk Factors beginning on page__.
Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved the Beta Oil & Gas, Inc. common stock to be issued under this proxy statement or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.
This proxy statement dated August 98, 2000 was first mailed to shareholders on or about August 11,2000.
We are requesting that you sign and complete the separate consent forms enclosed with this document on or before September 11, 2000. You are requested to complete, sign on the printed card both on the front and reverse side containing the consent forms and return the printed card in the self addressed postage prepaid envelope to Beta Oil & Gas, Inc., 6120 S. Yale St., Suite 813, Tulsa, OK 74136. By completing and signing the enclosed consent forms, you will be approving:
1. The Agreement and Plan of Merger dated November 19, 1999 in which a wholly owned subsidiary of Beta will merge into Red River Energy, Inc., an Oklahoma corporation, and each outstanding share of Red River, will be converted into 2,250 shares of Beta common stock or a total of 2.25 million shares of Beta common stock, and Red River will become a wholly-owned subsidiary of Beta; and |
2. the Beta Amended and Restated 1999 Incentive and Nonstatutory Stock Option Plan. |
Approval of the merger proposal is not conditioned on adoption of the stock option proposal. Adoption of the stock option proposal is not conditioned on approval of the merger proposal.
Your board of directors believes that the merger is in the best interest of Beta and its shareholders. Your board has unanimously approved the merger and recommends that you vote for approval of the merger agreement. The board of directors also recommends that you vote to approve the Beta Amended and Restated 1999 Incentive and Nonstatutory Stock Option Plan. The accompanying proxy statement provides detailed information concerning the merger and the stock option plan.
Your consent is important. The approval of the merger agreement and the stock option plan by a majority of Beta shareholders is required under Beta's bylaws and The Nasdaq Stock Market. Please complete, date and sign on the front and reverse side the accompanying printed card containing the consent forms and return them promptly in the enclosed envelope. If you do not complete and return your consent forms, you will, in effect, be voting against such proposals. If you sign and return the enclosed printed card but fail to designate whether you are consenting to or withholding consent to either of the proposals, you will be considered to have consented to and voted for that proposal. If you wish to consent to one but not the other proposal, you must return the consent form and indicate to which proposal you are consenting. Once we receive your consent, you may not revoke it. If your shares are held in street name, the broker will not have discretionary authority to consent to the proposals unless instructed to do so in writing signed by you.
By Order of the Board of Directors, /s/ Steve A. Antry Steve A. Antry President and Chairman |
August 9, 2000
Table of Contents Page ---- QUESTIONS AND ANSWERS ABOUT THE BETA/RED RIVER MERGER AND THE STOCK OPTION PLAN..........................................................1 SUMMARY........................................................................................ The Companies............................................................................. Beta...................................................................................... Red River................................................................................. The Merger................................................................................ Shareholders' Consent..................................................................... Terms of the Merger Agreement............................................................. Comparative Per Share Market Price Information............................................ Risk Factors.............................................................................. Comparative Shareholder Rights............................................................ Listing of Beta Commons Stock............................................................. The Stock Option Plan..................................................................... Summary Financial Data for Beta........................................................... Summary Financial Data of Red River....................................................... Selected Unaudited Pro Forma Combined Financial Data of Beta and Red River................ RISK FACTORS................................................................................... WHERE YOU CAN FIND MORE INFORMATION............................................................ CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS........................................... REQUEST FOR CONSENT OF BETA SHAREHOLDERS....................................................... Purpose................................................................................... Recommendation of Beta Board.............................................................. Record Date; Voting Rights................................................................ Exercise of Consent....................................................................... Cost of Requesting Consents............................................................... Required Consents......................................................................... Share Ownership of Management............................................................. PROPOSAL FOR CONSENT TO THE AGREEMENT AND PLAN OF MERGER DATED NOVEMBER 19, 1999 THE MERGER..................................................................... General................................................................................... Background of the Merger.................................................................. Beta's Reasons for The Merger; Recommendation of its Board of Directors................... Red River's Reasons for The Merger; Recommendation of its Board of Directors.............. Material Federal Income Tax Consequences.................................................. Interest of Red River Management in the Merger............................................ Percentage Ownership Interest of Red River Shareholders After the Merger.................. Appraisal Rights.......................................................................... Resales of Beta Common Stock..............................................................THE MERGER AGREEMENT........................................................................... General................................................................................... Conditions to the Merger.................................................................. Representations and Warranties............................................................ Survival.................................................................................. Conduct of Business Prior to Closing Date................................................. Pre-Closing Mutual Covenants.............................................................. No Solicitation of Other Proposals........................................................ Arbitration............................................................................... Termination............................................................................... Consequences of Termination............................................................... Amendments................................................................................ Post Closing Covenants.................................................................... Registration of Shares of Beta Common Stock............................................... PRINCIPAL SHAREHOLDERS OF BETA................................................................. DESCRIPTION OF BETA'S CAPITAL STOCK............................................................ Common Stock.............................................................................. Stockholder Action........................................................................ Possible Anti-Takeover Effects of Authorized but Unissued Stock........................... Other Anti-Takeover Provisions............................................................ Certain Charter and Bylaws Provisions..................................................... Stockholder Meetings and Other Provisions................................................. Transfer Agent and Registrar.............................................................. Certain Provisions of the Beta Bylaws..................................................... COMPARISON OF THE RIGHTS OF HOLDERS OF BETA COMMON STOCK AND RED RIVER COMMON STOCK............................................................. General................................................................................... Dividends................................................................................. CumulativeVoting.......................................................................... Size of Board of Directors................................................................ Removal of Directors...................................................................... Filling Vacancies on the Board of Directors............................................... Special Meetings of Shareholders.......................................................... Stockholder Action by Written Consent..................................................... Inspection of Books, Records and Shareholders List........................................ Amendment of Certificate or Articles of Incorporation..................................... Amendment of Bylaws....................................................................... Approval of Asset Sales and Mergers....................................................... Dissolution............................................................................... Indemnification of Directors and Officers................................................. Limitation of Personal Liability of Directors............................................. Business Combinations Involving Interested Shareholders................................... Stock Purchases........................................................................... Transactions Involving Officers, Directors and Employees.................................. Dissenters' Appraisal Rights.............................................................. MARKET PRICES.................................................................................. Beta Common Stock......................................................................... UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................................... Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2000.................................................................. Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Statement of Operations For the Year Ended December 31, 1999.......................................... Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Statement of Earnings For the Three Months Ended March 31, 2000.................................. BETA OIL & GAS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ GLOSSARY....................................................................................... BUSINESS OF BETA............................................................................... General................................................................................... Technology................................................................................ Summary of Oil and Gas Operations......................................................... PROPERTIES OF BETA............................................................................. Yegua/Frio/Wilcox Trend 3-D Seismic Joint Venture, Jackson County, Texas.................. Transition Zone Project................................................................... Norcal Project, Onshore San Joaquin and Sacramento Basins................................. International............................................................................. Additional Projects Under Review.......................................................... General................................................................................... Company Reserves.......................................................................... Well Statistics........................................................................... Acreage Statistics........................................................................ Drilling Activity......................................................................... Subsequent Drilling Activity.............................................................. Competition............................................................................... Employees................................................................................. Premises.................................................................................. Litigation................................................................................ Beta's Management Discussion and Analysis of Financial Condition And Results of Operations....................................................... INFORMATION ABOUT RED RIVER.................................................................... Business of Red River..................................................................... Oil and Gas Properties.................................................................... Legal Proceedings......................................................................... Management of Red River................................................................... Principal Shareholders of Red River....................................................... Red River's Management Discussion and Analysis of Financial Condition And Results of Operations ...................................................... ...................................................... ADDITIONAL PROPOSAL FOR THE BETA SHAREHOLDERS CONSENT TO THE ADOPTION OF THE AMENDED AND RESTATED 1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN............................. STOCKHOLDER PROPOSALS.......................................................................... INDEPENDENT ACCOUNTANTS........................................................................ EXPERTS LEGAL OPINIONS................................................................................. ANNEX A AGREEMENT AND PLAN OF MERGER.........................................................A-1 ANNEX B RED RIVER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS...................................................................B-1 ANNEX C BETA OIL & GAS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS...................................................................C-1 ANNEX D ONEOK RESOURCES COMPANY STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES OF CERTAIN PROPERTIES SOLD TO RED RIVER ENERGY, INC..................................................................D-1 ANNEX F BETA OIL & GAS, INC. BETA AMENDED AND RESTATED 1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN......................................F-1 QUESTIONS AND ANSWERS ABOUT THE BETA/RED RIVER MERGER AND THE STOCK OPTION PLAN Q: Why are the companies proposing the business combination? Q: What is required to approve the merger and the stock option plan? A: We believe that the combined strengths of the two companies will provide enhanced value to our shareholders A: The written consent by the shareholders owning a through the addition of proved developed reserves in majority of the issued and outstanding shares of Beta diverse locations and formations where we are not to the merger and the stock option plan is required currently located, greater management experience and under applicable law. Such approval is a condition control in the operation of exploratory and for closing the merger and approving the stock option underdeveloped prospects as well as developed properties, plan. a more predictable income stream and diversification of risks. We believe that our combined strengths will Q: What do I need to do now? enable us to compete more effectively in the domestic markets where our interests in properties are currently A: After reviewing this proxy statement, just sign located. each of the enclosed consent forms and mail them in the enclosed return envelope as soon as possible . Q: Please explain the exchange ratio. You may indicate your vote by placing a check mark inside either the box for "Consents" or the box for A: Red River shareholders will receive a total of 2.25 "Withholds Consent" on the enclosed consent forms. If million shares of Beta common stock in exchange for their you sign and return the enclosed consent forms to the shares of Red River common stock. After the merger, the Company without checking either of these boxes, such Red River shareholders will own approximately 18.4 consent forms will be treated as though you consented of the total outstanding shares of Beta common stock. to both the proposed merger and the adoption of the stock option plan. Once we receive your consent, it Q: Will I be able to sell my shares of Beta common stock? may not be revoked. The board of directors of Beta unanimously recommend voting in favor of the proposed A: Beta common stock, is listed on the Nasdaq Small Cap merger and the stock option plan. Market and unless you are subject to special restrictions your stock is freely tradable. Approval of the merger proposal is not conditioned on adoption of the stock option proposal. Adoption of Q: Who can consent to the merger and the stock option plan? the stock option proposal is not conditioned on approval of the merger proposal. A separate consent A: Only holders of record of the Beta common stock and the form is provided for approval of each of the merger Red River common stock as of the close of business agreement and the stock option plan. on July 17, 2000 will be entitled to consent to the merger and approve the merger agreement and the stock If you are opposed to either the merger or the stock option plan. option plan, you do not need to return the consent form for that proposal. The shares of Beta common stock have been issued in the names of the Red River shareholders but are being held in escrow by a third party escrow agent. The 2,250,000 escrowed shares will not be voted by the escrow agent for either of the proposals. QUESTIONS AND ANSWERS ABOUT THE BETA/RED RIVER MERGER AND THE STOCK OPTION PLAN (Continued) Q: If my shares are held in street name by my Q: When do you expect the merger to be completed? broker, will my broker be entitled to consent on my behalf? A: We expect to complete the merger as soon as possible after receiving written consent from A: Your broker will be entitled to complete and sign the shareholders owning a majority of the the Consent Form with respect to the number of issued and outstanding shares of Beta, but not shares beneficially owned by you only if you earlier than September 11, 2000. We are requesting provide your broker with instructions regarding such consents be returned by no later than your preference to consent to, or withhold September 11, 2000. consent as to, the merger, the merger agreement and the stock option plan. Q: Whom should I call if I have any questions? Q: Should I send in my stock certificate now? A: Beta shareholders who have questions about the merger may call and speak to any Beta A: No. Beta shareholders will keep their current corporate officer at (800) 866-8055. certificates. Red River shareholders will receive stock certificates for the Beta shares at closing.
This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the merger more fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document. The merger agreement is attached as Annex A. We encourage you to read the merger agreement. It is the legal document that governs the merger. The stock option plan is also attached as Annex D and we encourage you to read it.
The terms "Beta", "we", "us" and "our" as used throughout this proxy statement refer to Beta Oil and Gas, Inc. References to "Red River" mean Red River Energy, Inc. and its wholly owned subsidiary, Red River Energy, LLC.
The Companies in the L.L.C. for shares of stock in Red River Energy, Inc. As a result, Red River Energy, Beta (see pages ____) L.L.C. became a single member limited liability company which is wholly owned by Red Beta is an oil and gas company organized in June River Energy, Inc. Most of the Red River 1997 to participate in the exploration and assets are held by and the operations production of natural gas and crude oil. Our conducted by Red River Energy, L.L.C. Red operations are currently focused in proven oil and River's operations to date have consisted gas producing trends primarily in South Texas, primarily of the acquisition and operations of Louisiana and Central California. Our wholly producing oil and gas properties in central owned subsidiary, BETAustralia, LLC, participates Oklahoma and drilling and development in the exploration for oil and gas in Australia. operations involving coal bed methane reserves in eastern Oklahoma. Red River also owns a To date, we have relied almost exclusively on natural gas gathering system, which is a joint ventures with qualified operating oil and system of pipelines which carry natural gas gas companies to operate our projects through the from producing gas wells in a particular area exploratory and production phases. This has to a connection point on a main pipeline. reduced general and administrative costs necessary to conduct operations. As of the date of this Its principal focus is on the acquisition of document, we were operating only one of our desirable producing oil and gas properties, projects. with the intent of enhancing the production and revenues from the properties through We believe that 3-D seismic surveys have reduced efficient operations, aggressive marketing the risk of oil and gas exploration in certain efforts, drilling on available development areas. Recognizing this change, we have locations and conducting workover and enhanced participated in the acquisition of prospective recovery operations. acreage blocks for targeted, proprietary, 3-D seismic surveys. From the data generated by the On June 15, 2000, Red River completed an acquisition initial proprietary seismic surveys, covering 313 of producing oil and gas properties from ONEOK square miles, we have identified in excess of Resources for an adjusted purchase price of 200 potential drillsites. approximately $5.6 million. Red River has a management team with substantial experience in the evaluation, acquisition, operation and Red River (see pages ____) marketing of oil and gas reserves. At June 5, 2000, Red River had 14 full-time employees, including 7 professionals with a combined total of 120 years of experience in the oil Red River Energy, L.L.C. was formed in 1997 and gas business. It is expected that after and commenced operations in early 1998. the merger, these persons will all continue to In November 1999, the members of Red be employed by Red River, which will be River Energy, L.L.C. exchanged their interests renamed Beta Operating Company, and will act primarily as the producing property acquisition and operating team of Beta.The Merger (see pages ____) Material Federal Income Tax Consequences. The merger is intended qualify as a General. In the merger, Beta Acquisition Company, reorganization within the meaning of Section our wholly owned subsidiary, will merge into Red 368(a) of the Internal Revenue Code of 1986, River, with Red River being the surviving as amended. As such a reorganization, company. Following the completion of the merger, generally no gain or loss will be recognized Red River will be a wholly-owned subsidiary of for United States federal income tax purposes Beta, and each of the 1,000 shares of Red River by the shareholders of Red River upon the common stock will be converted into 2,250 shares exchange of their Red River common stock for of Beta common stock. Beta will issue a total of shares of Beta common stock in the merger. 2,250,000 shares of Beta stock to the Red River Shareholders of Red River are urged to consult shareholders. their own tax advisors regarding the specific Recommendation of the Beta Board. The Beta board tax consequences to them of the merger, of directors believes that the proposed merger and including the application of state, local and the share issuance are fair to and in the best foreign tax laws, as well as federal tax laws. interests of Beta and its shareholders and has unanimously approved the merger agreement. The Accounting Treatment. The merger is intended Beta board unanimously recommends that the to be accounted for as a purchase shareholders of Beta vote in favor of the adoption under applicable accounting rules. of the merger agreement and the merger. Exchange of Stock Certificates. At the closing of Record Date. You may vote for approval of the the merger, each Red River stockholder will merger by written consent if you owned Beta receive a certificate representing the number of common stock on June 5, 2000, the shares of Beta common stock into which the Red record date. You may cast one vote for each River stockholder's shares have been converted. share you own. Appraisal Rights. Beta shareholders are not Directors and Officers of Beta After Merger. entitled to appraisal rights under Nevada Law. The board of directors after the merger will Since the Red River shareholders have signed the consist of six directors, including Rolf N. merger agreement and have therefore committed to Hufnagel, who as President of Red River is approve the merger agreement, they will not be required under the merger agreement to be entitled to exercise appraisal rights they would appointed as an additional director of Beta. otherwise have. Mr. Hufnagel was elected as a director at our annual meeting of shareholders held June 24,2000. Mr. J. Chris Steinhauser, a former director and Chief Financial Officer of Beta, has resigned as an officer and did not stand for re-election to the Beta board of directors. The other officers of Beta after the merger will continue to be the same persons serving in the same positions as of the date of this document, except that Joseph L. Burnett has been elected as Chief Financial Officer for Beta. Shareholders' Consent (see page ____) Conditions to the Merger. The completion of the merger depends upon the satisfaction of Approval of the merger agreement and the merger various conditions unless otherwise waived, which upon completion will result in the issuance which include : of shares of Beta common stock to the Red River shareholders will require the written consent of |X| requisite approval of the merger the holders of a majority of the issued and agreement and the merger by our outstanding shares of Beta common stock. Our shareholders management and employees own 25 % of the issued ; and outstanding Beta common stock and will consent to the adoption of the merger agreement and the merger. All of the Red River shareholders signed the merger agreement and agreed to vote their shares in favor of the merger. Once we receive your consent, it is not revokable. |X| no party has intentionally and fraudulently misrepresented or willfully breached any material representation or warranty made to the other party as set Terms of Merger Agreement forth in the merger agreement; and (see pages _________) |X| absence of any litigation, action or proceeding whether pending or threatened The Agreement and Plan of Merger is attached to before any consent or governmental agency this document as Appendix A. You are encouraged seeking to restrain or prohibit the ---------- to read the merger agreement in its entirety as it is the legal document which will govern the merger. General. The merger agreement provides that our ; wholly owned subsidiary, Beta Acquisition Company, Inc., an Oklahoma corporation will be merged with and into Red River. The name of the surviving corporation will be changed to Beta Operating Company. As a result of the merger, the Red River shareholders will receive 2,250 shares of Beta common stock for each share of Red River common stock owned by them or a total of 2,250,000 shares of Beta common stock. In addition, we will execute a guaranty of Red River's indebtedness to the Bank of Oklahoma in substitution of the personal guarantees of the Red River shareholders. The Red River shareholders have personally guaranteed approximately $3,000,000 of the total $13,300,000 of indebtedness to the Bank of Oklahoma. Solicitation. Until completion or termination of the merger, the Red River shareholders and Red River are not permitted to enter into, request, solicit or engage in any discussions, negotiations, understandings or agreements with anyone other than Beta or its subsidiary relating to the merger consolidation or sale of Red River or its stock, properties and assets other than in the ordinary course of business. Terms of Merger Agreement Termination. The merger agreement may be (Continued) terminated by written notice under certain circumstances as follows: Registration of Shares. We are obligated under the Merger Agreement to register the 2.25 million |X| the mutual consent of the parties; shares of Beta common stock which will be issued to the Red River shareholders upon completion of the |X| a party if the other party shall have merger. Such registration shall permit the resale fraudulently and intentionally in the market from time to time of such shares by misrepresentated the Red River Shareholders or certain of their any representation of a assignees. We are required to prepare and file material nature or willfully breached any such registration statement by no later than material warranty made in the merger June 30, 2000 and we expect that it will be filed agreement and the misrepresentation or very shortly after this proxy statement is first breach mailed to our shareholders. We are further required to use our best efforts to have the registration statement declared effective promptly has not been cured within the earlier of after such filing, although we have no control over 30 days after notice of the the timing of the effectiveness of such misstatementmisrepresentation or breach registration statement. or the date of closing of the merger agreement; or The Red River Shareholders have agreed to suspend any sales of |X| either party if the merger is not their shares under completed on or prior to December the registration statement 31, 2000 so long as such party is not the if there exist certain cause for such failure of completion; conditions which we consider would be significantly disadvantageous to us due to, among other conditions, the existence of a material financing or other matured transaction not publicly disclosed or the unavailability of required financial statements beyond our control. Any such suspension shall continue until such disadvantageous condition is removed or 60 consecutive days or 180 days in any 12 month period. The Red River Shareholders are also given piggyback registration rights which obligates Beta to include their shares in any subsequent registration statement filed by Beta with the Securities Comparative Per Share Market Price Information Exchange Commission. (see page ____) Fees and Expenses. Each party to the merger agreement is required to pay its own expenses, Beta common stock is listed on the Nasdaq including attorneys' fees and costs if the merger National Market under the symbol "BETA". On is completed or the merger agreement is terminated by mutual consent or the merger is not completed by November 18, 1999, the last full trading day December 31, 2000. on the Nasdaq Small Cap Market prior to the public announcement of the proposed merger, Beta common stock closed at $8 1/8 per share. On June 5, 2000, Beta common stock closed at $8 7/8 per share. Risk Factors (see pages _________) Listing of Beta Common Stock (see pages __________) In evaluating the proposed merger under the merger agreement, the shareholders of Beta and the Red As a condition of the merger agreement, we River Shareholders should consider in their will list the shares of Beta common stock to entirety the various risk factors discussed on be issued in the merger on the Nasdaq pages ____ through ____ of this document, including National Market System if we among other factors: are then qualified for listing on that stock exchange. the possible inability of integrating the independent operations of Beta and Red River and realizing the benefits of the merger; The Stock Option Plan (see pages _____________) In addition to approving the merger agreement the dilution which will be experienced by and the merger, each holder of Beta common our shareholders following the merger; stock is being asked to consent to the adoption of Beta's Amended and Restated 1999 Incentive and Nonstatutory Stock Option Plan. The stock option plan was adopted by our board of directors on August 27, 1999 for the benefit of our employees. A total of 700,000 shares of Beta common stock representing 7.4% of the issued and outstanding Beta common stock on the date of this document have been reserved for issuance upon exercise of the options to be granted under the stock option plan to our employees, officers and directors as incentive compensation to encourage them to contribute to our future success through their collective efforts. the need by the combined company for additional financing in the immediate future The terms of the stock option plan are to fund its growth and the uncertainty of its discussed on the pages listed above. Stock ability to raise such financing. options which may be exercised immediately upon shareholder consent for a total of 97,500 the exposure of the properties of the shares of Beta common stock have been granted combined company to wider price fluctuations to a total of 6 employees. Of this amount, in production than has been experienced by stock options for a total of 95,000 shares of Beta during the past few years as a result of Beta common stock have been granted to our Red River's larger emphasis on oil production; officers and directors. the higher ratio of operating expenses to The exercise price of the stock options will revenues which the combined company will be no less than the fair market of Beta common experience due to the more mature nature of stock as quoted on the over-the-counter market Red River's oil and gas properties; and at the close of market on the date each such stock options are granted to the optionees. the uncertainty of the commercial viability and profitability of Red River's coal bed methane interests. the fact that we are acquiring Red River for a consideration equal to $10.75 per barrel equivalent which is a price significantly higher than the market value of Red River's proved reserves. the fact that we did not engage a separate engineering firm to evalue the proved and unproved reserves of Red River and there has been no third party engineering firm assessment of the unproved reserves of Red River.
The following table presents selected historical financial data for Beta derived from Beta's Financial Statements. The following data is only a summary and should be read with Beta historical financial statements and related notes contained in this document. These financial statements provide further information about significant events that impacted Beta's financial condition.
For the period from The year The year inception ended ended The three The three (June 6, December December months ended months 1997) to 31, 1998 31, 1999 March 31, ended March December 1999 31, 2000 31, 1997 ---------------------------- ------------- ------------- ------------ (Unaudited) (Unaudited) Revenues Oil and gas sales $ - $ - $ 1,199,480$ 29,664 $ 940,250 ------------- ------------ ---------------------------- ------------- Costs and expenses: Lease operating - - 81,538 9,035 33,888 expense General and 245,452 746,769 1,418,240 258,245 489,633 administrative Impairment expense - 1,670,691 1,224,962 - - Depreciation and 1,530 11,883 914,233 12,415 561,072 depletion expense ------------- ------------ ---------------------------- ------------- Total costs 246,982 2,429,343 3,638,973 279,695 1,084,593 and expenses ------------- ------------ ---------------------------- ------------- Loss from operations (246,982) (2,429,343) (2,439,493) (250,031) (144,343) Other income and (expense): Interest expense - - (2,966,651) (466,348) (1,096) Interest income 45,409 44,843 21,741 2,275 20,013 ------------- ------------ ---------------------------- ------------- Net loss $ (201,573) $(2,384,500) $ (5,384,403)$ (714,104) $ (125,426) ============= ============ ============================ ============= Basic and diluted loss per $ (.05) $ ($.37) $ ($.66)$ ($0.10) $ ($0.01) common share ============= ============ ============================ ============= Dividends per common share $ - $ - $ - $ - $ - ============= ============ ============================ ============= Book value per common share $ 1.63 $ 1.89 $ 2.19$ 2.03 $ 2.24 ============= ============ ============================ ============= December December December March 31, 31, 31, 31, 2000 1997 1998 1999 ------------ ----------- ------------ ------------ (Unaudited) Working capital.................. $ 3,117,351 $ (96,457) $ 2,034,268 $ 2,847,116 Oil and gas properties, net...... $ 5,900,794 $ 13,183,304 $ 18,104,598 $ 18,047,061 Total assets..................... $ 9,921,057 $ 13,618,471 $ 20,881,475 $ 21,818,227 Total long term debt............. $ - $ - $ 27,939 $ 21,139 Total liabilities................ $ 870,847 $ 319,129 $ 293,238 $ 238,952 Shareholder's equity............. $ 9,050,210 $ 13,299,342 $ 20,588,237 $ 21,579,275
The following table presents selected historical financial data for Red River derived from Red River's Financial Statements. The following data is only a summary and should be read with Red River historical financial statements and related notes contained in this document. These financial statements provide further information about significant events that impacted Red River's financial condition.
The year The year ended ended The three The three December December months ended months ended 31, 1998 31, 1999 March 31, March 31, 1999 2000 ------------- ------------- -------------- -------------- (Unaudited) (Unaudited) Revenues: $ 865,356 $ 3,188,758 $ 499,635 $ 1,109,347 ------------- ------------- -------------- -------------- Costs and expenses: Operating costs 316,533 1,296,775 315,624 379,201 General and administrative 685,573 980,627 261,074 329,281 Depreciation and depletion 182,747 586,095 97,892 176,321 expense ------------- ------------- -------------- -------------- Total costs and 1,184,853 2,863,497 674,590 884,803 expenses ------------- ------------- -------------- -------------- Income (loss) from operations (319,497) 325,261 (174,955) 224,544 Other income and (expense): Gain (loss) on sale of fixed (20,000) 2,438 2,438 - assets Interest expense (168,851) (512,264) (104,757) (151,761) Other, net (1,318) - 214 - ------------- ------------- -------------- -------------- Net Income (loss) $ (509,666) $ (184,565) $ (277,060) $ 72,783 ============= ============= ============== ============== Basic and diluted loss per common $ (509.66) $ (184.57) $ (277.06) $ 7.15 share ============= ============= ============== ============== Dividends per common share $ - $ - $ - $ - ============= ============= ============== ============== Book value per common share $ 730.25 $ 562.27 $ 514.79 $ 635.05 ============= ============= ============== ============== December December March 31, 31, 31, 2000 1998 1999 ----------- ------------ ------------ (Unaudited) Working capital $ (92,758) $ (1,963,547) $ (1,964,424) Oil and gas properties, net $ 6,230,565 $ 8,057,930 $ 8,147,447 Total assets $ 7,658,080 $ 10,969,027 $ 11,172,945 Long-term debt $ 6,421,095 $ 7,767,386 $ 7,742,804 Total liabilities $ 6,927,835 $ 10,406,758 $ 10,537,893 Stockholder's equity $ 730,245 $ 562,269 $ 635,052
The merger is intended to be accounted for using the purchase method of accounting, which
means that for future accounting and financial reporting purposes, we will treat our
companies as a combined company commencing on the date the merger is effective.
The following unaudited pro forma combined summary financial data is presented
to reflect the merger under the Agreement and Plan of Merger and the acquisition
of the ONEOK properties under the purchase and sale agreement between Red River
and ONEOK Resources Company on (1) the unaudited historical balance sheet data
as of March 31, 2000, and (2) the unaudited historical statements of operations
data for the year ended December 31, 1999 and the three months ended March 31,
2000 of Beta and Red River.
The selected pro forma balance sheet data gives effect to this transaction as if
it had taken place on March 31, 2000. The selected pro forma combined statements
of operations data reflects this transaction as if it had taken place at the
beginning of the period presented.
For financial accounting purposes, it is expected that the merger will be accounted for
using the purchase method of accounting. Therefore, Beta's cost to acquire Red River,
calculated to be $14.455 million assuming an average Beta common stock price of $6.38 per
share with 2,250,000 shares issued to the stockholders of Red River, will be allocated to
the assets acquired and liabilities assumed according to their fair values.
The ONEOK properties were acquired on June 15, 2000 for total consideration of
$5,608,809, subject to additional post-closing adjustment for the final
accounting of net revenues and operating expenses from the effective date to the
closing. Such adjustment will be determined within 90 days after closing. The
acquisition of the ONEOK properties was funded through additional borrowings
under the Red River line of credit. In connection with the merger, Beta and Red
River will incur approximately $100,000 (pre tax) in nonrecurring merger costs
related to legal, accounting, consulting and other costs. These costs are
included in the total purchase price noted above.
The pro forma information also does not reflect any additional expenses or any cost savings
and other synergies anticipated by Beta's management as a result of the merger. The
companies may have performed differently if they had actually been combined. You should not
rely on the pro forma information as being indicative of the actual historical results that
we would have had or the future results that we will experience after the merger.
December 31, March 31, 1999 2000 ------------- ----------- Selected unaudited pro forma combined financial data Revenues.......................... $ 6,475,622 $ 2,707,207 Net income (loss)................. $ (8,027,996) (2,513,317) Total assets...................... $ - $49,627,000 Long term debt.................... $ $13,372,752 Comparative per share data Beta historical Earnings per share-basic and diluted..$ (.66) $ (0.01) Dividends per common share........... $ - $ - Book value per share......... $ $ 2.24 Red River historical Earnings per share-basic and diluted. $ (184.57) $ 72.78 Dividends per common share........... $ - $ - Book value per share.............. $ $ 635.05 Beta pro forma combined Earnings per share-basic and diluted. $ (.77) $ 0.21 Dividends per common share........... $ - $ - Book value per share................. $ $ $ 2.79 Red River pro forma equivalent Earnings per share-basic and diluted. $ (1,746.033 $ 1,130.20 Dividends per common share........... $ - $ - Book value per share................. $ $ 6,279.71
In deciding whether to approve
the merger, there are a number of risks, some of which are inherent in the oil
and gas industry, which you should consider in connection with the merger and
the acquisition of shares of Beta common stock following the merger. You should
carefully consider these risks along with the other information contained in
this document. The risks discussed below should not be considered as exhaustive
of all of the risks which may be involved in the merger and the acquisition of
such shares. You should also refer to the cautionary note regarding "Forward
Looking Statements" on page ______.
We may not succeed in integrating the separate
and independent operations of Beta and Red River and realize the benefits we are
seeking in the merger.
Realization of the benefits sought from the merger
will depend upon the ability of Beta and Red River as a combined company to
integrate successfully the separate management, properties, activities and
operations as currently in place. We may not be able to integrate our operations
with those of Red River without the loss of key employees, customers or
suppliers; loss of revenues; increases in operating or other costs; or other
difficulties which may arise as a result of the merger. If we are unable to
better utilize the revenues of the two companies on a combined basis as compared
to the separate revenues of each company on a stand alone basis and achieve
integration in a timely and coordinated manner, the financial condition,
operating results and cash flow of either or both companies to the merger could
be adversely affected. We may not be able to realize the operating efficiencies
and other benefits sought from the merger.
Red River's properties have tended to be more
susceptible to wider variations in the pricing of production from its properties
than experienced by Beta during the past few years.
Historically, Red River has derived over 20% of
its revenues from the production of oil. This percentage will increase to
approximately 40% as a result of Red River's acquisition of the ONEOK Properties
described under Information About Red River - Oil and Gas Properties and Red
River's Management Discussion and Analysis of Financial Condition and Results of
Operations - Plan of Operation for 2000. Beta only derives 4% of its revenues
from oil. While the prices for both oil and gas have been very volatile during
the past several years, the prices of oil have tended to fluctuate within a
wider range than the prices of natural gas during the past 12 months. For
example, the quoted price for a near month contract barrel of "West Texas
Intermediate" crude oil on the New York Mercantile Exchange on March 14, 1999
was $32.02 and had ranged between a high of $34.37 per barrel to a low of $13.03
per barrel during the preceding 12 months. This represents a price variation of
approximately 163% during the 12 month period. The Henry-Hub natural gas price
as quoted on the New York Mercantile Exchange during the same period has
fluctuated from a high of approximately $2.88 per Mcf. to a low of approximately
$2.02 per Mcf, or a price variation of 43% during such period.
As a result of the merger, Beta will be more
susceptible to the larger variations in oil prices as compared to the relatively
smaller price swings experienced with natural gas.
Because Red River's oil and gas properties are
more mature than Beta's oil and gas properties, the costs of operating Red
River's properties as a percentage of revenues generated from its properties is
higher than the expense/revenue ratio as regards Beta's oil and gas
properties.
Substantially all of Red River's oil and gas
properties have been on production for more than 40 years. All Beta's producing
oil and gas properties have been on production for a year or less. Since the
production from oil and gas wells declines over time and since many of the costs
of operating these wells are fixed costs, the operating costs for older wells
tend to be a much higher percentage of the revenues from those wells. Red
River's properties also produce substantially higher volumes of saltwater than
the Beta properties. This higher water production will not be able to be lowered
significantly and will probably increase significantly in the future when recompletions
are performed on the wells, This will increase the operating costs of the Red
River properties even further. Red River's operating expenses were 40% of oil
and gas revenues for 1999. By contrast, Beta's operating expenses were 7%
of oil and gas revenues during the same period. Following the merger, Beta's profit
margins will be more vulnerable to any reduction in the prices of oil and gas
which may occur in the future. Lower oil and gas prices in the future could
negatively impact the continued viability of certain properties to be acquired
from Red River. In addition, this condition could adversely affect the overall
profitability of the combined company's operations.
The market price of shares of Beta common stock
could decrease, due to the issuance of shares to the Red River
shareholders.
The number of shares of Beta common stock issued
and outstanding following the merger will increase by 2.25 million shares which
represents the number of shares which the Red River shareholders will receive in
the merger subject only to a limited adjustment required to be made for a breach
or misstatement by either Red River or the Red River shareholders, or Beta as
provided in the merger agreement. It is currently anticipated under the merger
agreement, as amended, that the shares to be issued by the Company to the Red
River shareholders will be registered for resale pursuant to a shelf acquisition
registration statement which could be declared effective at the time of the
closing of the merger. The market price of the shares of Beta common stock could
be depressed if such shareholders were to sell a large block of such shares on
The Nasdaq Stock Market at any one time. As a consequence, existing Beta
shareholders wishing to sell their shares in the future may either be unable to
sell their shares at a particular time due to insufficient demand to absorb the
large block of shares which may be sold by one or more Red River shareholders at
that time, or be forced to sell their shares at depressed market prices.
Existing shareholders of Beta common stock will
experience dilution in their stock ownership as a result of the merger.
The merger agreement provides that the Red River
shareholders will receive 2.25 million shares of Beta common stock which will be
released from escrow by the escrow agent upon the closing of the merger. Such
number of shares represents approximately 18% of the total issued and
outstanding shares of Beta common stock as of the date of this document. The
escrowed shares will be treated as issued and outstanding but will not be voted
by the escrow agent as to the two proposals relating to the merger agreement and
the stock option plan. These shares will be returned to Beta by the escrow agent
for cancellation if the Beta shareholders do not approve the merger.
In addition to reducing the percentage ownership
of each existing shareholder of Beta common stock, the issuance of the shares of
Beta common stock in connection with the merger may have the effect of reducing
our net income per share from current levels or levels which may otherwise be
expected. This could reduce the market price of the shares of our common stock
following the merger unless revenue growth or cost savings and other business
synergies sufficient to offset the effect of such issuance can be achieved,
which is uncertain.
Further dilution in the percentage ownership of
each existing shareholder would occur if we were to terminate the services of
our President and Chairman of the Board of Directors, Mr. Steve A. Antry. Under
his employment contract, dated June 23, 1997, if Mr. Antry's employment is
terminated by us without cause, we are required, among other items, to grant Mr.
Antry over a 5 year term an option to purchase shares of Beta common stock equal
to 10% of the then issued and outstanding shares of Beta common stock at an
exercise price equal to the lesser of 60% of the fair market value of the shares
during the 60 day period preceding the termination notice or $3.00 per
share.
Due to amendments to the merger agreement, Beta
will be obligated to close the merger transaction even though certain conditions
have not been satisfied prior to the closing date as originally contemplated
under the merger agreement.
The parties to the merger agreement entered into
the first amendment and second amendment to such agreement effective as of
January 19, 2000 and February 14, 2000, respectively. Under the first amendment,
as a good faith condition of the merger, Beta issued in the name of each Red
River shareholder their proportionate share of the 2.25 million shares of its
common stock and deposited the stock certificates with a third party escrow
agent to be held in escrow until the closing of the merger. Under the second
amendment, the parties agreed to reduce from 15 to 3 the number of conditions
required to be satisfied by Red River as a condition of Beta's obligation to
close under the merger agreement. The three conditions which will excuse Red
River from performing under the merger agreement are limited to
Beta, as a consequence of such
amendment, will be required to close the merger transaction, even though certain
conditions as set forth in the merger agreement have not been performed or
satisfied by Red River or the Red River shareholders as originally contemplated
under such agreement and such failure of performance would adversely affect the
value or the advantages of the merger for Beta.
The combined company will need additional
financing in the next six months to fund its aggressive growth strategy and
failure to obtain such financing would not only hamper its ability to expand its
oil and gas operations but could result in a contraction of its business and
activities.
We expect that we will be required to invest
substantial funds for purposes of developing the oil and gas properties which
will be acquired by the combined company as a result of the merger. In addition,
we will continue our aggressive program to identify, acquire and develop
exploratory projects that meet certain criteria in the year 2000 and the future
years after such year. Furthermore, as a result of the Merger, we will be
assuming existing Bank of Oklahoma debt owed by Red River which is currently in
the amount of approximately $13.3 million. Such anticipated expenditures will
require large amounts of capital in excess of the anticipated working capital
from the operations of the combined companies. Our ability to raise additional
capital through public or private debt or equity financing to meet our financial
requirements is uncertain. We may not be able to raise such funds. Failure to
raise such additional funds could materially adversely affect
If additional financing is obtained by us, such financing
We depend substantially on the
continued presence of key personnel for critical management decisions and
industry contacts.
Our future performance following the merger will
be substantially dependent on the performance of our executive officers and key
employees. The loss of the services of any of the executive officers or other
key employees of Beta or Red River for any reason could have a material adverse
effect on our business, operating results, financial condition and cash flows
after the merger.
Among our reasons for the merger is to obtain the
experience and expertise in oil and gas property acquisitions, operations and
financings that the management of Red River possesses and their particular
knowledge with respect to the oil and gas properties owned and operated by Red
River. Should one or more members of the Red River management team leave the
company, we could lose a substantial portion of this anticipated benefit of the
merger.
The Beta Board has not engaged an investment
banking firm to provide a fairness opinion about the merger.
In evaluating the terms of the merger and whether
it is in the best interests of Beta and its shareholders, the Beta Board relied
upon the experience and analytical skills of its members. It has not engaged an
investment banking firm to render an opinion on the fairness of the merger to
the Beta shareholders from a financial point of view. The Beta Board believes
that the merger is fair to the Beta shareholders and is in their best interests
but there is no assurance that the same conclusion would be reached by an
investment banking firm if one had been hired to provide a fairness opinion.
The Beta Board did not obtain a separate
reserve engineering report in evaluating the proved oil and gas reserves for Red
River.
In estimating the value of the Red River proved
oil and gas reserves, we relied primarily on the Ryder Scott Company report of
September 1, 1999 which is described under THE MERGER - Background of the Merger.
This report was commissioned by Red River after preliminary discussions
regarding a possible merger had begun. The future pricing and cost and certain
assumptions used by Ryder Scott were those provided by Red River, we
were aware of the assumptions being provided and agreed that they were
appropriate for the purposes of the report and our evaluation of the Red River
reserves. Nevertheless, if we had engaged a different engineering firm to
provide a separate report for us, it very well could have reflected a more
conservative value for the Red River proved reserves and may have resulted in a
lower price for Red River than the 2,250,000 shares we have committed to pay
which equates to $10.75/BOE equivalent of the Red River proved reserves using the
assumptions and figures discussed on page 33.
The Beta Board did not obtain a third party
reserve engineering report in evaluating the unproved oil and gas reserves for
Red River.
The purchase price for Red River is substantially
higher than we or any other party would typically pay to purchase only the proved
reserves of Red River. We have committed to pay this higher value because of the
experienced management and acquisition team that we will be acquiring, as well
as the unproved reserve potential of the Red River properties, particularly the
West Edmond Hunton Lime Unit properties. In analyzing these unproved reserves,
we and the Red River personnel reviewed the drilling and production history of
the WEHLU properties and the experiences of owners of those properties over the
50 to 60 years since that field was first developed. We also looked at results of
new production techniques utilized in the same or similar geological zones in
other regions. The $10.75/BOE value of proved reserves attributable to the WEHLU
roperties of Red River, based on the assumptions and figures discussed on page 33
is substantially more than the approximately $2.11/BOE of proved reserves price
that Red River paid for those properties in 1998. The ultimate value that we may
realize from the unproved reserves attributable to the WEHLU properties is very
speculative and the actual reserves discovered and produced could be substantially
less than we have estimated. Neither we nor Red River engaged a third party
engineering firm to assess these unproved reserves. Estimates of probable and
possible oil and gas reserves, even when made by independent engineering firms,
are highly speculative and subject to numerous risks and uncertainties. We did
not believe that a third party engineering report would have materially improved
our assessment of the potential and the risk of these unproved reserves. Based
upon our experience in the oil and gas industry, our knowledge of the Red River
personnel and the history and status of the Red River properties, we believe that
the price being paid for Red River is fair and the acquisition of Red River is
in the best interests of our shareholders. Nevertheless, you should be aware of the
substantial risks involved in acquiring probable and possible reserves in amounts
of this magnitude and realize that this acquisition could result in substantial
losses and possibly liquidity problems to us in the future if the expected reserves
are not developed, if the costs of developing these reserves significantly exceed
our present estimates or if oil and gas prices fall significantly below the
projections we have made for the future.
The coal bed methane operations of Red River
have not yet been proven to be a commercially viable venture.
Red River has committed approximately $2.2 million
to the exploration, development, production and marketing of coal bed methane.
At December 31, 1999, it had drilled a total of 47 wells for this purpose.
However, the commercial viability of these wells cannot be determined until they
have produced gas and water for a period of 12 to 24 months. No assurances can
be given that these operations will prove to be profitable to Beta.
Red River's hedging activities could result in
losses to Beta.
Red River has used, and expects to continue using,
energy swap arrangements and financial futures to reduce the volatility of
natural gas prices.
Beginning July 1, 2000, Red River has
one-year commitments to sell 2,700 Mmbtu of natural gas per day at a price of
$3.085 per Mmbtu, representing approximately 50% of its current daily gas
production.
If the market price of natural gas were to increase substantially
over the period of the hedging arrangements, Beta could lose significant
revenues compared to what it would receive without the hedging commitments. Red
River expects to continue to use hedging arrangements as part of its future gas
marketing strategy.
Red River has substantial long-term indebtedness.
At December 31, 1999, Red River's consolidated
long-term indebtedness was approximately $10,000,000, of which
approximately $7,700,000 is payable to the Bank of Oklahoma. Beta has
agreed to guaranty $3,000,000 of the approximately $7,700,000 indebtedness
with the Bank of Oklahoma. In addition, as a result of its acquisition of
properties from ONEOK Resources, which closed June 15, 2000, Red River has
increased its indebtedness with the Bank of Oklahoma by approximately $5,600,000
for a total indebtedness with that bank of approximately $13,300,000. With the
completion of the purchase of the ONEOK Properties, Red Rivers
consolidated long-term indebtedness, including the current portion, has
increased to approximately $15,600,000. This amount is substantially higher than
Beta's current long-term debt of $28,000. To the extent of the Bank of Oklahoma
indebtedness, which will be assumed by Beta upon completion of the merger,
Beta's investment in Red River will be exposed to the risk of loss associated
with properties acquired which are significantly leveraged. Although financing a
substantial portion of the acquisition or development costs of properties
acquired or developed permits a company like Red River to acquire and develop
larger or more valuable properties and drill more exploratory wells than would
be the case if such acquisition or development was financed solely by Red
River's capital, such financing has also increased its exposure to losses and
therefore Beta's exposure to losses following the completion of the merger. The
loan is secured by Red River's interests in the oil and gas properties which are
being acquired and will be owned by the combined company. Except to the extent
the terms of the loan permit the deferral of a portion of the interest payments
to the lender, principal and interest payments will be required to be made by
Beta regardless of whether the interests in the properties being acquired by the
combined company from Red River are producing income sufficient to make such
payments. If such loan is not paid when due, Beta could sustain a loss on its
investment as a result of the foreclosure by the lender on the interests in the
properties being acquired by the combined company.
Title to the properties in which we have an
interest may be impaired by title defects.
We have and will continue to depend on Red River
to obtain title opinions on properties which it is currently drilling as well as
properties to be drilled or acquired in which the combined company will have an interest
following the merger. We have independently conducted title examinations of the
Red River properties. However, there is no assurance that we will not suffer a
monetary loss from title defects or failure arising from the Red River
properties. Under the terms of the operating agreements affecting those
properties, any monetary loss arising from title failure or defects with respect
to the oil and gas properties being acquired from Red River as a result of the
merger is to be borne by all parties to any such agreement in proportion to
their interest in such property. If there are any title defects or defects in
assignment of leasehold rights in properties in which Red River holds an
interest, we will suffer a financial loss.
We cannot be certain that the insurance
coverage maintained by us or Red River will be adequate to cover all losses
which may be sustained in connection with the oil and gas activities with
respect to the Red River properties.
Red River has purchased and currently maintains
workers compensation and general liability insurance with respect to its
ownership and operating activities on the oil and gas properties in which it
owns an interest and/or acts as the operator. In addition, we have purchased and
are maintaining a general liability policy with a total limits on claims of
$2,000,000 and a workers compensation policy to provide added insurance if the
coverage provided by an operators policy is inadequate to cover our losses. The
Red River policy, our policy, and the policies maintained by our third party
operators, which have limits ranging from $10,000 to $20,000,000 depending on
the type of occurrence generally cover:
A loss in connection with the oil and gas properties in which Red River has an interest and which are
being transferred to the combined company as a result of the merger could have a
materially adverse effect on our financial position and results of operation to
the extent that the insurance coverage provided under our policy and the policy
maintained by Red River cover only a portion of any such loss.
Because the value of our shares of common stock which will be delivered to
the Red River shareholders upon completion of the merger will be significantly
higher than the market value of Red River's proved reserves, our future
financial condition may be adversely affected if we are not successful in
increasing the production rate and ultimate recovery from the West Edmund Hunton
Lime Unit.
We will be acquiring Red River and its properties
as the result of the merger by delivering shares of our common stock having a
total value of $18,300,000 based on the $8.13 market value of our stock at
November 19, 1999, the date the merger agreement was signed by the parties to
such agreement. We are in effect paying a price of $10.75 per barrel of oil
equivalent based on the December 31, 1999 reserve estimates for Red River. The
price we are paying is significantly higher than the market value of Red River's
proved reserves. We are paying the higher purchase price based on,
among other things, our expectation that we will be able to increase significantly
the production rate and ultimate recovery from the West Edmund Hunton Lime Unit, which is Red
River's primary asset. If we are unable to increase substantially the production
rate an ultimate recovery from the West Edmund Hunton Lime Unit as we currently
expect, or if the price of oil or gas drops significantly below the escalated oil
and gas price forecast we used to evaluate the Red River purchase, our future
financial results could be negatively affected and we may
report substantial losses as a result.
Beta has filed an annual report,
quarterly reports, special reports, and other information with the Securities
and Exchange Commission. You may read and copy reports, statements or other
information at the SEC's public reference rooms in Washington, D.C. (at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549), New York, New York (at 7
World Trade Center, Suite 1300, New York, New York 10048) or Chicago, Illinois
(at Suite 1400, 500 West Madison, Chicago, Illinois 60661). Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Beta's
SEC filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "www.sec.gov". Information
about Beta can also be found at its web site at www.betaoil.com. All statements, trend analyses and
other information contained in this document relating to production of oil and
gas properties in which Beta or Red River have an interest, estimated reserves
of the companies, markets for any such production and trends in Beta's or Red
River's results of operations or financial conditions, as well as other
forward-looking statements including those containing words such as "will",
"should", "could", "anticipate", "believe", "plan", "estimate", "expect",
"intend", "project", "forecast", and other similar expressions, constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These forward- looking statements involve known and unknown risks and
uncertainties that may cause results and conditions to differ materially from
the forward-looking statements. The risks and uncertainties include the
following: Purpose of Request for Consents We are requesting the consent of
our shareholders who owned shares of Beta common stock as of the record date
for: General Beta did not reach a final purchase agreement with any of the
ten prior acquisition candidates for the following reasons: On October 8, 1999, Mr. Antry, Mr. J. Chris
Steinhauser, director and Chief Financial Officer of Beta, Mr. Fetters, Mr.
Hufnagel and Mr. Robert E. Davis, Jr., Chief Financial Officer, director and
Executive Vice President of Red River, met and discussed the possibility of
merging Red River and Beta. Beta management presented an initial price based
upon their evaluation of Red River. In addition, Beta agreed to assume
Red River's debt to the Bank of Oklahoma which was approximately $7.6 million as
of September 30, 1999 and subsequently increased to approximately $7.7 million as of December
31, 1999. Beta did not assume a $.1 million loan secured by certain of Red
River's equipment nor the approximately $2.2 million indebtedness secured by the
coal methane properties. As mentioned below, no value was assigned to such
properties in negotiating the amount of the purchase price. By deducting the
approximately $7.6 million bank debt out of the $23.4 million as shown in the
table above, Beta determined the purchase price to be $15.8 million or $7.02 per
share based on the 2,250,000 shares to be issued in the merger. Beta emphasizes that the escalated price parameters used to
determine the value of Red Rivers proved reserves at September 1, 1999 are
not in accordance with SEC proved oil and gas reserve disclosure rules. Beta
does not ordinarily use escalated prices and costs to present reserve values in
its SEC filings. However, the values presented here using escalated prices and
costs reflect what we believe result in a more realistic forecast of future
revenues and expenses we expect to experience from these proved reserves and
from exploiting the development potential of many of the Red River properties.
The reserve estimate presented here using the escalated price and expense
parameters are to inform you of one of the primary factors in determining the
purchase price. SEC parameters prescribe the use of unescalated price and cost
assumptions to determine standardized reserve values. Had those same parameters
been used to value Red Rivers proved reserves, the purchase price might
have been less. It is difficult to allocate with any certainty how much of the
purchase price is attributable to the future development potential of the Red
River properties and how much is attributable to the perceived value in the
management team of Red River. Red Rivers future net cash flows, net of
income tax and discounted to present value, as of December 31, 1999 is
$10,844,030 based on the standardized measure prescribed in Financial Accounting
Standard No. 69 and according to SEC parameters. Beta utilized a third party engineering report,
dated September 1, 1999, as the basis of determining the $23.4 million net
present value of the Red River proved oil and gas reserves using a 10% discount
factor. The report was prepared by Ryder Scott Company and utilized escalated
oil and gas prices supplied by Red River to determine the net present value.
The price assumption for natural gas started at $3.25 per mcf, escalated at 3% per
year to $5.22 per mcf, and averaged $4.49 per mcf. The price assumption for oil
started at $23.25 per barrel, escalated at 3% per year to $37.31 per barrel,
and averaged $31.19 per barrel. Operating costs were escalated at a rate of 3%
per year as well. Red River's estimated proved reserves at
December 31, 1999 using SEC parameters were 2,416,584 barrels of oil
equivalent. This is based on a Ryder Scott report dated December 31, 1999 which
used unescalated prices in effect as of that date in accordance with SEC
disclosure rules. Using the 2,416,584 barrels of oil equivalent at
December 31, 1999, the $8.13 closing stock price for Beta common stock, the
assumption of approximately $7.7 million of bank debt and the 2,250,000 shares to be issued in the
merger, Beta is paying approximately $10.75 per barrel of oil equivalent
for Red River's proved reserves assuming no value is attributable to the
probable and possible reserves of Red River or to the management team which will
continue with Red River. The discounted net present value at December 31, 1999
using SEC parameters and a 15% discount factor, is $11.8 million. By deducting
the $7.7 million in bank debt, this would result in an assumed purchase price
of $1.82 per Beta share. The assumed purchase price did not
assign value to the coal bed methane properties which are considered unevaluated
at this time, nor the approximately $2.2 million indebtedness secured by those
properties. As noted above, the purchase price does assume that we will realize
significant value from the development of the probable reserves that are
expected to be extracted through enhanced recovery from the acreage holdings in
the West Edmond Hunton Lime Unit (WEHLU). Beta believes that the
additional reserves that could be extracted from the WEHLU property are probable
since their recoverability is at least 50% likely. The expected value was a
principal reason for using a 10% discount factor instead of a 15% discount
factor to value the discounted future net cash flows from the proved reserves of
Red River. This results in a $6.4 million higher present discounted value being
attributed to revenues expected to be produced from Red Rivers reserves
than would be the case if the 15% discount factor were used. This increased
present discounted value could be viewed as the premium value assigned to the
enhanced recovery potential of the WEHLU properties, although we must emphasize
that because they are categorized as only probable reserves, it is
not possible to predict with any certainty the economic results that we will
realize through the WEHLU development activities. These probable reserves were
not assessed by a third party engineering firm such as Ryder Scott Company.
However, we believe that this is a good development opportunity for the reasons summarized below. As discussed further in the
Business of Red River section of this document, Red River is the operator of the
WEHLU field which is comprised of 30,160 surface acres in central Oklahoma. There
are 22 gross (21 net) producing wells in the field, 16 (15 net) of which produce
natural gas and six (six net) of which produce crude oil. Most of the wells have
pumps or other forms of artificial lift to aid production of the reserves. There
are 33 additional shut-in wells that are being evaluated for a possible return
to production. We believe that there are a number of potential locations to
drill additional development wells on the properties. During 2000, we will drill
additional wells in this unit, but the extent of this activity will be not be
decided until Red River has reviewed the results of a pilot project scheduled to
commence in the second quarter of 2000. Red River has entered into an agreement
with Avalon Exploration, Inc. of Tulsa to jointly test and develop additional
production on its acreage in the WEHLU area. The WEHLU field, originally
discovered in 1942, is the largest Hunton Lime field in the state, representing
nearly 40% of the state's Hunton production. Avalon, with substantial Hunton
Lime trend experience, will use advanced fracing technology that has been
successful in the Hunton Lime in other parts of the state along with a
"dewatering" process to increase the oil cut to very economic levels. Red River
recently tested this process in one WEHLU well and early results show a ten-fold
increase in oil production as well as additional gas production. With Avalon as
the technical lead and Red River remaining as operator, this potential will be
tested this year through a ten-well pilot program. Red River has retained (a) a
12.5% interest after Avalon achieves payout of the amounts it expends, plus (b)
an option to repurchase 25% of its original working interest in these same
properties after each five-well pilot project drilled by Avalon has been
completed, whereby Red River can elect to reimburse Avalon for 25% of the actual
costs incurred depending on the success of these pilot projects. If the pilot
program is successful, the ongoing development of the field will commence with
approximately 200 to 300 potential locations on the 30,000 acres. Once in this
developmental stage, Red River will retain 40% of its interest in these
wells by paying for 36.3% of the development costs. Additionally, Red River will
retain 100% of its working interest in approximately 50 existing well bores. If the pilot program and the
resulting WEHLU field development is successful, recoverable oil volumes between
75 million and 150 million barrels, or between 24 million and 48 million barrels
net to Red River, may be possible but the certainty of recovering these volumes
is much lower than that which is required for them to be classified as proved
reserves. Therefore, you should understand that these estimated volumes are not
proved reserves since reserves are not defined as proved unless they are
supported by actual production or a conclusive formation test and have a
reasonable certainty of being recovered. It is possible that these development
efforts could produce substantially fewer additional reserves and could be an
unprofitable venture. Neither Beta nor Red River engaged a third party engineering
firm to assess the validity of our estimates of probable reserves from WEHLU. On October 13, 1999, the Red River board and the
Beta board approved the execution of a letter of intent. During October and
November 1999, the parties and their representatives continued their due
diligence and negotiated the definitive merger agreement. Under this amendment to the merger
agreement, the parties agreed that all other conditions required to be performed
by a party to the merger agreement as a condition of the other party's
obligation to close the merger transaction are no longer conditions of closing.
The parties agreed that a party's remedy for the breach of any of these
conditions is the right to seek specific performance in a court having
jurisdiction over the breaching party. At closing, Beta Acquisition
Company will be merged with Red River which shall continue as the surviving
corporation. After closing, Red River will change its name to Beta Operating
Company, "Beta Operating," and shall continue as Beta's wholly-owned operating
and acquisition subsidiary. Beta's Reasons for The Merger; In August 1999, management of Beta
and Red River initiated discussions on the feasibility of pursuing an
acquisition by Beta of Red River. Following these discussions, the board of
directors of Beta directed management to investigate the acquisition of Red
River and to commence due diligence investigations of Red River's properties and
prospects for future growth. As a result of these due diligence investigations,
the Beta directors concluded that an acquisition of Red River would be
beneficial to Beta and decided to approve the merger agreement and to recommend
shareholders approve the share issuance for the following reasons: The Beta board has unanimously approved and adopted the
merger agreement and the share issuance and the transactions contemplated
thereby and the Beta board unanimously recommends that shareholders of Beta
consent to the merger agreement and merger. Red River's Reasons for The Merger Material Federal Income Tax Consequences Interest of Red River Management in the Merger Messrs. Rolf N. Hufnagel, President and a Director of Red River,
and Robert E. Davis, Jr., Chief Financial Officer and a Director of Red River,
who together own 80% of the issued and outstanding shares of the Red River
common stock, will enter into three-year employment agreements with Beta. The
other Red River shareholders are expected to continue in the employment of Red
River after the merger but none of them will have a written employment
agreement. The employment agreements with Messrs. Hufnagel and Davis will be
terminable early only on the death or disability of the employee or after
written notice for cause. As a result, the position and salary of each of
Messrs. Hufnagel and Davis are protected following the merger until the end of
the term of his agreement. In addition, Beta has agreed to appoint Rolf Hufnagel
to the Beta board of directors. Mr. Hufnagel was elected to the Beta board of
directors at the annual meeting of shareholders held June 24,
2000. Messrs. Hufnagel and Davis negotiated the terms of the merger
agreement and participated in the discussion, deliberation and voting of the Red
River board to adopt the merger agreement. Percentage Ownership Interest of Red River Shareholders After the Merger Under the terms of the first
amendment to the merger agreement, dated as of January 19, 2000, stock
certificates representing the number of shares of Beta common stock to be
transferred to the Red River shareholders upon the closing of the merger as
stated in the foregoing table have been issued and are currently being held in
escrow by an escrow agent. If the merger is not completed, the escrow agent will
release the shares of Beta common stock from escrow and return these shares to
Beta for cancellation. Appraisal Rights Resales of Beta Common Stock The following summarizes the
material provisions of the merger agreement, a copy of which is attached as
Annex A to this proxy statement. This summary is qualified in its entirety by
reference to the merger agreement. You are urged to read the merger agreement in
its entirety for a complete description of the merger. Other
Conditions. The merger agreement, as amended by the second amendment
thereto, contemplates the satisfaction of various conditions but, unlike the
provisions of the merger agreement prior to such amendment, the failure to
satisfy one or more of such conditions shall not interfere with the completion
of the merger if such conditions are not performed prior to the closing date.
Breach of any of these conditions is subject to specific performance or to the
return of a portion of the shares as discussed below under "Remedies for
Misrepresentation or Breach." Among such conditions to be satisfied by Red River
or by its shareholders include the following :
Representations
and Warranties. The merger agreement contains numerous representations
and warranties by Red River and the Red River shareholders to Beta as to various
matters, such as: Survival. The
representations, warranties and covenants under the merger agreement will
survive the closing of the merger for a period which ends on the earlier of one
year after the closing date or the date Beta's first consolidated audit report
is issued after the closing date which includes audited financial information
concerning Red River. Pre-Closing Mutual
Covenants. The merger agreement contains mutual covenants of the parties
regarding each party's obligation to: No Solicitation of Other
Proposals. The merger agreement provides that unless it is terminated
prior to the closing date as permitted under the merger agreement, neither Red
River nor the Red River shareholders will solicit or engage in any discussions,
negotiations, understandings or agreements with any person or entity other than
Beta relating to the merger, consolidation or sale of Red River's stock or
properties other than in the ordinary course of business. Remedies for Misrepresentation
or Breach. In the event of any breach by Red River or the Red River
shareholders of their representations, warranties or covenants under the merger
agreement, the merger agreement provides that the Red River shareholders will be
required to return to Beta the number of shares of Beta common stock determined
by dividing the dollar amount of loss incurred by Beta on account of the breach
by the closing price of a share of Beta common stock as quoted on the Nasdaq
Stock Market as of the closing date of the merger agreement, even though the
nonbreaching party's claim against the other party is not discovered until after
such date. The Red River shareholders will not be required to return any shares
until such time as the amount of losses incurred by Beta on account of breaches
exceeds $100,000 and will not in any event be required to return more than
225,000 shares. Arbitration. The merger agreement provides for the settlement of all disputes arising pursuant to or
in any way related to the merger agreement by arbitration conducted in accordance with the rules of the American
Arbitration Association by three arbitrators. Termination. The
merger agreement may be terminated and the merger abandoned at any time prior to
the closing date by: Consequences of
Termination. If the merger agreement is validly terminated, no party
will be relieved from any liability resulting from a breach of its
representations, warranties and covenants under the merger agreement occurring
prior to the termination. In addition, provisions of the merger agreement
related to the following will survive: Termination Expenses and
Costs. Each party to the merger agreement will pay its own costs and
expenses, including its attorneys' fees and costs, if the merger as contemplated
under the merger agreement Otherwise, if the merger agreement
is terminated prior to the closing date by a party not making any misstatement
or not in breach of any covenant or warranty under the merger agreement, the
party making the misstatement or breach will be obligated to pay in addition to
its costs and expenses the other party's costs and expenses, including actual
attorney's fees. Specific Performance.
Any failure to perform or breach of any provision of the merger agreement or any
misrepresentation under the merger agreement which does not involve a fraudulent
or intentional misrepresentation of a material fact or a willful breach of a
material warranty will not result in the termination of the merger agreement.
Instead, the nonbreaching party's only recourse, in addition to its right to
obtain additional shares of Beta common stock if Beta is the breaching party or
recover shares of common stock if Red River and its shareholders are in breach
of the merger agreement, is its right to seek specific performance of such
provision in a court proceeding. Amendments. The
merger agreement may be amended or modified, and any provision of the merger
agreement may be waived, only by a writing executed and delivered by the
parties. Post
Closing Covenants. The merger agreement provides that following the
consummation of the merger: Registration of Shares of Beta
Common Stock. In the event the merger is consummated, under the merger
agreement, we are obligated by no later than June 30, 2000 to prepare and file
with the SEC, a shelf registration statement. We expect to file this
registration statement shortly after this proxy statement is first mailed to our
shareholders. The purpose of the shelf registration statement will be to
register the resale of the shares of Beta common stock to be received by the Red
River shareholders upon consummation of the merger. We are required to use our
best efforts to have the shelf registration statement promptly declared
effective by the SEC on or after its filing. We are also required to maintain
the information contained in the shelf registration statement current at all
times as required under the applicable provisions of the Securities Act of 1933
until the termination of the shelf registration statement. The shelf
registration statement is required to be maintained until two years after the
date that the SEC first declares the shelf registration statement effective. Security Ownership Of Certain Beneficial Owners And Management
Certain of the shareholders in this table have agreed that they
will not sell their shares representing 2,670,000 of the 3,053,500 of the total
beneficial shares held until July 9, 2000.
The statements set forth under
this heading generally describe Nevada General Corporation Law, Beta's
certificate of incorporation and Beta's by-laws ; the statements are subject to
the detailed provisions of the Nevada General Corporation Law, the Beta
certificate of incorporation and the Beta by- laws. Common Stock Stockholder Action Possible Anti-Takeover Effects of Authorized but Unissued Stock Other Anti-Takeover Provisions The termination provisions of this
employment contract were designed, in part, to impede and discourage a hostile
takeover attempt and to protect the continuity of management./p>
Certain Charter and Bylaws Provisions Stockholder Meetings and Other Provisions Transfer Agent and Registrar
Certain Provisions of the Beta Bylaws
Beta common stock began trading July 9, 1999 on
the Nasdaq Small Cap Market under the symbol "BETA". The following table sets
forth for the fiscal period indicated the range of the high and low sale prices
of Beta common stock as reported on the Nasdaq Small Cap Market. Beta has not
paid any cash or other dividends since its inception. For the foreseeable
future, Beta intends to retain any funds otherwise available for dividends for
use in the expansion of its business. Set forth below is the last
reported sale price of Beta common stock on November 19, 1999, the last trading
day prior to the public announcement of the execution of the merger agreement,
and on ______, 2000, the last trading day prior to the date of this proxy
statement, both as reported on the Nasdaq Small Cap Market and National Market,
respectively. Beta Oil & Gas, Inc. The following unaudited pro forma combining, condensed financial
information is presented to reflect the merger under the Agreement and Plan of
Merger of Beta Oil & Gas, Inc. and subsidiaries (Beta) and Red
River Energy, Inc. and subsidiaries (Red River) and the acquisition
of the ONEOK properties under the purchase and sale agreement between Red River
and ONEOK Resources Company (ONEOK properties) on (1) the unaudited
historical condensed balance sheet as of March 31, 2000, and (2) the unaudited
historical condensed statements of operations for the year ended December 31,
1999 and the three months ended March 31, 2000. The Pro Forma Combined Condensed Balance Sheet gives effect to
these transactions as if they had taken place on March 31, 2000. The Pro Forma
Combined Condensed Statements of Operations reflects these transactions as if
they had taken place at the beginning of the periods presented. For financial accounting purposes, it is expected that the
merger will be accounted for using the purchase method of accounting. Therefore,
Betas cost to acquire Red River, calculated to be $14.455 million assuming
an average Beta common stock price of $6.38 per share with 2,250,000 shares
issued to the stockholders of Red River, will be allocated to the assets
acquired and liabilities assumed according to their fair values. The assumptions used in preparing the pro forma adjustments are
described in the footnotes to the pro forma combining, condensed financial
statements. However, due to the uncertainties inherent in the assumption
process, it is at least reasonably possible that the assumptions might require
further revision and that such revision could be material. The ONEOK properties were acquired on June 15, 2000 for total
consideration of $5,608,809, subject to additional post-closing adjustment for
the final accounting of net revenues and operating expenses from the effective
date to the closing. Such adjustment will be determined within 90 days after
closing. The acquisition of the ONEOK properties was funded through additional
borrowings under the Red River line of credit. Beta Oil & Gas, Inc. Beta Oil & Gas, Inc. Beta Oil & Gas, Inc. Beta Oil & Gas, Inc.
Beta Oil & Gas, Inc. As used in this proxy statement: General Unevaluated oil and gas properties - United States Unevaluated oil and gas properties - Foreign Impairment of Oil and Gas Properties - United States Evaluated Properties - United States Impairment of Oil and Gas Properties - United States Evaluated Properties - Foreign Beta's current oil and gas exploration activities are focused in four distinct project areas as follows: WELL STATISTICS ACREAGE STATISTICS DRILLING ACTIVITY
Competition The following discussion is to
inform you about the financial position, liquidity and capital resources of Beta
as of December 31, 1999 and 1998 and March 31, 2000, and the results of
operations for the period from inception (June 6, 1997) through December 31,
1997, the years ended December 31, 1998 and 1999 and the three months ended
March 31,1999 and 2000. Financial Condition, Liquidity and Capital Resources Long Term Liquidity and Capital Resources The terms of the agreement
call for Avalon to drill wells and
expend an estimated $4.4 million and will thereby be entitled to an assignment
of all of Red Rivers leasehold interest in the wells drilled by Avalon and
in production from the 160 acres surrounding each well. Red River has retained
(a) a 12.5% interest after Avalon achieves payout of the amounts it expends,
plus (b) an option to repurchase 25% of its original working interest in these
same properties after each five-well pilot project drilled by Avalon has been
completed, whereby Red River can elect to reimburse Avalon for 25% of the actual
costs incurred depending on the success of these pilot projects. The option to
purchase must be exercised within 120 days of the completion of the drilling
activities on each pilot project. Red River benefits from this option in that it
is able to review the initial success of the pilot project before deciding
whether to commit funds for the project. It is currently estimated that the
option to purchase will need to be exercised sometime in the first half of 2001
should Red River elect to participate. If Red River exercises its option to
purchase the pilot program interest, it will be required to advance its 25%
share of the estimated $4.4 million capital costs associated with the pilot
program, or $1.1 million. In the event funds are unavailable, Red River will
have to forfeit the 25% look back interest. If Red River is unable to utilize
its existing line of credit with the Bank of Oklahoma, then Beta may be required
to advance funds on Red Rivers behalf to allow Red River to exercise its
option. In this event, Beta will have to secure funds from one of the sources
discussed below under Plan of Operation 2000. There is no assurance
that these funds will be available. If the WEHLU pilot program is successful, the ongoing development of the field will commence in the year
2001 with approximately 200 to 300 potential locations to be drilled on the 30,000 acres. Red River will retain
a 40% working interest by paying for 36.3% of the development costs. It is estimated that this development could
take place over a three to five year period commencing in the second half of 2001. Preliminary estimates are
that Red River's net share of development cost will range between $36,000,000 and $54,000,000 over the 3 to 5
year period. Red River will seek to fund these capital expenditures utilizing bank financing. Beta may also seek
to provide additional funding through the issuance of its common stock in a public offering. If funds are
unavailable to Red River, either through a bank line of credit or cash advances provided by Beta, Red River will
be compelled to reduce its interest in the development of the 200 to 300 potential locations. Other than item 2) above, Beta
does not anticipate the Red River merger will impact its year 2000 capital
budget or financing plans. As discussed above under "Long Term Liquidity and
Capital Resources," Beta may have to advance additional funds to Red River in
future periods to facilitate development of the Red River properties and this
may impact Beta's planned capital expenditures and financing plans. If the above additional sources of cash are insufficient or are unavailable on terms acceptable to Beta,
Beta will be compelled to reduce the scope of its business activities. If Beta is unable to fund planned
expenditures within a thirty to sixty day period after a well is proposed for drilling, it may be necessary to: As stated above, Beta believes it has sufficient working capital to fund its capital expenditure requirements
throughout 2000. In the event that Beta cannot raise additional capital, it may be necessary for Beta to curtail
its business activities until other financing is available.
As a result of a ceiling test calculation, an impairment write-down of $1,224,962 was recorded for the year ended December
31, 1999. The impairment was due mainly to downward revisions of reserve
estimates associated with two wells drilled in 1998. The downward revisions were
due to disappointing production results from the wells experienced in the fourth
quarter of 1999 when the producing zones in the wells began producing large
amounts of water in place of gas and oil. During the year ended December 31, 1999, Beta incurred interest expense of $2,966,651, substantially all of
which related to the bridge notes. Interest expense related to the bridge notes for the 1999 period consists of
the following: _ During the year ended December
31, 1998, Beta incurred no interest expense. Comparison of Results of Operations for the Three months Ended March 31, 2000 and 1999 (unaudited) During the three months ended
March 31, 2000 Beta had oil and gas revenues of $940,250 as compared to $29,664
for the prior year period. Beta's net production and average prices received
were as follows: During the three months ended
March 31, 2000 Beta incurred lease operating expenses of $33,888 as compared to
$9,035 for the prior year period. Beta's lease operating costs per equivalent
unit of production were as follows: General and administrative
expenses for the three months ended March 31, 2000 were $489,633 compared to
$258,245 for the three months ended March 31, 1999. This represents a $231,388
or a 90% increase over the prior year period. The primary reasons for the
increase were due to: Depreciation and depletion
expense for the three months ended March 31, 2000 was $561,072 compared to
$12,415 for the three months ended March 31, 1999. This represents a $548,657
increase over the prior year period. The primary reason for the increase is due
to the fact Beta had significantly higher oil and gas production in the current
period versus the prior year that would give rise to higher depletion
expense. Loss from operations totaled
$(144,343) for the three months ended March 31, 2000 compared to $(250,031) for
the three months ended March 31, 1999. The primary reason for the decrease in
the loss was due to the significant increase in revenues in the current period
versus the prior year period. Other income for the three months
ended March 31, 2000 consisted of interest income in the amount of $20,013. Beta
realized $2,275 of interest income for the three month period in 1999. The
reason for the increase was higher average cash and cash equivalents balances
for the 2000 period as compared to the 1999 period. During the three months ended
March 31, 2000, Beta incurred interest expense of $1,096 as compared to $466,348
for the three months ended March 31, 1999. Substantially all of the 1999
interest expense related to the bridge notes. Interest expense related to the
bridge notes for the 1999 period consists of the following: Net loss for the three months
ended March 31, 2000 was $(125,426) compared to $(714,104) for the three months
ended March 31, 1999. The decrease in net loss was primarily due to the
reduction in interest expense and the significant increase in
revenues. Income Taxes During 1997 Beta
issued 797,245 callable common stock purchase warrants entitling the holders to
purchase 797,245 shares of Betas common stock at an exercise price of
$5.00 per share. Beta was entitled to call these warrants at any time on and
after the date that its common stock is traded on any exchange, including the
NASD Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$7.00 per share for 10 consecutive trading days. Because its
common stock has traded at a market price exceeding $7.00 per share for 10
consecutive days, Beta became entitled to call the callable $5 warrants at any
time. Beta issued a call for these warrants as of February 23, 2000, the record
date. Of the 797,245 callable $5 warrants originally issued, approximately
381,000 had already been exercised prior to the issuance of the call and the
remaining outstanding warrants were exercised at the call. The gross amount
realized from the exercised warrants was approximately $3.97 million. The
closing price for Beta common stock on February 23, 2000 on the Nasdaq Stock
Market was $9.00 per share. Stock Option Plan Unevaluated Properties Substantially
all of Betas unevaluated costs at December 31, 1999 and March 31, 2000
relate to seismic, geological and leasehold costs incurred in Betas
Jackson County prospects. Beta and its partners have recently reprocessed
selected portions of the approximately 300 square miles of its 3-D data. In
addition, recent drilling activity by other oil and gas companies in the
vicinity of Betas prospects have yielded oil and gas discoveries in the
deeper Lower Yegua and Wilcox formations. As a result of the seismic
reprocessing and drilling activity, Beta and its partners have now identified in
excess of 200 prospects and leads within the areas that have been evaluated by
the 3-D seismic. This is approximately twice the number of locations previously
identified by the 3-D seismic. The large number of additional prospects and
leads recently identified will delay somewhat the evaluation of the costs
associated with Betas unevaluated properties. Accordingly, Beta has
revised its previous estimates of when the unevaluated costs will be considered
evaluated and now believes that much of the evaluation will be delayed to future
periods. This delay in the evaluation of unevaluated costs is not expected to
adversely impact Betas financial condition, results of operations and
liquidity in future periods. Impact of Recently Issued Standards This section of the proxy statement provides you with certain
information regarding Red River and its business. You should read this
information in connection with the other information provided to you in this
proxy statement. OIL AND GAS PROPERTIES West Edmond Hunton Lime Unit. The principal properties of Red River are the oil and gas leases
comprising the West Edmond Hunton Lime Unit which covers parts of Canadian, Logan, Kingfisher and Oklahoma
Counties in central Oklahoma. The production from this 30,160 acre field is from the Hunton Limestone formation
(located at depths of 6,600 to 7,100 feet) and was first discovered in 1943. Approximately 80% of the production
from this field is natural gas. Red River is the operator of these properties. The field was
unitized in 1947 and was operated by Sohio Petroleum Company. At one time there
were over 750 wells producing oil and gas from the field. Sohio continued to
operate the field until it sold its interest to Phillips Petroleum Company in
1988. Phillips operated the field from 1988 until 1992, at which time it was
acquired by a privately held company, WEHLU Producers Inc. Red River purchased
the properties from WEHLU Producers, Inc. in mid 1998 and took over operations
of the field during August 1998. Since its
acquisition of the properties, Red River has conducted a number of field
enhancement operations, including six acid stimulation jobs, reactivation of two
wells and installing larger downhole pumps on three wells. A fracture
stimulation treatment was performed on one well and it was placed on electrical
submersible pump. The acid stimulation jobs increased production from those
wells by an aggregate of 16 barrels of oil per day and 110 Mcf of natural gas
today, and resulted in an increase in water production of 104 barrels per day.
The two well reactivations increase production by a total of 7 barrels of oil
per day with an additional 60 barrels of water per day. Resizing the three
downhole pumps resulted in production increases of 12 barrels of oil per day,
and five Mcf of natural gas per day with an increase in water production of 110
barrels per day. The well that was fracture stimulated and placed on submersible
pump had a production increase of 35 barrels of oil per day and 70 Mcf of
natural gas per day, with an increase in water production of 300 barrels per
day. There are 22 gross (21 net)
producing wells in the field, 16 (15 net) of which produce natural gas and six
(six net) of which produce crude oil. Most of the wells have pumps or other
forms of artificial lift to aid production of the reserves. There are 33
additional shut in wells that are being evaluated to be returned to
production. The following
chart reflects the average monthly oil production from the WEHLU properties on a
yearly basis from 1970 through 1999, the monthly gas production from 1980
through 1999(the only years this information is currently available) and water
production for 1998 and 1999 (the only years this information is available): The following chart reflects actual monthly oil,gas and water production
on a monthly basis since January of 1998: Approximately 80% of Red River's sales of natural gas from the West Edmond Hunton Lime Unit are made to
GPM Gas Corporation under a contract that expires on March 31, 2001 but which will be extended on a year to year
basis unless one of the parties elects to terminate it at the end of a term. The price paid for the gas sold
under this contract is based on a formula tied to several monthly published index prices. Sales of all of Red
River's production of crude oil from the field are made to Sunoco Inc. under a contract that runs month to month
and provides for a price based on a $1.25 per barrel bonus over Sunoco's posted price for "Oklahoma Sweet" crude
oil. Red River believes that other purchasers of production from this field are readily available if the
arrangements with the current purchasers were to terminate for any reason. Price and Production Data. Red River's average sales price,
oil and natural gas production volumes and average production cost for each Mcf
equivalent of production for the periods indicated were as follows: Reserves. The
following table sets forth certain information regarding Red River's proved oil
and gas reserves at the end of the period indicated. The reports were prepared
by Ryder Scott Company Petroleum Engineers in accordance with the guidelines
established by the Securities and Exchange Commission and the Financial
Accounting Standards Board, using prices received as of the effective date of
each report. The reserve information for the December 31, 1998 report was
calculated using a gas price of $2.06/mmbtu and oil price of $10.50/bbl and the
reserve information for the December 31, 1999 report was calculated using a gas
price of $2.26/mmbtu and an oil price of $24.00 per barrel. Prices and operating
costs are unescalated. The estimated cash flows are reduced to present value
amounts by applying a 10% per year discount factor. The standardized measure of
future discounted net cash flows reflects estimated future income taxes using
current statutory income tax rates including consideration for estimated future
statutory depletion and tax credits. Recent Developments.On
June 15, 2000, Red River purchased from ONEOK Resources Company 124 properties
and prospects in 26 fields located in Kansas, Oklahoma and Texas. These
properties had at December 31, 1999 estimated proved reserves of 792,935 barrels
of oil and 5,587,104 Mcf of natural gas. The purchase price was $5,608,809,
subject to possible post-closing adjustments or approximately $3.51 per barrel of oil equivalent before closing adjustments. The properties are geographically
distributed into three areas: Mid-Continent (17 fields), West Texas (4 fields)
and onshore Gulf Coast (5 fields). The package includes 34 (30 net) operated oil
wells, 3 (2 net) operated gas wells, 30 (4 net) non-operated oil wells and 44
(7 net) non-operated gas wells. In total there are 74 non-operated wells or 67% of the total wells acquired. The majority of the value is associated with the
operated leases in the Mid-Continent region. Red River funded the purchase
through Red Rivers credit facility with the Bank of Oklahoma. Coal Bed Methane.
Red River, through TCM, is in the process of testing wells drilled during late
1998 and early 1999 in Tulsa and Okmulgee Counties to develop the coal bed
methane reserves believed to be there. At December 31, 1999, TCM had drilled a
total of 47 wells covering approximately 2800 acres to test the commercial
viability of the coal bed methane reserves. Some wells began producing in early
1999 and the last few wells began selling gas in July 1999. The project is still
in the testing phase and Red River estimates that it takes approximately 12 to
24 months of production of water and gas from each well to determine if it will
produce methane in commercial quantities. The proved reserves attributable to
this project have not been fully determined. At this time, this project is
classified as unevaluated. The following discussion should be read in conjunction
with Red Rivers consolidated financial statements and related notes to the
financial statements appearing elsewhere in this proxy statement. The following
discussion is to inform you about the financial position, liquidity and capital
resources of Red River as of December 31, 1999 and March 31, 2000 as well as for
the results of operations for the years ended December 31, 1998 and December 31,
1999 and the three-month periods ended March 31, 1999 and March 31, 2000. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Red River's working capital was a
deficit of ($1,963,547) at December 31, 1999 compared to a deficit of
($1,964,424) at March 31, 2000. Red River has no material
long-term commitments associated with its capital expenditure plans or operating
agreements other than its planned activity on its properties in the West Edmond
Hunton Lime Unit ("WEHLU") in Central Oklahoma and its June 15, 2000 purchase of
oil and gas properties from ONEOK Resources Company as discussed below under
PLAN OF OPERATION FOR 2000. Red River intends to fund its $1.1 million capital
cost of its 25% option to purchase an interest in the pilot program with bank
borrowing and recently did fund its purchase of the ONEOK properties with bank
borrowing. Red River's bank has indicated a willingness to fund the purchase of
an interest in the pilot program, but there is no guarantee that it will. Red
River could look to Beta for this funding. Red River's bank has funded Red
River's acquisition of the ONEOK properties. Additionally, Red River has
budgeted $1.5 million for workovers on existing wells in WEHLU to enhance
production. Red River currently intends to use borrowed funds from its bank and
capital contributions from Beta to fund this development work. Red River has
certain debt service requirements over the next six years which are triggered
if certain oil and gas reserve values are not maintained in excess of Red
Rivers borrowing base. If, in the future, the reserve values are
insufficient to support the borrowing base, the scheduled principal payments
would average approximately $2.23 million per year for the next six years,
beginning as early as January of 2000, plus interest on the outstanding principal
at LIBOR + 1.8%, currently approximately 7.6%. Red River anticipates that it
will have sufficient cash flow from its existing oil and gas properties to make
these debt payments. Included in Red Rivers consolidated current
liabilities of March 31, 2000 is the current portion of long-term debt owned by
its subsidiary TCM to its lender under a revolving line of credit. This debt,
which was used to fund TCMs drilling of coal bed wells, is recourse only
to the assets of TCM. At March 31, 2000, 10% of the outstanding principal of the
approximate $2.2 million of total indebtedness of TCM, or $220,000, was due. TCM
did not have available funds to make this principal payment and Red River has no
plans to make any advances to TCM for this purpose. Red River is in negotiations
with the lender to purchase the note and the other interests the lender has in
these properties for a cash payment of $525,000, 10,000 shares of Beta stock and
warrants to purchase an additional 100,000 shares of Beta common stock at a
price equal to 125% of the market price on the date of the closing, subject to
the closing of the Merger. Should the lender choose not to sell its interests to
Red River or to renegotiate the loan repayment terms, TCM would be forced to
assign the existing coal bed properties to the lender in lieu of foreclosure as
payment on the note. HISTORICAL CASH USED IN AND PROVIDED BY OPERATING, INVESTING AND FINANCING ACTIVITIES Red River financed its business
activities through a combination of contributions of equity by its stockholders,
bank debt, and cash flow from operations. Red River received cash contributions
from members of $380,000 during the year ended December 31, 1998. In addition,
Red River borrowed $6,274,734 of long and short term debt during the year ended
December 31, 1998 and, $ 3,584,729 during the year ended December 31, 1999. It
had no borrowings during the three months ended March 31, 2000. Red River
generated net revenues of $499,635 for the three months ended March 31, 1999 and
$1,109,347 for the three months ended March 31, 2000. The net proceeds of equity
contributions, borrowings and net revenues have been primarily invested in oil
and gas properties, drilling activities and gas gathering systems totaling
$6,672,845 in 1998 and $3,623,943 in 1999 and $2,785,966 and $225,399,
respectively, during the three month periods ended March 31, 1999 and March 31,
2000. The general and administrative expense of $685,573 and
$980,627, respectively, for the years ended December 31, 1998 and December 31,
1999, and $261,074 and $329,281, respectively, for the three months ended March
31, 1999 and March 31, 2000 include non-cash expenses of $217,800 and $151,200,
respectively for the years ended December 31, 1998 and December 31, 1999 and
$69,300 and $0, respectively, for the three month periods ended March 31, 1999
and March 31, 2000, all representing salary contributed to Red River in lieu of
cash compensation. LONG TERM LIQUIDITY AND CAPITAL RESOURCES The timing of most of Red River's
capital expenditures is discretionary. Red River has no material long-term
commitments associated with its capital expenditure plans or operating
agreements other than with the WEHLU properties and the purchase of the ONEOK
properties discussed below under PLAN OF OPERATION FOR 2000. Generally, Red
River has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. The level of capital expenditures will
vary in future periods depending on the success it experiences on planned
development drilling activities, oil and gas price conditions and other related
economic factors. Red River expects significant opportunities to invest
significant capital in development drilling, recompletions of existing wells,
investments in coal bed methane drilling and oil and gas property acquisitions.
Red River expects to finance these opportunities through internally generated
cash flow, bank borrowings, equity contributions and funds generated from
partners participating in these projects. PLAN OF OPERATION FOR 2000 Red River will rely on the same
strategy for the rest of 2000 that it employed in 1998 and 1999. Red River was
able to fund its operations and acquisitions out of stockholder contributions,
debt and internally generated cash flow. The opportunities for growth and
increased cash flow will come primarily from four areas of focus. Further Enhancement of the WEHLU
Properties. Red River currently owns and operates approximately 30,000 acres of
leasehold which it purchased as a producing property in September of 1998. These
properties currently account for approximately 85% of Red River's total daily
oil and gas production. A newly designed recompletion
technique has resulted in a significant Hunton formation recompletion program in
the State of Oklahoma. This program has resulted in significantly higher
production rates on old Hunton formation wells and the drilling of successful
new wells once thought to be wet and incapable of economic production. In this
procedure, the Hunton formation is fracture stimulated with an acid based fluid
and the well is placed on electrical submersible pump. This method will also
cause greater volumes of water to be produced which will increase the operating
costs of the WEHLU property. Red River believes its 30,000 acres of leasehold
held by production is a major candidate for this procedure. However, there
are no assurances that this procedure will materially increase oil production in
the future and that no independent engineering study has been performed on the
WEHLU property to validate this technique as a means to significantly increase
oil production. Effective February 18, 2000 Red
River entered into an agreement with Avalon Exploration, Inc. of Tulsa to
jointly test and develop additional production in the Company's 30,000 acre
producing WEHLU Unit in Central Oklahoma. The terms of the agreement call for
Avalon to drill wells and expend an estimated $4.4 million. Red River has
retained an option to purchase a 25% "look back" working interest in these same
wells, whereby Red River can elect to reimburse Avalon for 25% of actual costs
incurred depending on the success of these pilot wells. The option to purchase
must be exercised within 120 days of the completion of the drilling activities.
It is currently estimated that the option to purchase will need to be exercised
sometime in the first half of 2001 should Red River elect to participate. If Red
River exercises its option to purchase the pilot program interest, it will be
required to advance its 25% share of the estimated $4.4 million capital costs
associated with the pilot program, or $1.1 million. In the event funds are
unavailable, Red River will have to forfeit the 25% look back interest. If Red
River is unable to utilize its existing line of credit with the Bank of
Oklahoma, then it must obtain other obtain financing from another source in
order to fund this obligation. If the merger is consummated, Red River may seek
the financing from Beta, but there is no assurance that the financing will be
available. If the WEHLU pilot program is
successful, the ongoing development of the field will commence in the year 2001
with approximately 200 to 300 potential locations to be drilled on the 30,000
acres. Red River will retain a 40% working interest by paying for 36% of the
development costs. It is estimated that this development could take place over a
three to five year period commencing in the second half of 2001. Preliminary
estimates are that Red River's net share of development cost will range between
$36,000,000 and $54,000,000 over the three to five year period. Red River will
seek to fund these capital expenditures utilizing bank financing. If the merger
is consummated, Beta may also seek to provide additional funding through the
issuance of its common stock in a public offering. If funds are unavailable to
Red River, either through a bank line of credit or cash advances provided by
Beta, Red River will be compelled to reduce its interest in the development of
the 200 to 300 potential locations. In addition to the joint venture
with Avalon, Red River Energy has budgeted $1.5 million for workovers on
existing wellbores which are in the WEHLU area but which are excluded from the
joint venture with Avalon. These expenditures to enhance production are expected
to be expended in 2000 and 2001. Further Enhancement and
Development Drilling within the Mcintosh Prospect and Expansion of the Existing
Gas Gathering System. Two new developmental wells in the McIntosh prospect were
drilled for the first half of 2000 at an estimated cost to Red River of
approximately $125,000. One well was a dry hole and the other well began commercial
production in mid-June and is currently producing 700 Mcfd. Two additional wells
are planned for the fourth quarter. Continuation of the Coal Bed
Methane Drilling Program by TCM. The coal bed methane drilling program of Red
River's 80% owned subsidiary, TCM, L.L.C. has been underway since February of
1998, financed from internal cash flow and a loan from a major gas and electric
utility company which is nonrecourse to any of the assets of Red River other
than its interest in TCM. This project has involved the drilling of 47 wells to
date, including a saltwater disposal well, and also included the installation of
a gas and a saltwater gathering system. The wells are currently in a state of
de-watering and the economic results of the project are considered unevaluated.
Red River is currently negotiating a purchase of the mortgage note and other
interests held by the public utility. Red River's Program of Acquiring
Additional Producing Oil and Gas Properties. It is the intent of Red River to
pursue oil and gas producing property acquisitions in the $20 million to $50
million dollar range during 2000. Red River continues to evaluate oil and gas
acquisition targets and submit bids when merited. On May 1, 2000, Red River
entered into an agreement with ONEOK Resources Company to purchase 124
properties and prospects in 26 fields located in Kansas, Oklahoma and Texas.
At December 31, 1999, these properties had estimated proved reserves of 792,935 barrels of oil and
5,587,104 Mcf of natural gas. The purchase price was $5,600,000 per barrel of oil equivalent before closing adjustment or approximately $3.51 after
adjustment for production revenues and operational expenses after the effective
date of January 1, 2000, and in connection with any exercise by third parties of
existing preferential purchase rights and certain matters discovered during Red
River's due diligence. The properties are geographically distributed into three
areas: Mid-Continent (17 fields), West Texas (4 fields) and onshore Gulf Coast
(5 fields). The package includes 34 (30 net) operated oil wells, 3 (2 net)
operated gas wells, 30 (4 net) non-operational oil wells and 44 (7 net)
non-operated gas wells. The majority of the value is associated with the
operated leases in the Mid-Continent region. On June 15, 2000, Red River
consummated the purchase from ONEOK and funded the purchase through Red River's
credit facility with the Bank of Oklahoma. Red River's planned capital
expenditures and administrative expenses could exceed those amounts budgeted and
could exceed Red River's cash from all sources. If this happens, it may be
necessary for Red River to raise additional funds. Since Red River has funded
the acquisition of the ONEOK Properties under its revolving line of credit with
the Bank of Oklahoma, substantially all of the Red River's current borrowing
capacity under its credit facility has been consumed. It is anticipated that
additional funds will be raised from one or more of the following
sources: Since Red River has funded the acquisition of the ONEOK Properties
under its revolving line of credit with the Bank of Oklahoma, substantially all of
Red River's current borrowing capacity under its credit facility has been consumed. If the above additional sources of
cash are insufficient or are unavailable on terms acceptable to Red River, Red
River will be compelled to reduce the scope of its business activities. If Red
River is unable to fund planned expenditures, it may be necessary to: Red River
believes it will have sufficient working capital to fund its capital expenditure
requirements throughout 2000. These are
forward looking statements that are based on assumptions which in the future may
not prove to be accurate. Although Red Rivers management believes that the
expectations reflected in such forward looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Results of Operations Red River Energy, L.L.C. was
formed as a limited liability company which elected to be taxed as a partnership
for federal income tax purposes. As a consequence, prior to the acquisition of
Red River Energy, L.L.C. by Red River Energy, Inc. on November 8, 1999, the
taxable income of Red River was taxed to its members in proportion to their
individual ownership interests, and the payment of federal income taxes on such
proportionate share of Red River's taxable income is the personal obligation of
each member. Red River Energy, Inc., which acquired all of the membership
interests of the Red River management, is an S Corporation for federal income
tax purposes. Like a limited liability company, an S corporation is not a
taxpayer as its income is included in the taxable income of its shareholders. As
a consequence of the merger, Red River's status as an S Corporation will
automatically terminate. The taxable year of Red River will end on the day of
the merger and a tax return will be due for the short taxable year ending then.
Thereafter Red River will be treated as a C Corporation for income tax purposes
and its income will be reported on a consolidated tax return filed by Beta, its
parent corporation. Three Months Ended March 31, 2000
compared to Three Months Ended March 31, 1999 Oil and gas sales increased from
$499,635 for the three months ended March 31, 1999 to $972,127 for the three
months ended March 31, 2000, an increase of 95%, primarily due to acquisition of
the McIntosh producing properties in July of 1999 and increased oil and gas
prices in 2000. Field services revenue was $137,220 for the three months ended
March 31, 2000 compared to $-0- for the prior year period, due to addition of
the McIntosh gathering system in July of 1999. Price and Production Data. Red
River's average sales price, oil and natural gas production volumes and average
production cost for each Mcf equivalent of production for the three months ended
March 31, 1999 and March 31, 2000. The price received by Red River
for its gas sales during the three months ended March 31, 2000 were positively
affected by its hedging arrangements. Without those arrangements, Red River
would have realized average natural gas prices of $2.32 per mcf. Operating expenses for the three
months ended March 31, 1999 were $315,624, compared to $318,652, for the
comparable period in 2000, and depreciation and depletion expense increased from
$97,892 for the first three months of 1999 compared to $176,321 for the same
period of 2000, principally because of the producing property acquisitions in
March 1999. Interest expense was higher for the three months ended March 31,
2000, $151,761 compared to $104,757 for the same period in 1999, an increase of
45%, because bank borrowings totaling approximately $2,100,000 were incurred in
March 1999 to finance the acquisition of the McIntosh properties. General and
administrative expenses increased 26%, from $261,074 for the three months ended
March 31, 1999 to $329,281 for the same period in 2000, due primarily to
addition of three employees. Year Ended December 31, 1999 compared to Year Ended December 31,
1998 Oil and gas sales increased from
$865,356 for the year ended December 31, 1998 to $2,852,121 for the year ended
December 31, 1999, an increase of 230%, primarily due to acquisition of the
WEHLU producing oil and gas properties in September of 1998. Additionally, the
McIntosh producing oil and gas properties and gathering system were purchased in
July of 1999, resulting in six months of revenues from these properties in 1999
compared to no revenues in 1998. Also contributing to the increase were the
higher oil and gas prices in 1999. Revenues from field services were $336,637
compared to $-0- for the prior year, due to addition of the McIntosh gathering
system in 1999. Price and Production Data. Red
River's average sales price, oil and natural gas production volumes and average
production cost for each Mcf equivalent of production for the years 1998 and
1999 were as follows: The price received by Red River
for its gas sales in 1999 were negatively affected by its hedging arrangements.
Without those arrangements, Red River would have realized average natural gas
prices of $2.31 per mcf. Operating expenses for the year
ended December 31, 1999 were $1,148,421, or $.91 per mcf equivalent compared to
$316,533, or $.76 per mcf equivalent for the comparable period in 1998, for an
increase of 263%, and depreciation and depletion expense increased to $586,095
in 1999 compared to $182,747 for the same period of 1998, principally because of
the producing property acquisitions in September 1998 and March 1999. Interest
expense was significantly higher for the year ended December 31, 1999, $512,264,
compared to $168,851 for the same period in 1998, an increase of 203%, because
bank borrowings totaling approximately $5,383,000 in September 1998 and
$2,100,000 in March 1999 were incurred to finance the acquisition of the WEHLU
and McIntosh properties. General and administrative expenses increased 43%, from
$685,573 for the year ended December 31, 1998 to $980,627 for the same period in
1999, due primarily to addition of three employees. Effective as of August 27, 1999, our board of directors adopted the 1999 Incentive and Nonstatutory
Stock Option Plan, a copy of which is appended to this proxy statement on Appendix D. The Plan was subsequently
amended and restated by our board of directors effective as of January 6, 2000. Shareholders of Beta may submit proposals to be considered for stockholder action at the 2000 Annual Meeting of
Shareholders of Beta if they do so in accordance with applicable regulations of the SEC and with the requirements
of the Beta by-laws. Any stockholder proposal must be submitted to the secretary of Beta no later than January
30, 2000 in order to be considered for inclusion in Beta's 2000 proxy materials. The proxies named in the proxy
solicitation for the 2000 Annual Meeting of shareholders will have discretionary authority to vote on any matters
proposed at the meeting by any shareholders if Beta was not given written notice of the matter no later than
March 15, 2000. The consolidated financial statements of Beta as of December 31,
1999 and for each of the three years in the period ended December 31, 1999,
included in this proxy statement have been included in reliance on the report of
Hein + Associates, LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing. The unaudited supplementary oil and gas reserve information of Beta included in this proxy statement has been
included in reliance of the report of Veazey & Associates, Inc. The unaudited supplementary oil and gas reserve
information appears elsewhere in this proxy statement on the authority of Veazey & Associates, Inc. The validity of the shares of Beta common stock being offered hereby is being passed upon for Beta by Clanahan,
Tanner, Downing and Knowlton, P.C. Shareholders of this law firm do not own shares of Beta common stock. THIS FIRST
AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (First Amendment)
is made as of this 19th day of January, 2000, by and among Beta Oil
& Gas, Inc., a Nevada corporation (Purchaser), Beta Acquisition
Company, Inc., an Oklahoma corporation (Merger Sub), and Red River
Energy, Inc., an Oklahoma corporation (Company), and the
shareholders executing this Agreement, individually (collectively, Red
River Shareholders). Unless otherwise defined in this First Amendment, all
capitalized terms in this document shall have the same meaning as defined in the
Merger Agreement. A. The parties
hereto have proposed that prior to the Closing Date, Purchaser issue in the
respective names of the Red River Shareholders and deposit in escrow the total
number of shares of Beta Common Stock to be issued to the Red River Shareholders
at Closing as a condition of the obligations of the Company and the Red River
Shareholders to consummate the Merger as contemplated under the Merger Agreement
and to provide assurances to the Red River Shareholders that such shares will be
received by them in connection with the consummation of the Merger; B. Purchaser is
willing to issue and make a deposit in good faith of all of the shares of Beta
Common Stock to be issued to the Red River Shareholders which will constitute
the stock consideration (Share Consideration) to be paid by
Purchaser under the Merger Agreement; and C. The parties
to the Agreement and Plan of Merger, dated November 19, 1999 (Merger
Agreement), wish to amend the Merger Agreement to provide for the issuance
and deposit of such portion of the Share Consideration with an escrow agent
mutually agreeable to the parties hereto. NOW THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby amend the Merger Agreement and agree
as follows: 1. Issuance and Deposit of Portion of Share Consideration. The Merger Agreement is hereby amended to add a
new Section 3.2.15 which shall read in its entirety as follows: 3.2.15 Escrow of Portion of Share Consideration. As of the Effective Date of
the First Amendment to the Merger Agreement, Purchaser shall issue seven (7)
stock certificates representing 2,250,000 shares of Beta Common Stock for the
number of shares in the names of current Red River Shareholders as follows: The shares represented by such stock certificates shall constitute "restricted
securities" within the meaning of Rule 144(a)(3) of the Securities Act of 1933, as amended
("the Act"). Such stock certificates shall contain a restrictive legend as to the restrictions
on the transferability of such shares. Such certificates shall be deposited with, and held by
H.T.C. Escrow Company,("Escrow Agent"), 730 Seventeenth Street, Suite 500, Denver, Colorado
80202, pursuant to the terms and provisions of the Escrow Agreement and Instructions ("Escrow
Agreement") which is attached to this First Amendment in the form of Appendix A. The stock certificates shall be delivered by the Escrow Agent on the Closing Date to
Rolf N. Hufnagel as the agent for the Red River Shareholders. If the Merger Agreement is
terminated in accordance with the terms thereof prior to the consummation of the Merger, the
stock certificates shall be redelivered by the Escrow Agent to Purchaser. Each of the parties
hereto agrees to provide written instructions to the Escrow Agent to such effect. During the period that the shares represented by the Stock Certificate as set forth
above are held in escrow pending the consummation of the Merger, neither the Escrow Agent nor
any of the Red River Shareholders shall have the right to vote such shares or dispose of such
shares, except to the extent of the Escrow Agent's obligation to deliver or redeliver the
shares as provided in the Escrow Agreement. 2. Effective Date. This First Amendment to the Merger Agreement shall be effective for all purposes as of
January 14, 2000 ("Effective Date"). 3. Amendment to Schedule A. Schedule A to the Merger Agreement is hereby amended as set forth on the
Amended Schedule A attached hereto. 4. Authorization of Agent to Sign. By signing this First Amendment, the undersigned Red River Shareholders
hereby authorize and empower Rolf N. Hufnagel as their agent to execute the Escrow Agreement on their
behalf, to execute any instructions to the Escrow Agent that may be necessary or appropriate under the
terms of this agreement or the Escrow Agreement and to act on their behalf by taking any and all action
which may be required of them under the terms and provisions of the Escrow Agreement. 5. No Other Modifications. Except as modified by this First Amendment, there are no other changes or
modifications to the Merger Agreement. The Merger Agreement, as of the date hereof, remains in full
force and effect and is enforceable in accordance with the terms thereof, including the terms of this
First Amendment. 6. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed
an original but all of which shall constitute one and the same instrument. Even though this First Amendment is executed by the parties on a later date, it shall be effective for
all purposes as of the Effective Date. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above
written. ESCROW AGREEMENT AND INSTRUCTIONS TO: H.T.C. ESCROW COMPANY Beta Oil & Gas, Inc., a Nevada corporation ("Company"), hereby delivers to you a stock certificates ("Stock Certificates")
for 2,250,000 shares of its Common Stock $.001 par value ("the Shares") which have been issued for the number of Shares in the name
of the current shareholders of Red River Energy, Inc. as follows: The Shares represented by the Certificates are being deposited in an escrow account with you, as escrow agent, as a deposit
made in good faith of the total stock consideration to be transferred to the shareholders of Red River Energy, Inc. in connection
with the performance of the Company's obligations under the Plan of Merger and Agreement, dated November 19, 1999 as amended by the
First Amendment to Agreement and Plan of Merger, dated January 19, 2000 ("Merger Agreement") prior to the closing of the merger
transaction as contemplated under the Merger Agreement. The Certificates representing the Shares are to be held and delivered by you
in accordance with the directions contained in Schedule A attached hereto and made a part hereof by this reference and on the terms
and conditions as otherwise set forth in this Agreement. The Shares represented by the Stock Certificates are "restricted securities" within the meaning of Rule 144(a)(3) as
promulgated under the Securities Act of 1933, as amended (the "Act"). The Stock Certificates contain a restrictive legend as to the
restrictions on the transferability of the Shares. During the period that the Shares represented by the Stock Certificate, as set forth above, are held in escrow as provided
in this Agreement, neither the Agent (as defined below) nor any of the shareholders of Red River Energy, Inc. named in the foregoing
table shall have the right to vote the Shares or dispose of the Shares, except to the limited extent as directed in accordance with
the instructions to the Agent in Schedule A attached hereto. The persons signing this Agreement are parties to the Merger Agreement and hereby represent that they have been duly
authorized to sign this Agreement in the capacity as set forth in the signature page to this Agreement. SECTION ONE H.T.C. Escrow Company (hereafter "Agent") acts hereunder as a depositary only and is not a party to, or bound by, any of the
terms of provisions of the Merger Agreement or any other agreement or undertaking which may be evidenced by, or arise out of, or
which may relate to, the Shares deposited with it under the terms of this Agreement. Agent is not responsible or liable in any
manner for the sufficiency, correctness, genuineness, or validity of the Shares represented by the Stock Certificates or the issuance
thereof and undertakes no responsibility or liability for the form of execution of such Stock Certificates or the identity,
authority, title or rights of any person executing or depositing the Stock Certificates as described in this Agreement. SECTION TWO Agent shall not be liable for any error of judgment or for any act done or omitted by it in good faith, or for anything
which it may in good faith do or refrain from doing in connection herewith. No liability will be incurred by Agent if, in the event
of any dispute or question as to the construction of the directions in Schedule A, it acts in accordance with the opinion of its
legal counsel. The Company hereby agrees to indemnify Agent and to hold Agent harmless against any claims whatsoever in the event of
any dispute between the Company and Red River Energy, Inc. or any of the Shareholders of Red River Energy, Inc., or with any third
person with respect to this agreement and the Merger Agreement. SECTION THREE All notices of default of any persons shall be given in writing to an officer of Agent. Unless written notice shall be so
given, Agent shall not be required to take or be bound by notice of any default or to take action concerning such default. If
written notice of default is properly given and Agent is required on receipt thereof to take any action with respect to such default,
and such action involves any expense or liability, Agent shall not be required to take any such action, unless it is indemnified
against such expense or liability in a manner satisfactory to it. SECTION FOUR Agent is authorized to act on any document believed by it to be genuine and to be signed by the proper party or parties, and
will incur no liability in so acting. SECTION FIVE In the event of any disagreement or the presentation of adverse claims or demands in connection with, or for the Shares
represented by, the Stock Certificates or any matter related to or affected thereby, Agent shall, at its option, be entitled to refuse
to comply with any such claims or demands during the continuance of such disagreement and may refrain from delivering the Stock
Certificates, and in so doing Agent shall not become liable to the Company or any party to the Merger Agreement or to any persons
named in the attached schedules, or to any other person, due to its failure to comply with any such adverse claim or demand. Agent
shall be entitled to continue, without liability, to refrain and refuse to act: (a) Until all the rights of the adverse claimants have been finally adjudicated by a court having jurisdiction
of the parties and the Shares represented by the Stock Certificates and any matter related to this Agreement or the Merger
Agreement, after which time Agent shall be entitled to act in conformity with such adjudication; or (b) Until all differences shall have been adjusted by agreement and Agent shall have been notified thereof and
shall have been directed in writing signed jointly or in counterpart by the Company and by all persons making adverse claims
or demands, at which time Agent shall be protected in acting in compliance therewith. Agent may, at its option, in the absence of a final adjudication or agreement between the parties, interplead the Stock
Certificates representing the Shares held by Agent into the District Court for the City and County of Denver, State of Colorado, and
shall be entitled to reimbursement for its reasonable attorney's fees in so doing. SECTION SIX Agent agrees to serve without compensation under this Agreement. However, Agent shall have a first lien on the Shares
represented by the Stock Certificates held by it under this Agreement for any costs, liability, expenses or fees it may reasonably
incur as the consequence of its acting as Agent under this Agreement. Dated this 19th day of January, 2000. H.T.C. Escrow Company acknowledges receipt of your escrow letter of instructions of which the foregoing is a copy, and of
the Stock Certificate representing the Shares as provided in the foregoing Escrow Agreement, and agrees to hold and deliver the Stock
Certificate in accordance with the terms and conditions in the escrow letter of instructions and the directions contained in Schedule
A attached to such Agreement. Dated this 19th day of January, 2000. H.T.C. Escrow Company ("Agent") is hereby instructed to take possession of and hold Stock Certificate Numbers _____
through _____, inclusively, as identified in the Escrow Agreement and Instructions, dated January ____, 2000 ("Agreement") to
which this Schedule A is attached. Agent shall hold such Stock Certificates until such time as Agent has received written instructions from the Company,
Red River Energy, Inc. and Rolf N. Hufnagel, on his behalf and on behalf of all of the Red River Shareholders signatory to the
Merger Agreement, as amended, which instructions shall have been signed by all such persons directing Agent as to the person to
whom the items set forth in thisSchedule A should be delivered by the Agent. Upon delivery of the Stock Certificates, the parties to the Agreement as well as their respective attorneys shall sign
such releases and indemnities as required by Agent and at such time Agent shall be discharged of any and all duties obligations
required by it to be performed and any and all liabilities relating to or arising out of its duties and responsibilities under
this Agreement and the discharge thereof. Dated this 19th day of January, 2000. THIS SECOND
AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (Second Amendment)
is made as of this 14th day of February, 2000, by and among Beta Oil & Gas,
Inc., a Nevada corporation (Purchaser), Beta Acquisition Company,
Inc., an Oklahoma corporation (Merger Sub), and Red River Energy,
Inc., an Oklahoma corporation (Company), and the shareholders
executing this Agreement, individually (collectively, Red River
Shareholders). Unless otherwise defined in this Second Amendment, all
capitalized terms in this document shall have the same meaning as defined in the
Merger Agreement, dated November 19, 1999. A. Since the date that the parties hereto entered into the
Merger Agreement, certain developments have occurred which the parties hereto
have determined necessitate that the Merger contemplated under such agreement be
consummated in any event with only limited exceptions and the parties hereto
intend that the terms and provisions of the Merger Agreement shall be binding on
the parties hereto and subject to limited exceptions shall be specifically
enforceable by any party to the Merger Agreement notwithstanding any provisions
presently contained in the Merger Agreement to the contrary; B. Such developments include without limiting the generality
thereof (i) the payment by the Purchaser of auditors fees with respect the
audit of the consolidated financial statements of Red River Energy, LLC and its
subsidiaries for the year ended December 31, 1998 and the unaudited consolidated
financial statements for Red River Energy, LLC and its subsidiaries for the nine
month period ended September 30, 1998 and 1999, and (ii) the indication by the
United States Securities and Exchange Commission (Commission) that
the Preliminary Proxy Statement filed with the Commission on January 12, 2000
will be fully reviewed and the resulting delay to the Closing of the Merger
Agreement that could result from such regulatory review; C. The desire of the parties hereto to have certainty that,
subject to certain exceptions as set forth in this Second Amendment, the
transaction contemplated under the Agreement will be Closed and the Merger will
be effectuated and as such enable the parties to proceed with the planned
expenditures and development of the properties, implement and carry out the
business plans and strategies for, and proceed with the conduct of the combined
business operations and activities of the Purchaser and the Company on a going
forward basis as though Merger Sub had merged with and into the Company and the
Company was a wholly owned subsidiary of the Purchaser; D. The parties hereto wish is to amend the Merger Agreement, as
amended by the First Amendment to the Agreement and Plan of Merger, dated
January 19, 2000, to extend date when the Merger Agreement will automatically be
terminated if the Closing of the Merger has not been completed by a fixed date
as provided in this Second Amendment; and E. The parties in addition wish to amend Sections 3.1 and 3.2 of
the Merger Agreement to provide that the Closing as contemplated under the
Merger Agreement, as amended, will occur, and the Merger will be consummated, in
any event on the Closing Date and at the Effective Time notwithstanding the
satisfaction of the conditions set forth in Sections 3.1.1 through 3.1.15 and
Sections 3.2.1 through 3.2.14 of the Merger Agreement to the contrary, except as
otherwise provided in this Second Amendment. NOW
THEREFORE, in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby amend the Merger Agreement, as previously
amended, and agree as follows: 1. Amendments to Conditions of
Closing. Sections 3.1 and 3.2 are hereby
amended to provide that the obligations of the respective parties to Close as
set forth under such Sections shall be subject only to the conditions that (i)
no party has intentionally and fraudulently misrepresented or willfully breached
any material representation or warranty made by such party to the other party as
set forth in the Merger Agreement; (ii) no suit, action or other proceeding
shall be pending or threatened as set forth in Sections 3.1.5 and 3.2.5 of the
Merger Agreement; and (iii) the shareholders of the Purchaser shall have
approved the Merger Agreement in accordance with the Purchasers Articles
of Incorporation, its Bylaws and the General Corporation Law of Nevada.
Otherwise, the conditions set forth in Sections 3.1.1 through 3.1.15 of the
Merger Agreement shall be performed by the Company and the Red River Shareholder
on or before the Closing Date but except as expressly provided in this Section 1
shall not be a condition of the Purchasers and Merger Subs
obligation to close the transactions contemplated under the Merger Agreement on
the Closing Date. Similarly, the conditions set forth in Sections 3.2.1 through
3.2.14 of the Merger Agreement shall be required to be performed by the
Purchaser and Merger Sub on or before the Closing Date but except as expressly
provided in this Section 1 shall not be a condition of the Companys and
the Red River Shareholders obligation to close the transactions
contemplated under the Merger Agreement on the Closing Date. 2.Closing. The first sentence of Section 2.4 of the Merger Agreement shall be deleted and the following shall be in
substitution therefor: Except as so amended, the remainder of Section 2.4 shall remain unmodified. 3.Amendment to Registration of Securities Section 9.15(b)(I) of the Merger Agreement is hereby amended to read in its
entirety as follows: 4.Amendment to Termination for Breach or Misrepresentation. Section 8.1.2 of the Merger Agreement is hereby amended to read
in its entirety as follows: 5. Amendment to Termination
Date. Section 8.1.3 of the Merger Agreement
is hereby amended to change the date of March 31, 2000, as referenced therein,
to December 31, 2000, which shall be the date when either party by written
notice to the other may terminate the Merger Agreement if the Closing shall not
have occurred by such date. Except as amended by this Section 2, the provisions
of Section 8.1.3 shall remain unmodified. 6. Deletion of Provision Relating to
Termination. Section 8.1.4 of the Merger
Agreement is hereby deleted in its entirety. As a consequence of such deletion,
Section 8.1.5 of the Merger Agreement is hereby renumbered as Section 8.2 and
any reference therein to Section 8.1.5 shall be deemed to refer to Section 8.2. 7.Specific Performance. A new Section 9.20 shall be added to the Merger Agreement which shall read in its entirety as follows:
8.Effective Date. This Second Amendment to the Merger Agreement shall be effective for all purposes as of February 14, 2000
("Effective Date"). 9.No Other Modifications. Except as modified by this Second Amendment, there are no other changes or modifications to the
Merger Agreement, as previously amended. The Merger Agreement, as previously amended, remains in full force and effect and is
enforceable in accordance with the terms thereof, including the terms of this Second Amendment, 10.Counterparts. This Second Amendment may be signed in one or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. Even though this
Second Amendment is executed by the parties on a later date, it shall be
effective for all purposes as of the Effective Date. IN WITNESS
WHEREOF, the parties hereto have executed this Agreement the day and year
first above written. The Stockholders and Board of Directors /S/ HEIN + ASSOCIATES LLP HEIN + ASSOCIATES LLP Orange, California February 16, 2000 The Shareholders and Board of Directors We have audited the accompanying consolidated balance sheets of Beta Oil & Gas, Inc. and subsidiaries as of
December 31, 1998 and 1999, and the related statements of operations, shareholders' equity, and cash flows for
the period from inception (June 6, 1997) to December 31, 1997, and the years ended December 31, 1998 and 1999.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Beta Oil & Gas, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the period from inception (June 6, 1997) to December 31,
1997 and for the years ended December 31, 1998 and 1999 in conformity with generally accepted accounting
principles. /s/ HEIN + ASSOCIATES LLP HEIN + ASSOCIATES LLP (Information subsequent to December 31, 1999 is unaudited) (1) ORGANIZATION AND OPERATIONS (2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Information subsequent to December 31, 1999 is unaudited) and the estimated useful lives selected for furniture, fixtures and equipment.Management emphasizes that reserve
estimates are inherently imprecise and that estimates of more recent discoveries are more imprecise that those
for properties with long production histories. (Information subsequent to December 31, 1999 is unaudited) economic characteristics that would cause their ability to meet contractual obligations to be similarly affected
by changes in economic or other conditions described below. In accordance with FASB Statement
No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, the credit risk amounts shown in cash and accounts receivable do
not take into account the value of any collateral or security. As of December 31, 1998 and 1999, Beta maintained
cash in a bank that was approximately $98,000 and $1,352,085, respectively, in excess of the federally insured
limit. (Information subsequent to December 31, 1999 is unaudited) Beta has adopted SFAS 131, "Disclosure about Segments of an Enterprise and Related Information." As defined in
that Standard, Beta operates in only one segment, oil and gas exploration. Interim Financial Information - The March 31, 1999 and 2000 financial statements
have been prepared by the Company without audit. In the opinion of management,
the accompanying financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary for a fair presentation of the
Company's financial position as of March 31, 2000 and the results of operations
and cash flows for the three months ended March 31,1999 and 2000. The results of
operations for the three month periods ended March 31, 1999 and 2000 are not
necessarily indicative of those that will be obtained for the entire fiscal
year. (3) SUMMARY OF OIL AND GAS OPERATIONS Unevaluated oil and gas properties - United States
(Information subsequent to December 31, 1999 is unaudited) Unevaluated oil and gas properties - Foreign Management expects that planned activities for the year 2000
will enable the evaluation for approximately 20% of the costs as of March 31,
2000. Evaluation of 30% of the remaining costs is expected to occur in 2001 with
the remaining 50% in future periods. Impairment of Oil and Gas Properties United
States As a result of a ceiling test calculation, which limits
capitalized costs, net of related deferred tax liability, to the aggregate of
the estimated present value, discounted at 10 percent of future net revenues
from proved reserves plus lower of cost or fair market value of unproved
properties, Beta recognized an impairment of approximately $1,168,000 related to
its oil and gas properties during the fourth quarter of 1999. Beta recognized an
impairment of approximately $46,000 related to its oil and gas properties during
the fourth quarter of 1998. Evaluated Properties - United States During the year ended December 31, 1998 Beta participated in the drilling of 6
wells within the United States. The property acquisition and exploration costs
associated with the wells were transferred to evaluated properties and were
evaluated for impairment. Since all of the proved reserves
associated with the wells were non-producing or behind pipe and no production
had occurred as of December 31, 1998, no depletion expense was recorded during
the year ended December 31, 1998. During the year ended December 31, 1999, Beta participated in the drilling of 19
wells within the United States. The property acquisition and exploration costs
associated with the wells were transferred to evaluated properties. Production
commenced during the year and depletion expense of $901,573 was recorded. Additional depletion
expense of $557,80 was recorded for the three months ended March 31, 2000. Evaluated Properties - Foreign (Information subsequent to December 31, 1999 is unaudited) (4) BRIDGE NOTES - NOTES PAYABLE The remaining $2,997 represents cash interest expense incurred in connection with financing insurance premiums. (Information subsequent to December 31, 1999 is unaudited) (5) COMMON STOCK WARRANTS (Information subsequent to December 31, 1999 is unaudited) Pro Forma Information During the year ended December 31, 1997, and the three months ended March 31, 2000
Beta did not grant exercisable warrants or options to employees. As a result,
there would be no effect on Beta's net loss or net loss per share. The fair value of each warrant is estimated on the date of grant using the minimum value option-pricing model in
1998 and the Black Scholes option pricing model for 1999 using the following assumptions: The weighted average fair value of the options on the grant
dates was $4.31 per share for 1998 and $1.68 for 1999. Cancellation of Warrants (Information subsequent to December 31, 1999 is unaudited) (6) INCOME TAXES The actual income tax (expense ) benefit differs from the "expected" tax (expense) benefit (computed by applying
the U.S. Federal corporate income tax rate of 34% for each period) as follows: (Information subsequent to December 31, 1999 is unaudited) At December 31, 1999, Beta has net operating loss carryforwards of approximately $9,500,000 which expire in the
years 2012 through 2019. Beta has California net operating loss carryforwards for the year ended December 31,
1999 of $8,600,000 which expire in 2005. (Information subsequent to December 31, 1999 is unaudited) Leases Rent expense for the period ended December 31, 1997 and the years ended December 31, 1998 and 1999 amounted to
approximately $8,000, $ 31,000 and $33,000, respectively. (Information subsequent to December 31, 1999 is unaudited) The plan is subject to approval by the shareholders of the Company. On June 23, 1997, Beta entered into an employment agreement with a shareholder. The agreement provides for a two
year term at an annual salary of $60,000 for services as "Vice President of Capital Markets". Under separate
agreement, the Shareholder subscribed to 350,000 shares of Founders Shares at a price of $0.05 per share. The
subscription agreement provides that the shares shall vest over a three year period. (Information subsequent to December 31, 1999 is unaudited) (9) UNAUDITED SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION,br>
(Information subsequent to December 31, 1999 is unaudited) (Information subsequent to December 31, 1999 is unaudited) For purposes of the following disclosures, estimates were made of quantities of proved reserves and the periods
during which they are expected to be produced. Future cash flows were computed by applying year-end prices to
estimated annual future production from proved oil and gas reserves. The average year-end price for oil was
$13.14 and $ 23.06 per barrel at December 31, 1998 and 1999, respectively. The average year-end price for gas
was $1.85 and $2.19 per mcf at December 31, 1998 and 1999, respectively. Future development and production
costs were computed by applying year-end costs to be incurred in producing and further developing the proved
reserves. Future income tax expenses were computed by applying, generally, year-end statutory tax rates
(adjusted for permanent differences, tax credits and allowances) to the estimated net future pre-tax cash flows.
The discount was computed by application of a 10% discount factor. The calculations assume the continuation of
existing economic, operating and contractual conditions. However, such arbitrary assumptions have not proven to
be the case in the past. Other assumptions of equal validity could give rise to substantially different
results. (Information subsequent to December 31, 1999 is unaudited) The following are the principal sources of changes in the standardized measure of discounted future net cash
flows: During 1999, Beta recognized downward revisions in oil and gas reserves due to disappointing production results
associated with two wells in which Beta recorded reserves at December 31, 1998. We have audited the accompanying statement of revenues and
direct operating expenses of the certain properties being sold to Red River
Energy, Inc. (ONEOK properties) of ONEOK Resources Company (see Note 1) for the
year ended December 31, 1999. This statement is the responsibility of the ONEOK
Resources Companys management. Our responsibility is to express an opinion
on the financial statement based on our audit. We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues and
direct operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. The accompanying statement of revenues and direct operating
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in the
proxy statement of Beta Oil & Gas, Inc.) as described in Note 2 and is not
intended to be a complete presentation of the ONEOK properties revenues
and expenses. In our opinion, the statement of revenues and direct operating
expenses referred to above present fairly, in all material respects, the
revenues and direct operating expenses of the ONEOK properties for the year
ended December 31, 1999 in conformity with generally accepted accounting
principles. /s/ Hein + Associates, LLP Hein + Associates, LLP June 15, 2000 Annex E [GRAPHIC OMITTED][GRAPHIC OMITTED] BETA OIL & GAS, INC. AMENDED AND RESTATED 1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN 1.
Purpose of Plan. The purpose of this 1999 Incentive and
Nonstatutory Stock Option Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees, Directors and
Consultants of BETA OIL & GAS, INC. (the Company) and to
promote the success of the Companys business. Options granted hereunder
may be either incentive stock options, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, or nonstatutory stock
options, at the discretion of the Board and as reflected in the terms of
the written stock option agreement. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company, or if a Committee is appointed, "Board"
shall refer to the Committee if the context so requires. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the $.001 par value common stock of the Company. (d) "Company" shall mean BETA OIL & GAS, INC., a Nevada corporation. (e) "Committee" shall mean the Committee appointed by the Board of Directors in accordance with
paragraph (a) of Section 4 of the Plan, if one is appointed, or the Board if no committee is appointed. (f) "Consultant"shall mean any person who is engaged by the Company or any Subsidiary to render
consulting services and is compensated for such consulting services. (g) "Continuous Status as an Employee"shall mean the absence of any interruption or termination of
service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more
than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (h) "Employee"shall mean any person, including officers and directors, employed by the Company or any
Parent or Subsidiary of the Company. (i) "Incentive Stock Option"shall mean an Option which is intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and which shall be clearly identified as such in the written Stock
Option Agreement provided by the Company to each Optionee granted an Incentive Stock Option under the Plan. (j) "Non-Employee Director"shall mean a director who: (i)Is not currently an officer (as defined in Section 16a-1(f) of the Securities
Exchange Act of 1934, as amended) of the Company or a Parent or Subsidiary of the
Company, or otherwise currently employed by the Company or a Parent or
Subsidiary of the Company; (ii) Does not receive compensation, either directly or indirectly, from the Company
or a Parent or Subsidiary of the Company, for services rendered as a Consultant or
in any capacity other than as a director, except for an amount that does not
exceed the dollar amount for which disclosure would be required pursuant to Item
404(a) of Regulation S-K adopted by the United States Securities and Exchange
Commission; and (iii) Does not possess an interest in any other transaction for which disclosure would
be required pursuant to Item 404(a) of Regulation S-K adopted by the United States
Securities and Exchange Commission. (k) "Nonstatutory Stock Option"shall mean an Option granted under this Plan which does not qualify
as an Incentive Stock Option and which shall be clearly identified as such in the written Stock Option Agreement provided by
the Company to each Optionee granted a Nonstatutory Stock Option under this Plan. To the extent that the aggregate fair
market value of Optioned Stock to which Incentive Stock Options granted under Options to an Employee are exercisable for the
first time during any calendar year (under the Plan and all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options under the Plan. The aggregate fair market value of
the Optioned Stock shall be determined as of the date of grant of each Option and the determination of which Incentive Stock
Options shall be treated as qualified incentive stock options under Section 422 of the Code and which Incentive Stock
Options exercisable for the first time in a particular year in excess of the $100,000 limitation shall be treated as
Nonstatutory Stock Options shall be determined based on the order in which such Options were granted in accordance with
Section 422(d) of the Code. (l) "Option" shall mean an Incentive Stock Option, a Nonstatutory Stock Option or both as identified
in a written Stock Option Agreement representing such stock option granted pursuant to the Plan. (m) "Optioned Stock" shall mean the Common Stock subject to an Option. (n) "Optionee" shall mean an Employee or other person who is granted an Option. (o) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in
Section 424(e) of the Code. (p) "Plan" shall mean this 1999 Incentive and Nonstatutory Stock Option Plan. (q) "Share" shall mean a share of the Common Stock of the Company, as adjusted in accordance with
Section 11 of the Plan. (r) "Stock Option Agreement" shall mean the agreement to be entered into between the Company and each
Optionee which shall set forth the terms and conditions of each Option granted to each Optionee, including the number of
Shares underlying such Option and the exercise price of each Option granted to such Optionee under such agreement. (s) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined
in Section 424(f) of the Code. 3.
Stock Subject to the
Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 700,000 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares which were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan. 4.Administration of the Plan. (a)Procedure. The Plan shall be administered by a Committee appointed by the Board consisting of
two or more Non-Employee Directors to administer the Plan on behalf of the Board, subject to such terms and conditions as
the Board may prescribe. If the Company has a class of its equity securities registered under the Securities Exchange Act
of 1934, as amended ("1934 Act"), the Board shall appoint the Committee. (i)Once appointed, the Committee shall continue to serve until otherwise directed
by the Board (which for purposes of this paragraph (a)(i) of this Section 4 shall
be the Board of Directors of the Company). From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan. (ii)Members of the Board who are granted, or have been granted, Options may vote on
any matters affecting the administration of the Plan or the grant of any Options pursuant to the Plan. (b)Powers of the Board.Subject to the provisions of the Plan, the Board (or the Committee, subject
to the approval of the Board) shall have the authority, in its discretion: (i)To grant Incentive Stock Options, in accordance with Section 422 of the Code,
and Nonstatutory Stock Options or both as provided and identified in a separate
written Stock Option Agreement to each Optionee granted such Option or Options
under the Plan; provided however, that in no event shall an Incentive Stock
Option and a Nonstatutory Stock Option granted to any Optionee under a single
Stock Option Agreement be subject to a tandem exercise arrangement
such that the exercise of one such Option affects the Optionees right to
exercise the other Option granted under such Stock Option Agreement; (ii)To determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (iii)To determine the exercise price per Share of Options to be granted, which
exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv)To determine the Employees or other persons to whom, and the time or times at
which, Options shall be granted and the number of Shares to be represented by each Option; (v)To interpret the Plan; (vi)To prescribe, amend and rescind rules and regulations relating to the Plan; (vii)To determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each Option; (viii)To accelerate or defer (with the consent of the Optionee) the exercise date of
any Option, consistent with the provisions of Section 7 of the Plan; (ix)To authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the Board; and (x) To make all other determinations deemed necessary or advisable for the
administration of the Plan. (xi)To determine whether a holder of Nonstatutory Stock Options granted under this
Plan shall have engaged in conduct which is contrary to the best interests of the
Company and whose Nonstatutory Stock Option is therefore subject to cancellation
as set forth in Section 7. (c)Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall
be final and binding on all Optionees and any other permissible holders of any Options granted under the Plan. 5.Eligibility. (a)Persons Eligible. Options may be granted to any Employee, Director, Officer or Consultant of the
Company selected by the Board. Incentive Stock Options may be granted only to Employees. An Employee, who is also a
director of the Company, its Parent or a Subsidiary, shall be treated as an Employee for purposes of this Section 5. An
Employee or other person who has been granted an Option may, if he is otherwise eligible, at the discretion of the
Committee, if a Committee has been appointed, or the Board, be granted an additional Option or Options. (b)No Effect on Relationship. The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or other relationship with the Company nor shall it interfere in any way with his right or the
Company's right to terminate his employment or other relationship at any time. 6.
Term of Plan. The Plan
became effective on the date first approved and adopted by the Board of
Directors, as set forth on the last page of this Plan. It shall continue in
effect for 10 years from the date of such approval and adoption, unless sooner
terminated under Section 13 of the Plan. 7.
Term of Option. The term of
each Option shall be 10 years from the date of grant thereof or such shorter
term as may be provided in the Stock Option Agreement. However, in the case of
an Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five years from the date of grant thereof or such
shorter time as may be provided in the Stock Option Agreement. The Nonstatutory
Stock Options granted to, and held by, any person under this Plan, may be deemed
canceled and forfeited by the Board, if the Board, in its sole discretion,
determines that the conduct of the holder of such Nonstatutory Stock Option has
been contrary to the best interests of the Company and could reasonably be
deemed by the Board to have a material adverse effect on the Company or the
business of the Company. 8.Exercise Price and Consideration. (a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an
Option shall be no less than the fair market value of Shares of common stock as of the date of grant of the option or such
higher price as may be determined by the Board, but the per Share exercise price under an Incentive Stock Option shall be
subject to the following: (i) If granted to an Employee who, at the time of the grant of such Incentive Stock
Option, owns stock representing more than 10% of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
shall not be less than 110% of the fair market value per Share on the date of
grant. (ii) If granted to any other Employee, the per Share exercise price shall not be less
than 100% of the fair market value per Share on the date of grant. (b)Determination of Fair Market Value. The fair market value per Share on the date of grant shall be
determined as follows: (i) If the Common Stock is listed on the New York Stock Exchange, the American Stock
Exchange or such other securities exchange designated by the Board, or admitted to
unlisted trading privileges on any such exchange, or if the Common Stock is
quoted on a National Association of Securities Dealers, Inc. system that reports
closing prices, the fair market value shall be the closing price of the Common
Stock as reported by such exchange or system on the day the fair market value is
to be determined, or if no such price is reported for such day, then the
determination of such closing price shall be as of the last immediately
preceding day on which the closing price is so reported; (ii) If the Common Stock is not so listed or admitted to unlisted trading privileges
or so quoted, the fair market value shall be the average of the last reported
highest bid and the lowest asked prices quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or, if not so quoted, then
by the National Quotation Bureau, Inc. on the day the fair market value is
determined; or (iii) If the Common Stock is not so listed or admitted to unlisted trading privileges
or so quoted, and bid and asked prices are not reported, the fair market value
shall be determined in such reasonable manner as may be prescribed by the Board. (c) Consideration and Method of Payment. The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined by the Committee or the Board and may
consist entirely of cash, check, other shares of Common Stock having a fair market value on the date of exercise equal to
the aggregate exercise price of the Shares as to which said Option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for the issuance of Shares to the extent permitted under the
Nevada Business Corporation Act. 9.Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. In the sole discretion of the Board, at the time of the grant of an Option or subsequent thereto but prior
to the exercise of an Option, an Optionee may be provided with the right to exchange, in a cashless transaction, all or part
of the Option for Common Stock of the Company on terms and conditions determined by the Board. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the
Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the Company. Full payment, as authorized by the
Board, may consist of a consideration and method of payment allowable under Section 8(c) and this Section 9(a) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the Company or of the duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for exercise under the Option, by the number of Shares as to which the
Option is exercised. (b)Termination of Status as an Employee. In the case of an Incentive Stock Option, if any Employee
ceases to serve as an Employee, he may, but only within such period of time not exceeding three months as is determined by
the Board at the time of grant of the Option, after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise the Option at the date of such termination. To the extent that he was not
entitled to exercise the Option at the date of such termination, or if he does not exercise any portion of the Option which
he was entitled to exercise at the date of termination within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the case of an Incentive Stock Option, notwithstanding the provisions
of Section 9(b) above, in the event an Employee is unable to continue his employment with the Company as a result of his
total and permanent disability (as defined in Section 22(e)(3) of the Code), he may, but only within such period of time not
exceeding 12 months as is determined by the Board at the time of grant of the Option from the date of termination, exercise
his Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not
entitled to exercise the Option at the date of termination, or if he does not exercise any portion of the Option which he
was entitled to exercise at the date of disability within the time specified herein, the Option shall terminate. (d)Death of Optionee. In the case of an Incentive Stock Option, in the event of the death of the
Optionee: (i)During the term of the Option if the Optionee was at the time of his death an
Employee the Company and had been in Continuous Status as an Employee or Consultant since
the date of grant of the Option, the Option may be exercised, at any time within
12 months following the date of death, by the Optionees estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as an Employee 12
months after the date of death; or (ii)Within such period of time not exceeding three months as is determined by the
Board at the time of grant of the Option after the termination of Continuous Status as
an Employee, the Option may be exercised, at any time within 12 months following
the date of death, by the Optionees estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination. 10.
Nontransferability of Options.. In the case of an Incentive
Stock Option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner (a sale or other transfer)
other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. In the
case of a nonstatutory stock option, an Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner during the
period ending one year from the date of grant and thereafter only (i) after
written notice to the Board and (ii) in a manner which is in compliance with all
applicable provisions of the Securities Act of 1933, as amended (1933
Act) and the 1934 Act to the reasonable satisfaction of the Company. Upon
any permitted sale or other transfer, the transferee shall remain subject to all
terms and conditions of the Plan and the Stock Option Agreement. 11. Adjustments Upon Changes in
Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of any Option, as well as the price per Share covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been effected without receipt of consideration. Such adjustment
shall be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares subject to an Option. In the event of
the proposed dissolution or liquidation of the Company, the Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of the proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation in a transaction in which the Company
is not the survivor, the Option shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the Optionee
shall have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. If
the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of such a merger or sale of assets, the Board shall
notify the Optionee that the Option shall be fully exercisable for a period of
30 days from the date of such notice, and the Option will terminate upon the
expiration of such period. 12.
Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each
Employee or other person to whom an Option is so granted within a reasonable
time after the date of such grant. Within a reasonable time after the date of
the grant of an Option, the Company shall enter into and deliver to each
Employee or other person granted such Option a written Stock Option Agreement as
provided in Sections 2(r) and 16 hereof, setting forth the terms and conditions
of such Option and separately identifying the portion of the Option which is an
Incentive Stock Option and/or the portion of such Option which is a Nonstatutory
Stock Option. 13.Amendment and Termination of the Plan. (a)Amendment and Termination. The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable; provided that, the following revisions or amendments shall require approval of the
shareholders of the Company in the manner described in Section 17 of the Plan: (i)An increase in the number of Shares subject to the Plan above 700,000 Shares,
other than in connection with an adjustment under Section 11 of the Plan; (ii)Any change in the designation of the class of Employees eligible to be granted
Incentive Stock Options; or (iii)Any material amendment under the Plan that would have to be approved by the
shareholders of the Company for the Board to continue to be able to grant Incentive Stock Options under the Plan in accordance with the Code. (b)Effect of Amendment or Termination.Any such amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and
signed by the Optionee and the Company. 14.
Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the 1933 Act, the
1934 Act, the rules and regulations promulgated thereunder, applicable state
securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of legal
counsel for the Company with respect to such compliance. As a condition
to the existence of an Option, the Company may require the person exercising
such Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares and such other representations and warranties
which in the opinion of legal counsel for the Company, are necessary or
appropriate to establish an exemption from the registration requirements under
applicable federal and state securities laws with respect to the acquisition of
such Shares. 15.
Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Companys legal counsel to be necessary for the lawful issuance and sale of
any Share hereunder, shall relieve the Company of any liability relating to the
failure to issue or sell such Shares as to which such requisite authority shall
not have been obtained. 16.
Option Agreement. Each Option granted to an Employee or other persons shall be evidenced by a written
Stock Option Agreement. The Stock Option Agreement shall be in the form and shall include the terms and conditions set forth on
Exhibit A attached hereto. 17.
Shareholder Approval. Continuance of the Plan shall
be subject to approval by the shareholders of the Company. Such shareholder
approval and any shareholder approval required under Section 13 of the Plan, may
be obtained at a duly held shareholders meeting by the affirmative vote of the
holders of a majority of the outstanding shares of the voting stock of the
Company, who are present or represented and entitled to vote thereon, or by
majority written consent of the shareholders in accordance with the provisions
of the Nevada Business Corporation Act. 18.
Information to Optionees. The Company shall provide to
each Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information. 19. Gender.As used herein, the masculine, feminine and neuter genders shall be deemed to include the others in all
cases where they would so apply. 20.
CHOICE OF LAW. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS PLAN AND THE
INSTRUMENTS EVIDENCING OPTIONS WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE
LAW OF CONFLICTS, OF THE STATE OF NEVADA. The undersigned acknowledges that he/she/it/they have received a
copy of the Proxy Statement, dated _____, 2000, concerning the proposed merger
of the Company's wholly owned subsidiary, Beta Acquisition Company, Inc., an
Oklahoma corporation, with and into Red River Energy, Inc., an Oklahoma
corporation. On the basis of his/her/its/their review of the information
contained in such Proxy Statement, the undersigned hereby (please check the
appropriate box If you sign and return the enclosed consent forms to the Company
without checking either of these boxes, the consent forms will be treated as
though you consented to the proposed merger) Consents
Withholds Consent as to the following resolution: RESOLVED, that the Agreement and
Plan of Merger, dated November 19 , 1999 as amended, by and between the Company
and Beta Acquisition Company, Inc. and Red River Energy, Inc. and the
shareholders of the Red River Energy, Inc. and the merger of Beta Acquisition
Company, Inc. with and into Red River Energy, Inc., as described in the
Agreement and Plan of Merger, is hereby ratified and approved by the
shareholders of the Company.; and RESOLVED FURTHER, that this
consent may executed in multiple counterparts, all of which shall be taken
together and considered a single consent. FAILURE TO RETURN THIS REQUEST FOR
CONSENT WILL HAVE THE EFFECT OF WITHHOLDING CONSENT WITH RESPECT TO THE
RESOLUTION SET FORTH ABOVE. TO BE APPROVED UNDER NEVADA LAW AND THE COMPANY'S
BYLAWS THE RESOLUTION MUST RECEIVE THE CONSENT OF THE HOLDERS OF RECORD OF A
MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK AS
DETERMINED ON JULY 17, 2000,
THE RECORD DATE. Dated: __________________, 2000. Signature Signature (if held jointly) Please sign exactly as your name(s) appear(s) herein. Where more than
one owner is shown above, each should sign. When signing in a fiduciary
or representative capacity, please add your full title as such. If a
corporation is submitting this Consent, it should be executed in its
full corporate name by a duly authorized officer. If a partnership or
limited liability company is submitting this Consent, it should be
signed in the full name of the entity by an authorized person. The undersigned acknowledges that he/she/it/they have received a
copy of the Proxy Statement, dated
August 8, 2000, which in part under Proposed No. 2 discusses the Company's
Amended and Restated 1999 Incentive and Nonstatutory Stock Option Plan ("Plan"),
a copy of which is appended to the Proxy Statement as Appendix D.
Based on his/her/its/their review of the information contained in such Proxy
Statement, pertaining to the Plan, the undersigned hereby (please check the
appropriate box. If you sign and return the enclosed consent forms to the
Company without checking either of these boxes, such consent forms will be
treated as though you consented to the proposed Plan) Consents Withholds Consent as to the following resolution: RESOLVED, that the Shareholders of the Company hereby ratify and approve the adoption of the Company's
Amended and Restated 1999 Incentive and Nonstatutory Stock Option Plan by the Company's Board of Directors: and FAILURE TO RETURN THIS REQUEST FOR
CONSENT WILL HAVE THE EFFECT OF WITHHOLDING CONSENT WITH RESPECT TO THE
RESOLUTION SET FORTH ABOVE. TO BE APPROVED UNDER NEVADA LAW AND THE COMPANY'S
BYLAWS THE RESOLUTION MUST RECEIVE THE CONSENT OF THE HOLDERS OF RECORD OF A
MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK AS
DETERMINED ON JULY 17, 2000,
THE RECORD DATE. Dated: __________________, 2000. Signature Signature (if held jointly) Please sign exactly as your name(s) appear(s) herein. Where more than
one owner is shown above, each should sign. When signing in a fiduciary
or representative capacity, please add your full title as such. If a
corporation is submitting this Consent, it should be executed in its
full corporate name by a duly authorized officer. If a partnership or
limited liability company is submitting this Consent, it should be
signed in the full name of the entity by an authorized person.WHERE YOU CAN FIND MORE INFORMATION
You should rely only on the information contained
in this document to consent or withhold consent on the merger or the stock
option plan. We have not authorized anyone to give any information or make any
representation about the merger, the stock option plan or our companies that is
different from or in addition to, that contained in this document. Therefore, if
anyone gives you information of this sort, you should not rely on it. The
information contained in this document speaks only as of the date of this
document, unless the information specifically indicates that another date
applies.CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Beta's and Red River's ability to generate
additional capital to complete its planned drilling and
exploration activities;
risks inherent in oil and gas
acquisitions, exploration, drilling, development and production; price
volatility of oil and gas;
inherent imprecision of estimating
recoverable reserves;
competition from other oil and gas companies;
shortages of equipment, services and supplies;
government regulation;
environmental matters;
financial condition and operating performance
of the other companies participating in the exploration,
development and production of oil and gas ventures in which Beta is involved;
ability to attract and retain highly qualified personnel; and
the availability and terms of future acquisitions.
In addition to the above, the forward-looking
statements are subject to uncertainties relating to the synergies, charges and
expenses associated with the merger. These are discussed under Risk Factors
above. Beta expressly disclaims any duty to update any forward-looking
statements.REQUEST FOR CONSENT OF BETA SHAREHOLDERS
the approval of the merger agreement and the
merger contemplated under such agreement; and
the approval of the Amended and Restated
1999 Incentive and Nonstatutory Stock Option Plan.
Recommendation of the Beta Board
The Beta board of directors believes that the
terms and provisions of the merger agreement and the merger are fair to and in
the best interests of Beta and its shareholders and has unanimously approved the
merger agreement and the issuance of the 2.25 million shares of Beta common
stock to the Red River shareholders upon completion of the merger. The Beta
board of directors also unanimously approved the adoption of the Amended and
Restated 1999 Incentive and Nonstatutory Stock Option Plan. The Beta board of
directors unanimously recommends that the Beta shareholders consent to the
adoption of the merger agreement, the merger and the stock option plan.
Record Date; Voting Rights
Only holders of record of Beta common stock at the
close of business on July 17, 2000, are entitled to consent to the merger
agreement, merger and stock option plan by completing, signing and returning
their consent form to us as instructed in such form. At the record date,
July 17, 2000, there were 12,225,159 shares of Beta common stock outstanding, held
by approximately 381 record holders including those holders owning shares
held in street name for the benefit of persons. Each holder of Beta common stock
is entitled to consent on the matters requested for shareholder approval on the
basis of one vote for each share of Beta common stock he or she owns of record
in the record date.
Exercise of Consent
The enclosed printed card contains separate forms
for consent to the approval of the merger agreement and merger and the approval
of the stock option plan. Record holders wishing to consent to either or both of
these matters must place a check mark in the appropriate box or boxes and sign
their names in the space provided on each of the consent forms on the front and
reverse side of the enclosed card. The consent forms on the printed card must be
returned in the self-addressed, first class postage prepaid envelope by no later
than September 11, 2000. The votes of the shareholders on the consent forms will not be
counted if not received by us on or before such date.
If you do not complete and return your consent
forms, you will, in effect, be voting against such proposals. If you sign and
return your consent form but fail to check any of the boxes provided for either
or both of the proposals, Beta will treat the consent form as a vote for each
proposal. If you wish to consent to one but not the other proposal, you must
return the consent form and indicate to which proposal you are consenting. If
your shares are held in street name, the broker will not have discretionary
authority to consent to the proposals unless instructed to do so in writing
signed by you.
Approval of the merger proposal is not conditioned
on adoption of the stock option proposal. Adoption of the stock option proposal
is not conditioned on approval of the merger proposal.
Consents May Not be Revoked
If you return the separate written consent forms
signed by you approving either or both of the proposals, such consents, once
received by us, may not be revoked and will be counted as an affirmative vote
for the matter or matters for which consent has been given.
Cost of Requesting Consents
Our board of directors is soliciting the consents
on behalf of Beta. We will bear the entire cost of requesting the consents,
including all printing expenses, and filing fees in connection with the filing
of this document with the SEC. Directors, officers and regular employees of Beta
may solicit consents by telephone or otherwise, as well as through the mail. The
directors, officers and regular employees will not receive any additional
compensation for any solicitation, but may be reimbursed for out-of-pocket
expenses. Beta expects its internal expenses of solicitation to be nominal.
Required Consents
The holders of a majority of the outstanding
shares of Beta common stock on the record date must consent to the proposals to
approve them.
Share Ownership of Management
At the close of business twenty days before the
date of this proxy statement, July 19, 2000, directors and executive officers of
Beta had the right to vote an aggregate of 2,688,500 shares of the outstanding
shares of Beta common stock, or approximately 22% of the shares of Beta common
stock then outstanding. The 2,688,500 shares does not include 365,000 shares
underlying presently exercisable warrants which are beneficially owned by
officer and directors. It is expected that all of these persons will consent to
both the approval of the merger agreement and merger and the adoption of the
stock option plan.PROPOSAL FOR CONSENT OF THE BETA SHAREHOLDERS'
TO THE AGREEMENT AND PLAN OF MERGER DATED NOVEMBER 19, 1999
THE MERGER
At the effective time of the merger, Beta
Acquisition Company, Inc. a wholly owned subsidiary of Beta, will merge with and
into Red River. Red River will thereby become a wholly-owned subsidiary of Beta
and each share of Red River common stock outstanding will be converted into
2,250 shares of Beta common stock. Upon completion of the merger, Red River will
change its name to Beta Operating Company, Inc.
Background of the Merger
Beta continually evaluates corporate development
opportunities to strengthen its competitive position in the oil and gas
industry, increase its proved reserves, strengthen its management expertise, and
diversify its prospects and producing wells. It seeks out companies, prospects,
and producing property acquisitions that are accretive to Beta shareholders and
that will enhance its growth potential.
Management of Red River has sought to expand its
operations, diversify its prospects as well as allow its shareholders to
increase the liquidity of their investment. Management of Red River is also
aware that its ability to raise additional capital may be enhanced as a public
entity.
Red River management viewed Beta as a suitable
candidate for a business combination. Red River management based this
determination on publicly available financial information, and on familiarity
with Beta management, resulting, in part, from preliminary discussions held
during August 1999 concerning the possible acquisition by Beta of Red River and
the acquaintance of Mr. Steve A. Antry, Chairman and President of Beta, and Mr.
Rolf N. Hufnagel, President of Red River.
Mr. Antry has known Mr. Hufnagel for approximately
15 years and they get together from time to time to update each other on their
respective activities and progress both personally and professionally. Mr. Antry
worked for Mr. Hufnagel in the mid-eighties as his Land Manager for Nerco Oil
and Gas in Oklahoma City ( a subsidiary of Pacific Power and Light). Mr. Antry
and Mr. Hufnagel have not worked together since working at Nerco and have had no
other affiliations or business activities since that time. While visiting family
in Tulsa in August 1999, Mr. Antry had dinner with Mr. Hufnagel and Bob Davis,
the cofounders and principal owners of Red River. A discussion ensued about the
subject of merging the two companies. It was decided at that dinner to exchange
information on the respective companies in contemplation of a merger.
In August and September 1999 , operating and
financial personnel of each of Red River and Beta, and their legal and
accounting advisors, also commenced due diligence investigations as to the other
company. On August 31, 1999, Mr. Antry and R. Thomas Fetters, Managing Director
of Exploration and a director of Beta, visited the offices of Red River,
executed confidentiality agreements and discussed in detail the properties of
Red River. On September 7, 1999, Mr. Antry received the approval of the Beta
board to pursue merger discussions and continue a due diligence review of Red
River.
Red River management has many years of experience
in the oil and gas industry and was familiar with the valuation of similar
companies in the industry. After several meetings and discussions and after
research into the business and prospects of Red River, Beta management performed
its own analysis of the value of Red River.
Beta management has many years of experience in the oil and gas industry and
it has actively reviewed several acquisition opportunities since Beta's
inception in June of 1997 involving the analysis of companies with proven producing
properties. Since its founding in 1997, Beta management has reviewed approximately
ten potential acquisition candidates prior to entering into a merger agreement
with Red River. These candidates were oil and gas companies with oil and gas
reserves located in several geographic areas of the United States.
1)
In several instances other public companies and/or their significant shareholders
approached Beta as a potential acquiror. After reviewing many of these candidates,
management and the Board felt that the negative impact on the balance sheet would have
been too great for a company our size at the time of the offers. Also, in most of
these instances a substantial amount of value was in their prospect inventories in the
form of possible reserves.
2)
One California based candidate had 80+ employees. Also, the properties were all in
an area of California that our Exploration Manager felt had too much risk of
environmental problems into the future.
3)
Beta reviewed an acquisition involving a Mississippi based operating company but
decided that the candidate's administrative overhead was excessive relative to
Beta's. Beta has recently resumed discussions with this company. However, the
discussions are in the early stages and no terms have been discussed.
4)
We reviewed a potential acquisition of a producing property in Oklahoma. Based on a
review by our Exploration Manager, we concluded that the property contained limited
upside potential beyond the proved producing reserves and did not merit further review.
5)
We reviewed an acquisition of a company with reserves in Louisiana. Due to the fact
that a large percentage of the transaction value was concentrated in proved
undeveloped, probable and possible reserves, we concluded that such an acquisition was
too speculative. This was due to the fact that a very small percentage of the reserve
value was in the proved developed producing category.
6)
We reviewed the acquisition of a property located in offshore Louisiana consisting
primarily of proved developed producing reserves. However, since the wells had less than six
months production history, we concluded that there was not sufficient production
history to make a reliable estimate of recoverable reserves.
Beta initially proposed a purchase price of
approximately $9.4 million after deducting Red River's outstanding bank debt,
assuming a Beta stock price of $5.50 per share, resulting in a proposed issuance
in the merger of approximately 1.7 million shares of Beta common stock. This
purchase price was determined using Beta's estimate of Red River's proven
producing reserves at September 1, 1999 and discounting the future net cash
flows therefrom using a 15% discount factor. This estimate was determined using
the independent engineering report prepared by Ryder Scott Company dated
September 1, 1999. The price and operating cost assumptions used in the report
are discussed below. Beta's initial proposal excluded Red River's coal bed
methane properties and did not assign any probable reserve values to the
enhanced or secondary recovery potential of Red River's conventional oil and gas
properties.
Red River's management responded to Beta's initial
offer by stating that it did not wish to exclude the coal bed methane properties
and that the offer did not give adequate value to Red River's proved producing
reserves. Red River management stated that a total issuance of 2.4 million Beta
shares would constitute a fair price for Red River.
Between October 8 and 11, 1999, Mr. Antry and Mr.
Hufnagel had several meetings and telephone conversations to discuss the price
to be paid in the transaction. As a result of these discussions, Beta management
made its own conclusion as to the valuation of Red River, which was based on its
assessment of the value of the Red River proved producing reserves and the
economic potential associated with Red River's probable reserves. Due to the
length of time involved in concluding the negotiation of the merger agreement
and the significant price fluctuations for Beta common stock and in the United
States securities markets generally, both Red River and Beta determined that it
would be desirable to agree upon an exchange ratio to fix the maximum number of
shares of Beta stock that would be issuable in the merger at 2,250,000. By
establishing a fixed price of 2,250,000 shares, both Beta and Red River decided
to treat the investment in the other as having been made when the letter of
intent was signed by the two parties. Beta and Red River thereby decided to bear
the resultant market risks and rewards of any future swings in the price of Beta
stock.
The 2,250,000 share issuance was determined as follows:
Approximate
-----------
million
-------
Present value of Red River's proved producing reserves at September
1, 1999 using a 10% discount and using escalated price and cost parameters.... $23.4
Bank of Oklahoma Revolving line of credit as of
September 30, 1999............................................... (7.6)
----------------
Net purchase price paid............................................................ $15.8
================
Beta shares to be issued to Red River shareholders............................ 2.25
Assumed purchase price per Beta share......................................... $7.02
================
This September 1, 1999 Ryder Scott report was
commissioned by Red River after we began preliminary discussions with Red River
regarding a possible merger. The future pricing and cost and certain other
assumptions used by Ryder Scott were those provided by Red River, although we
were aware of the assumptions being provided and agreed that they would be
appropriate for the purposes of the report and our evaluation of the Red River
reserves. It is commonplace in reviewing a purchase of producing oil and gas
properties for the purchaser to engage its own independent engineering firm to
assess the reserves of the offered properties. We did not engage such a firm
because the engagement of Ryder Scott Company was a mutual decision and because
we are acquiring all of Red River and it personnel, not just its proved reserves.
Nevertheless, if we had engaged a different engineering firm to
provide a separate report for us, such a report very well could have reflected a
more conservative value for the Red River proved reserves and might have
resulted in a lower price for Red River.
  Our estimates of the unproved reserves
of Red River are based on our own analyses and those provided by Red River personnel.
No third party engineering firm was engaged to assess those unproved reserves.
After the letter of intent was signed, Beta
contracted with a land consulting firm in Tulsa to review Red River's land and
well records and contracts for any title encumbrances or other matters which
could materially affect the value of Red River. None were noted as a result of
the consultant's review. In addition, both Beta and Red River engaged Hein +
Associates, LLP, Beta's independent auditors, to perform an audit of Red River's
financial position as of December 31, 1998 and results of operations for the
fiscal year ending December 31, 1998. Hein + Associates, LLP also performed a
review of Red River's interim results of operations for the nine months ended
September 30, 1999, as well as its financial position as of September 30, 1999.
In addition, Joe C. Richardson, Jr., a director of Beta, and Steve Antry
conducted a physical inspection of the Red River field equipment and facilities
during the week of November 1, 1999. Messrs. John Tatum, a Beta director, and Tom
Fetters conducted a geologic review of the Red River properties.
At a meeting held on November 17, 1999, the Beta
board unanimously determined that the merger was fair to and in the best
interests of Beta and its shareholders and approved the merger agreement, the
merger and the other transactions contemplated thereby and resolved to recommend
that the shareholders of Beta vote in favor of the issuance of shares of Beta
common stock to the Red River shareholders.
On November 19, 1999, Beta and Red River entered
into a definitive Agreement and Plan of Merger. For purposes of effecting this
transaction, Beta has formed a wholly owned subsidiary called Beta Acquisition
Company, Inc. This agreement was subsequently amended by the first amendment
dated January 19, 2000 and the second amendment dated February 14, 2000.
The purpose of the first amendment was to
establish an escrow account for the shares to be delivered to Red River
Shareholders at the closing date. Under the terms of this amendment to the
merger agreement, Beta agreed to issue the 2.25 million shares of its common
stock and deposit such shares in escrow to provide good faith assurances to the
Red River shareholders that the shares will be issued on the closing date.
The purpose of the second amendment was to extend
the deadline for the closing date specified in the merger agreement from March
31, 2000 to December 31, 2000 and to enable the two companies to proceed with
certain business activities as though they were a combined company.
Under the terms of this amendment, the obligations
of either party to close under the merger agreement were limited to 3
conditions:
The parties also agreed to change the date when
the merger agreement, as amended, will terminate, if the merger has not been
completed, from March 31, 2000 to December 31, 2000. Otherwise, the parties
agreed that the merger agreement may only be terminated by mutual consent of the
parties or the intentional and fraudulent misrepresentations of a material
nature or willful breach of any material warranty contained in the merger
agreement which is not cured by the closing date or if earlier within 30 days
after notice of the breach or misrepresentation is given to the breaching
party.
In addition, the parties agreed to prepare and
file a shelf registration statement to register the shares of Beta common stock
issued to the Red River shareholders for resale as soon as reasonably possible
after filing the definitive proxy statement but no later than June 30, 2000.
Beta has agreed to these amendments for the following reasons:
Recommendation of its Board of Directors
Red River management was receptive to
receiving Beta stock as the sole consideration in an acquisition of Red River.
This would not require Beta to utilize its cash resources to acquire Red River
and would result in minimal transaction costs;
Red River had pursued a business strategy
that focused on the acquisition of producing oil and gas properties which
complemented Beta's aggressive exploration strategy.
Red River's significant proved producing
reserves which have a net present value of $15.8 million before income tax
considerations, at December 31, 1999 and its existing $25 million line of credit
with the Bank of Oklahoma will allow Beta to more easily access bank financing
which will lower Beta's cost of capital.
The majority of Red River's current reserve
value and cash flow is concentrated in one producing unit in Central Oklahoma.
The wells in this unit have extensive production histories with highly
predictable decline rates which makes evaluating their future recoverable
reserves more certain than other acquisitions.
Red River's proved producing reserves in
Oklahoma offer Beta a predictable and stable future revenue base when contrasted
with Beta's gulf coast properties, which tend to decline more quickly and can
result in significant year to year fluctuations in revenues.
Red River's proved producing reserves in
Oklahoma offer Beta substantial upside from enhanced recovery projects currently
planned by Red River.
Red River's management consists of
individuals with extensive experience and expertise in the evaluation,
negotiation of producing property purchases as well as the operation of
producing wells. The management of Red River will continue as the management of
Beta's wholly owned subsidiary, Beta Operating Company, and will help facilitate
the growth of Beta through the acquisition of additional properties in the
future.
The Red River/Beta Operating management will
also enable Beta to operate more of its exploratory prospects, thus allowing it
to have more control over the operations and reduce Beta's dependence on third
party operators.
In view of the variety of factors considered in
connection with its evaluation of the merger, the Beta board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. In addition,
individual members of the Beta board may have given different weights to
different factors. The Beta board did consider the Red River acquisition in
comparison to other acquisition candidates previously reviewed by Beta and
determined that the Red River acquisition would be more beneficial to Beta than
the other candidates because of the reasons cited above.
The Beta board also relied on the independent
engineering report prepared by Ryder Scott as of September 1, 1999 in
determining that the purchase price being paid is fair and reasonable and in the
best interests of Beta and its shareholders. The board did not compare this
purchase price to prices paid for other acquisitions by
other oil and gas companies at the time because of its assessment that Beta is
acquiring substantial value besides the Red River proved reserves in the
transaction. Based on its own internal assessment of the properties and the
economic potential for additional reserves beyond the existing proved reserves,
the additional value being added by the Red River management and the other
factors listed above, the board believes the merger consideration to be a
fair price for all the Red River stock. The board did not engage an independent
engineering firm to assess any of the additional reserves beyond the existing proved reserves.
The Red River Shareholders believe that the merger
is desirable and in their best interests for several reasons, including:
The exploration prospects and experience of
Beta's management complement the producing property acquisition and operation
activities of Red River, making the combined company more diversified and
flexible.
As a public company with substantial
management experience and expertise in equity financing, Beta should have
greater access to the capital markets, thus increasing the financing
opportunities for Red River's operations after the merger.
As a larger company, Beta and Red River
should be a more competitive participant in the oil and gas industry.
The exploration prospects of Beta provide
substantial upside potential, albeit at a somewhat greater risk than Red River
is currently experiencing.
As a public company, ownership of shares of
Beta common stock will provide the Red River shareholders with greater
investment liquidity and flexibility.
The following outlines the anticipated material
United States federal income tax consequences of the merger and is not a
complete analysis of all tax effects of the merger. The discussion does not
address the effect of state or local tax laws, or the effect of any U.S. federal
tax laws other than those pertaining to United States federal income tax.
The merger is intended to qualify as a
reorganization under Section 368(a) of the Code. The following are the intended
material United States federal income tax consequences of the merger:
No gain or loss will be recognized by Red
River, Beta or Beta's merger subsidiary as a result of the merger.
No gain or loss will be recognized by Red
River shareholders upon the conversion of Red River common stock into shares of
Beta common stock pursuant to the merger.
The aggregate tax basis of the shares of
Beta common stock received in exchange for shares of Red River common stock
pursuant to the merger, will be the same as the aggregate tax basis of the
shares of Red River common stock.
These consequences are based on current federal
tax law. Future legislative, administrative or judicial changes or
interpretations, which can apply retroactively, could affect the accuracy of
those conclusions. No rulings have or will be sought from the Internal Revenue
Service concerning the tax consequences of the merger and the merger is not
conditioned upon receipt of a legal opinion regarding the tax consequences of
the merger.
Shareholders should be aware that certain
directors and executive officers of Red River have interests that are in
addition to or may be different from the interests of Red River shareholders
generally. The officers and directors having these interests negotiated the
terms of the merger agreement and participated in the discussion, deliberation
and voting of the Red River board to adopt the merger agreement.
The following table reflects the ownership
interest of Red River shareholders in Beta following the merger. The numbers are
based on the number of shares actually outstanding as of the record date,
July 17, 2000.
Percentage Beneficial
Ownership of Beta
After the Merger
----------------
Beta shares pre-merger, excluding 2,225,000 shares held
in escrow pending merger.................................... 9,975,159
Red River shares outstanding pre-merger...................... 1,000
Total Beta shares post-merger................................ 12,225,159 100%
Rolf N. Hufnagel 1,440,000 11.78%
Robert E. Davis, Jr. 360,000 2.94%
Stephen J. Vogel 90,000 0.74%
Janet L. McGehee 90,000 0.74%
Billy L. Baysinger, Jr. 90,000 0.74%
Brent A. Biggs 90,000 0.74%
Mark A. Biggs 90,000 0.74%
Beta shares issued to Red River shareholders......... 2,250,000 18.42%
Percentage beneficial ownership of pre-merger Red
River shareholders ....................... 18.42%
Under Nevada law, Beta shareholders are not
entitled to appraisal rights with respect to approval of the share issuance. The
Red River shareholders are all parties to the merger agreement and have
committed to approve the merger. Consequently, they will not have any
dissenters' appraisal rights.
The shares of Beta common stock issued in
connection with the merger have not been registered under the Securities Act of
1933. Subject to the registration rights granted to the Red River shareholders,
the Red River shareholders may not offer, sell, assign or otherwise dispose of
the 2,250,000 shares of Beta common stock received in the merger unless the
shares are subsequently registered under the Securities Act or unless an
exemption from registration is available. The stock certificates representing
the shares of Beta common stock which will be transferred to the Red River
Shareholders at closing and which are being held in escrow as provided under the
merger agreement, as amended, will contain a legend restricting the
transferability of the shares of Beta common stock as provided therein and stop
order instructions may be imposed by Beta's transfer agent restricting the
transferability of such shares.
Beta has granted the Red River shareholders
certain registration rights in connection with the 2,250,000 shares received in
the merger. Under the second amendment to the merger agreement, dated as of
February 14, 2000, Beta is required, after the filing of this proxy statement
with the SEC and by no later than June 30, 2000, to prepare and file with the
Commission a shelf registration statement for the purpose of registering the
2,250,000 shares for resale in the market from time to time.
Once the registration statement is declared
effective, and so long as it remains effective and current, these shares may be
traded freely and without restriction by those shareholders following the
effective time of the merger.THE MERGER AGREEMENT
General. The
merger agreement provides for the merger of a wholly owned subsidiary of Beta
into Red River. As a result of the merger, Red River will become a wholly owned
subsidiary of Beta. The merger will be consummated and effective under Oklahoma
law upon the filing of a certificate of merger with the Oklahoma Secretary of
State, which is expected to occur as soon as practicable after the last
condition precedent to the merger set forth in the merger agreement has been
satisfied or waived, but not later than December 31, 2000. Following the merger,
the certificate of incorporation of Red River will be amended to change Red
River's to Beta Operating Company.
Manner and Basis
of Converting Shares. As a result of the merger, each share of Red
River common stock will be converted into the right to receive 2,250 shares of
Beta common stock. A total of 2,250,000 shares of Beta common stock will be
issued pursuant to the merger.
Conditions to the
Merger. As amended by the second amendment to merger agreement, the
obligation of Beta to consummate the merger is subject only to the following
3 conditions:
The conditions to be satisfied by Beta and Merger
Sub include the following :
Red River's due organization and good standing;
binding effect of the merger agreement upon
Red River and the Red River shareholders;
absence of any conflict with any of Red
River's organizational documents and agreements as a result of the merger;
Red River's corporate authorization with respect to the merger;
Red River's capitalization;
title to the outstanding shares of Red River common stock;
Red River's financial statements;
absence of undisclosed material liabilities of Red River;
absence of material changes with respect to
Red River since September 30, 1999;
tax matters with respect to Red River;
condition of Red River's tangible assets;
title to and status and operation of Red
River's oil and gas properties;
Red River's insurance coverage;
Red River's intellectual property rights;
litigation involving Red River;
Red River's compliance with laws and orders;
consents and approvals required in connection with the merger;,
contracts binding upon Red River;
Red River employee matters;
investment intent of the Red River
shareholders with respect to the Beta common stock to be issued pursuant to the
merger;
Red River's licenses, facilities and permits; and
Red River's accounts receivable and accounts payable.
The merger agreement contains numerous
representations and warranties by Beta to Red River and the Red River
shareholders as to various matters, such as:
Beta's due organization and good standing;
the binding effect of the merger agreement upon Beta;
the absence of any conflict with any of Beta's
organizational documents and agreements as a result of the merger;
Beta's corporate authorization with respect to the merger;
Beta's capitalization;
the currency and timeliness of Beta's SEC filings;
the absence of material litigation involving Beta;
Beta's compliance with laws and orders; and
shareholder votes required in connection with the merger;
Conduct of Business Prior to Closing
Date. Except as otherwise contemplated by the merger agreement, Red
River and the Red River shareholders have agreed in the merger agreement that
from the date of the merger agreement until the closing date of the merger that
Red River will conduct its business in the ordinary course, consistent with past
practices, and in particular, Red River will not, among other things:
In the event of any breach by Beta of its
representations, warranties or covenants under the merger agreement, the merger
agreement provides that Beta will be required to issue to the Red River
shareholders the number of shares of Beta common stock determined by dividing
the dollar amount of loss incurred by the Red River shareholders on account of
the breach by the closing price of a share of Beta common stock as of the
closing date of the merger agreement, even though the nonbreaching party's claim
against the other party is not discovered until after such date. Beta will not
be required to issue any additional shares until such time as the amount of
losses incurred by the Red River shareholders on account of breaches exceeds
$100,000 and will not in any event be required to issue more than 225,000
additional shares.
For purposes of determining the number of shares
to be returned by the Red River shareholders or to be issued by Beta, the dollar
amount of the loss sustained by the nonbreaching party as a result of a breach
of, or misrepresentation made under, the merger agreement will be the amount of
losses, damages, costs, expenses, pre- and post-judgment interest, penalties,
court costs, investigation costs and attorneys' fees determined by any court in
a judicial proceeding or an arbitrator or arbitration panel in any arbitration
proceeding as reflected in a judgment or award, or by the parties pursuant to a
settlement of any such proceeding or any demand of claim made against the
breaching party or by any governmental agency as a result of an assessment
against the nonbreaching party.
cannot be consummated for reasons beyond the
control of the parties and they have used their best efforts to obtain requisite
approvals and consents,
is terminated by mutual consent of the parties, or
is not closed prior to December 31, 2000.
The directors,
officers and shareholders of Red River will reasonably cooperate in effecting
the merger, the orderly transfer of assets and control of Red River to Beta,
obtaining any governmental or third party approvals or consents necessary to
effect such transfer and keeping existing contracts of Red River intact.
The officers,
directors and shareholders of Red River will treat as confidential and refrain
from using or disclosing all information of a confidential nature and notify
Beta promptly of any request, subpoena or demand to disclose such confidential
information .
The officers,
directors and shareholders of Red River will refrain from any action having the
effect of discouraging any lessor, licensor, customer, supplier or other person
having a business relationship with Red River from continuing its business
relationship with Red River.
Beta will
provide to Red River employees, who are employed by Beta or any of its
subsidiaries at the effective time of the merger, so long as they remain so
employed, the same employee benefits (other than salary or incentive
compensation) and coverage under employee benefit plans which in the aggregate
are generally comparable to those provided to Beta employees in comparable
positions.
Each party,
including the officers, directors and shareholders of Red River, will take such
further action as another party may reasonably request to accomplish the
merger.
The combined
company will continue Red River's business or use a significant portion of
itsRed River's assets in a business.
Beta will use
its best efforts to obtain the release of the Red River shareholders' personal
guarantees securing Red River's approximately $3,000,000 of the indebtedness to
the Bank of Oklahoma, N.A. to the extent the bank is willing to release the
personal guarantees. As an inducement to the bank, Beta will give its guarantee
in substitution of the personal guarantees. Beta will also indemnify the Red
River shareholders as to any funds they may be required to pay with respect to
their personal guarantees.
Beta will not
take or fail to take any action which would reasonably be likely to prevent the
merger from qualifying as a reorganization under Section 368 of the Code.
If we determine that a condition exists which
would make it significantly disadvantageous for the shares of Beta common stock
to be offered and sold under the shelf registration statement, the Red River
Shareholders have agreed to suspend any sales of their shares under the shelf
registration statement for up to 60 consecutive days or an aggregate of 180 days
within any 12 month period. Disadvantageous conditions include the
unavailability of our required financial statements for reasons beyond our
control, the existence or anticipation of a material financing, merger,
acquisition or material transaction involving us or other similar events or
conditions involving us or our subsidiaries that have not been publicly
disclosed.
Under the terms of the merger agreement, the Red
River shareholders are also entitled to piggy-back registration rights relating
to their shares of Beta common stock to be received in the merger. If we propose
to file a registration statement in connection with an offering (with the
exception of certain offerings such as the registration of stock options or debt
or preferred stock financing) for our own account or the account of any other
person, we are required in each such instance to notify the Red River
shareholders at least 20 days prior to such filing and give them the opportunity
to register the number of their shares of Beta common stock which they request
us to include in such registration statement The piggy-back registration is
subject to the permission of the managing underwriter or underwriters of the
offering. If the underwriter(s) determine(s) that the amount of shares of Beta
common stock is so large as to materially and adversely affect the success of
the offering, the total amount of the securities included in the offering will
be reduced. As a result of such reduction, the shares of Beta common stock
requested by the Red River shareholders to be included in such registration
statement will be proportionately reduced with all securities of holders having
rights to include their securities in such registration statement. We may
withdraw any such registration statement and abandon any proposed offering which
we initiated without the consent of the Red River shareholders or any other
person, if we determine in our sole discretion that such action is in our best
interest and the best interest of our shareholders.
The merger agreement contains cross
indemnification provisions relating to the indemnification of the other party by
a party violating any rules or regulations under federal securities laws or
making a misrepresentation of or omitting to state a material fact necessary to
make the statements in any such registration statement not misleading.
We will be responsible for paying all of the expenses, fees and costs, including
legal and accounting fees and expenses incurred in connection with each
registration (whether a shelf registration or a piggy-back registration)
involving the shares of Beta common stock to be received upon consummation of
the merger.PRINCIPAL SHAREHOLDERS OF BETA
The following table will inform you, as of
June 5, 2000, about the beneficial ownership of shares of Beta's common stock held by
each person who beneficially owns more than 5% of the outstanding shares of the
common stock, each person who is a director or officer of Beta and all persons
as a group who are officers and directors of Beta, and as to the percentage of
outstanding shares held.
Approximate Percent Approximate
Shares of Class Before the Percent of Class
Name of Beneficial Owner Beneficially Owned Merger(2) After the Merger(3)
(1)
--------------------------------------------- -------------------- ---------------------- --------------------
Mr. Steve Antry
Mrs. Lisa Antry, Jointly
6120 S. Yale, Suite 813
Tulsa, OK 74136 1,565,000(4) 15.59% 12.73%
Mr. R. Thomas Fetters
6120 S. Yale, Suite 813
Tulsa, OK 74136 375,000(5) 3.75% 3.06%
Mr. Lawrence W. Horwitz
2 Venture Plaza,
Suite 350
Irvine, CA 92618 90,000(6) 0.90% 0.73%
Mr. Joe C. Richardson Jr.
6120 S. Yale, Suite 813
Tulsa, OK 74136 400,000(7) 4.01% 3.27%
Mr. Stephen L. Fischer
6120 S. Yale, Suite 813
Tulsa, OK 74136 390,000(8) 3.89% 3.18%
Mr. J. Chris Steinhauser
901 Dove Street, #230
Newport Beach, CA 92660 115,000(9) 1.14% .93%
Mr. John P. Tatum
6120 S. Yale, Suite 813
Tulsa, OK 74136 68,500(10) 0.68% 0.56%
Mr. Rolf Hufnagel
6120 S. Yale, Suite 813
Tulsa, OK 74136 0(11) 0.00% 11.78%
Mr. Joseph L. Burnett
6120 S. Yale, Suite 813
Tulsa, Oklahoma, 74136 50,000(12) 0.50% 0.41%
-------------------- ---------------------- --------------------
All officers, key persons and directors as
a group (8 persons) 3,053,500(13) 30.46% 36.66%
==================== ====================== ====================
(1) Unless otherwise indicated, all
shares of common stock are held directly with sole voting and investment powers.
Securities not outstanding, but included in the beneficial ownership of each
such person are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person, but are
not deemed to be outstanding for the purpose of computing percentage of the
class owned by any other person.
(2) This column represents the
approximate percentage of beneficial ownership prior to the issuance of the
2,250,000 shares to the Red River shareholders. Such shares are currently held
in an escrow account pending the completion of the merger at which time the
shares will be transferred to the Red River shareholders according to their
interest in the shares.
(3) Assumes the issuance of the
2,250,000 shares in the merger.
(4) Mr. Steve Antry and Mrs. Lisa
Antry, husband and wife, own 1,500,000 shares as community property. This also
includes 25,000 shares of common stock underlying presently exercisable stock
warrants. The warrants are exercisable at $5.00 per share and expire on March
12, 2003. In addition, this includes 40,000 shares of common stock underlying
stock options which are expected to become exercisable within 60 days. The
options are exercisable at $6.00 per share and expire on December 31, 2004.
(5) Mr. Fetters owns directly 350,000
shares of Beta's common stock. In addition, this includes 25,000 shares of
common stock underlying stock options which are expected to become exercisable
within 60 days. The options are exercisable at $6.00 per share and expire on
December 31, 2004.
(6) Mr. Horwitz owns directly 50,000 shares. In addition, Horwitz & Beam with whom the director is a
shareholder, owns 20,000 shares. In addition, this includes 20,000 shares of
common stock underlying presently exercisable stock warrants. The warrants are
exercisable at $6.00 per share and expire on September 1, 2004.
(7) Mr. Richardson owns directly
400,000 shares.
(8) Mr. Fischer owns directly 350,000
shares. This also includes 25,000 shares of common stock underlying presently
exercisable stock warrants. The warrants are exercisable at $5.00 per share and
expire on March 12, 2003. In addition, this includes 15,000 shares of common
stock underlying stock options which are expected to become exercisable within
60 days. The options are exercisable at $6.00 per share and expire on December
31, 2004.
(9) This represents 100,000 shares of
common stock underlying stock warrants which shall expire on January 27, 2003.
On January 27, 1998, Beta issued 100,000 common stock purchase warrants
exercisable at a price of $3.75 per share of which 75,000 are currently exercisable
by J. Chris Steinhauser, the former chief financial officer of Beta. This also includes
25,000 shares underlying presently exercisable stock warrants which were granted
to Mr. Steinhauser. The warrants are exercisable at $5.00 per share and expire
on March 12, 2003. In addition, this includes 15,000 shares of common stock
underlying stock options which are expected to become exercisable within 60
days. The options are exercisable at $6.00 per share and expire on December 31,
2004. Mr. Steinhauser resigned as a director and as the chief financial officer
of Beta effective on June 6, 2000.
(10) Mr. Tatum owns 18,500 shares of
common stock and 50,000 shares underlying common stock warrants which are
exercisable at a price of $5.00 and which expire April 1, 2004.
(11) Mr. Hufnagel was appointed
to the Beta board of directors on June 6, 2000. Upon closing of the merger, Mr.
Hufnagel will receive 1,440,000 shares of Beta common stock.
(12) Mr. Burnett became the chief
financial officer of Beta on June 6, 2000. This represents 100,000 shares of
common stock underlying warrants which shall expire on May 31, 2005. On May 31,
2000, Beta issued 100,000 common stock purchase warrants exercisable at a price
of $8.38 per share, of which 50,000 are currently exercisable by Mr.
Burnett.
(13) Includes 365,000 shares of
common stock underlying stock warrants and options.
DESCRIPTION OF BETA'S CAPITAL STOCK
Beta is authorized to issue 50,000,000 shares of
common stock, $0.001 par value. As of June 5, 2000, Beta had 9,975,159
shares of common stock outstanding and an additional 2,250,000
shares of common stock being held in escrow.
Each holder of common stock is entitled to one
vote per share on all matters to be voted upon by Beta's shareholders.
Shareholders are entitled to as many votes as equal to the number of shares
multiplied by the number of directors to be elected and may cast all votes for a
single director or may distribute them among the number to be voted for any two
or more of them in the election of directors. These are called cumulative voting
rights. The holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. Beta has not paid, and does
not presently intend to pay, dividends on its common stock. In the event of a
liquidation, dissolution or winding up of Beta, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of holders of preferred stock, if any, then
outstanding. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
available to the common stock. All outstanding shares of common stock are
validly authorized and issued and are fully paid and non-assessable, and the
shares of common stock to be issued upon exercise of warrants as described in
this proxy statement will be validly authorized and issued, fully paid and
non-assessable. As of June 5, 2000 there were approximately 381 record holders
of Beta's common stock.
During the period from inception, June 6, 1997,
through December 31, 1997, Beta issued 797,245 callable and 730,977 non-callable
common stock purchase warrants entitling the holders to purchase 1,528,222
shares of Beta common stock at prices ranging from $2.00 to $5.00 per share.
During the year ended December 31, 1998, Beta issued 415,958 callable and
553,483 non-callable common stock purchase warrants entitling the holders to
purchase 969,441 shares of Beta common stock at prices ranging from $3.75 to
$7.50 per share.
Because its common stock has traded at a market
price exceeding $7.00 per share for 10 consecutive days, Beta is entitled to
call 442,000 of the 797,245 callable $5 warrants at any time. Beta has issued a
call for these warrants and approximately 796,000 of the warrants were exercised
prior to their expiration.
In addition, Beta will be entitled to call 415,958
warrants at any time on and after the date that its common stock is traded on
any exchange, including the the Nasdaq Stock Market or the Over-the-Counter
Bulletin Board, at a market price equal or exceeding $10.00 per share for 10
consecutive trading days. All common stock Purchase warrants expire 5 years from
their date of issuance.
According to Beta's bylaws, concerning any act or
action required of or by the holders of the common stock, the affirmative vote
of the holders of a majority of the issued and outstanding common stock entitled
to vote thereon is sufficient to authorize, affirm, ratify or consent to such
act or action, except as otherwise provided by law. Officers, directors and
holders of 5% or more of outstanding shares of Beta common stock do not
constitute a majority and thus do not control the voting upon all actions
required or permitted to be taken by shareholders of Beta, including the
election of directors.
As of the date of this proxy statement, Beta's
authorized but unissued capital stock consists of 37,774,841
shares of common stock. One of the effects of the existence of authorized but unissued
capital stock may be to enable the board of directors to render more difficult
or to discourage an attempt to obtain control of Beta by means of a merger,
tender offer, proxy contest or otherwise, and to protect the continuity of
Beta's management. If in the due exercise of its fiduciary obligations, for
example, the board of directors were to determine that a takeover proposal was
not in Beta's best interests, such shares could be issued by the board of
directors without stockholder approval in one or more private placements or
other transactions that might prevent or render more difficult or costly the
completion of the takeover transaction by diluting the voting or other rights of
the proposed acquiring or insurgent stockholder or stockholder group, by
creating a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent board of directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise.
Beta executed a contract of employment with the
president and chairman of the board of directors, Steve A. Antry, dated June 23,
1997. The contract provides for an indefinite term of employment at an annual
salary of $150,000, commencing in October 1997, and an annual car allowance of
up to $12,000. The contract may be terminated by Beta without cause upon the
payment of the following:
(a) Options to acquire the common
stock of Beta in an amount equal to 10% of the then issued and outstanding
shares containing a five year term, piggyback registration rights and an
exercise price equal to 60% of the fair market value of the shares during the
sixty day period of time preceding the termination notice, such amount not to
exceed $3.00 per share.
(b) A cash payment equal to two
times the aggregate annual compensation.
(c) In the event of termination
without cause, all unvested securities issued by Beta to the Employee shall
immediately vest and Beta shall not have the right to terminate or otherwise
cancel any securities issued by Beta to Mr. Antry.
Limitation of Liability and Indemnification
Beta's Articles of Incorporation and its Bylaws
limit the liability of directors and officers to the extent permitted by Nevada
law. Specifically, the Articles of Incorporation provide that the directors and
officers of Beta will not be personally liable to Beta or its shareholders for
monetary damages for breach of their fiduciary duties as directors, including
gross negligence, except liability for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law not in good faith,
or the payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes.
Beta has obtained a directors and officers
liability insurance policy for the purposes of indemnification which shall cover
all elected and appointed directors and officers of Beta up to $1,000,000 for
each claim and $3,000,000 in the aggregate. Beta believes that the limitation of
liability provision in its Articles of Incorporation, and the directors and
officers liability insurance will facilitate Beta's ability to continue to
attract and retain qualified individuals to serve as directors and officers of
Beta.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers, and
controlling persons of Beta, Beta has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. Except for the payment by Beta
of expenses incurred or paid by a director, officer, or controlling person of
Beta in the successful defense of any action, suitor proceeding, if a claim for
indemnification against such liabilities is asserted by such director, officer
or controlling person of Beta in connection with the securities being
registered, Beta will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issues.
At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent for which
indemnification will be required or permitted under Beta's Articles of
Incorporation. Beta is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
Under the Bylaws, special meetings of the
shareholders of Beta may be called only by a majority of the members of the
board of directors, the chairman of the board, the president, or by one or more
shareholders holding shares in the aggregate entitled to cast not less than 10%
of the votes at any such meeting. The annual meeting shall be held each year on
May 15 at 10:00 A.M., or at such other date that is convenient as determined by
the Directors, at a place to be designated by the board of directors.
The transfer agent and registrar for the common
stock is Oxford Transfer & Registrar, 317 S.W. Alder, Portland, OR
97204.
Beta needs to obtain shareholder approval of a
plan or arrangement under paragraph 1 below, or prior to the issuance of common
stock under paragraph 2, 3, or 4 below:
1. when
a stock option or purchase plan is to be established or other arrangement made
pursuant to which stock may be acquired by officers or directors, except for
warrants or rights issued generally to security holders of Beta or broadly based
plans or arrangements including other employees (e.g., ESOPs). In the case where
shares are issued to a person not previously employed by Beta, as an inducement
essential to the individual's entering into an employment contract with Beta,
shareholder approval will generally not be required. The establishment of a plan
or arrangement under which the amount of securities which may be issued does not
exceed the lesser of 1 percent of the number of shares of common stock, 1
percent of the voting power outstanding, or 25,000 shares will not generally
require shareholder approval;
2. when
the issuance will result in a change of control of Beta;
3. in
connection with the acquisition of the stock or assets of another company
if:
a. any director, officer, or
substantial shareholder of Beta has a 5 percent or greater interest (or such
persons collectively have a 10 percent or greater interest), directly or
indirectly, in the company or assets to be acquired or in the consideration to
be paid in the transaction or series of related transactions and the present or
potential issuance of common stock, or securities convertible into or
exercisable for common stock, could result in an increase in outstanding common
shares or voting power of 5 percent or more; or
b. where,
due to the present or potential issuance of common stock, or securities
convertible into or exercisable for common stock, other than a public offering
for cash:
the
common stock has or will have upon issuance voting power equal to or in excess
of 20 percent of the voting power outstanding before the issuance of stock or
securities convertible into or exercisable for common stock; or
the
number of shares of common stock to be issued is or will be equal to or in
excess of 20 percent of the number of shares or common stock outstanding before
the issuance of the stock or securities; or
4.
in connection with a transaction other than a public offering involving:
a.
the sale or issuance by Beta of common stock (or securities
convertible into or exercisable for common stock) at a price less than the
greater of book or market value which together with sales by officers,
directors, or substantial shareholders of the company equals 20 percent or more
of common stock or 20 percent or more of the voting power outstanding before the
issuance; or
b.
the sale or issuance by Beta of common stock (or securities
convertible into or exercisable common stock) equal to 20 percent or more of the
common stock or 20 percent or more of the voting power outstanding before the
issuance for less than the greater of book or market value of the stock.
Exceptions to those conditions requiring
shareholder approval may be made upon application to Nasdaq when:
the delay in
securing stockholder approval would seriously jeopardize the financial viability
of Beta; and
reliance by
Beta on this exception is expressly approved by the audit committee or a
comparable body of the board of directors.
If Beta is relying on this exception it must mail
to all shareholders not later than 10 days before issuance of the securities a
letter alerting them to its omission to seek the shareholder approval that would
otherwise be required and indicating that the audit committee or a comparable
body of the board of directors has expressly approved the exception.
The issuance of the shares of Beta common stock in
the names of the Red River shareholders, which shares are being held in escrow
by a third party escrow agent, is subject to shareholder approval of the merger
agreement and merger. If the Beta shareholders do not approve the merger, the
escrow agent is required to release all of these shares from escrow and return
them to Beta for cancellation. As such, these shares will not be transferred and
therefore will not be issued to the Red River shareholders if the Beta
shareholders do not approve the merger agreement.
Only shares actually issued and outstanding,
excluding treasury shares or shares held by a subsidiary, are to be used in
making any calculation provided for in determining whether shareholder approval
is required. Unissued shares reserved for issuance upon conversion of securities
or upon exercise of options or warrants will not be regarded as outstanding.
Where shareholder approval is required, the
minimum vote which will constitute shareholder approval shall be a majority of
the total votes cast on the proposal in person or by proxy.MARKET PRICES OF BETA COMMON STOCK
Beta Common Stock
Nasdaq Small Cap Market
Fiscal Year Ending December 31, 1999: High Low
------------------------------------- ---- ---
1st Quarter.......................... N/A N/A
2nd Quarter.......................... N/A N/A
3rd Quarter.......................... 6-11/16 4-1/4
4th Quarter.......................... 8-5/8 5-15/16
Fiscal Year Ending December 31, 2000: High Low
------------------------------------- ---- ---
1st Quarter.......................... 10-13/16 6-1/2
2nd Quarter.......................... 9-7/8 7-1/4
November 19, 1999.......... $ 8 1/8
___________, 2000............ $0.00
Pro Forma Combining, Condensed Financial Statements
The unaudited pro forma combining, condensed financial
statements are based on the assumptions set forth in the notes to such
statements and should be read in conjunction with the historical financial
statements and related notes of Beta and Red River and the ONEOK
Properties statement of revenues and direct operating expenses contained
herein, which were used to prepare the pro forma combining, condensed financial
statements.
Combining, Condensed Balance Sheet
March 31, 2000
(Unaudited)
ONEOK
Acquisition Combined Pro Forma Combined pro-forma
Beta Historical Adjustment Pro Forma Adjustments
----------------- ------------------ ------------ ---------- ------------- --------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,296,899 $ 470,063 $ - $ 470,063 $ - $ 2,766,962
Accounts receivable 672,945 336,654 - 336,654 - 1,009,599
Prepaid expenses 95,085 23,948 - 23,948 - 119,033
---------------- ---------------- ------------ ----------- ------------- ---------------
Total current assets 3,064,929 830,665 - 830,665 - 3,895,594
Oil and Gas Properties, at cost
(full cost method):
Evaluated properties 10,294,405 6,000,615 5,608,809 (2)11,609,424 13,819,948 (1) 35,723,777
Unevaluated properties 12,107,762 2,803,122 - 2,803,122 - (1) 14,910,884
Less-accumulated amortization
And impairments of full cost pool (4,355,106) (656,290) - (656,290) (2,792,929) (5) (8,034,518)
----------- ---------- ----------- ----------- ------------ -----------
Net oil and gas properties 18,047,061 8,147,447 5,608,809 13,756,256 11,027,019 42,600,143
Other Operating Property and Equipment:
Gas gathering system - 1,306,173 - 1,306,173 - 1,306,173
Support equipment - 1,116,615 - 1,116,615 - 1,116,615
Less-accumulated depreciation - (266,657) - (266,657) - (266,657)
----------- --------------- ----------- ------------ ------------ -----------
Net other operating property
and equipment - 2,156,131 - 2,156,131 - 2,156,131
Furniture, Fixtures and Equipment, net 9,039 29,884 - 29,884 - 38,923
Other Assets 697,198 8,818 - 8,818 - 706,016
---------------- ---------------- ------------ ------------- ------------ -----------
Total Assets $ 21,818,227 $ 11,172,945 $ 5,608,809 $16,781,754 $11,027,019 $ 49,627,000
================ ================ ============ ============= ============ ===========
Continued
See accompanying notes to combining, condensed financial information.
Combining, Condensed Balance Sheet
March 31, 2000
(Unaudited)
Continued
ONEOK
Acquisition Combined Pro Forma Combined
Beta Historical Adjustment Pro Forma Adjustments Pro Form
----------------- ------------------ ------------ ---------- ------------- --------------------
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Premiums payable current portion
of long-term debt $ 26,220 $ - $ - $ - $ - $ 26,220
Current portion of long-term debt - 2,246,317 - 2,246,317 - 2,246,317
Accounts payable, trade 180,948 280,389 - 280,389 100,000 561,337
Accounts payable, related party - 63,818 - 63,818 - 63,818
Accrued interest - 156,488 - 156,488 - 156,488
Accrued liabilities 10,645 48,077 - 48,077 - 58,722
---------------- ---------------- ------------ ----------- ----------- ---------------
Total current liabilities 217,813 2,795,089 - 2,795,089 100,000 3,112,902
Long-Term Debt, less current
portion 21,139 7,742,804 5,608,809 (2)13,351,613 - 13,372,752
Total liabilities 238,952 10,537,893 5,608,809 16,146,702 100,000 16,485,654
Stockholders Equity 21,579,275 635,052 - 635,052 10,927,019 33,141,346
Total Liabilities and Stockholders Equity $ 21,818,227 $ 11,172,945 $ 5,608,809 $ 16,781,754 $ 11,027,019 $49,627,000
================ ================ ============ ============= ========== ================
See accompanying notes to combining, condensed financial information.
Pro Forma Combining, Condensed Statement of Operations
For the Three Months Ended March 31, 2000
(Unaudited)
ONEOK
ONEOK ACQUISITION COMBINED PRO FORMA COMBINED
BETA RED RIVER PROPERTIES ADJUSTMENT PRO-FORMA ADJUSTMENTS PRO FORMA
--------------- ---------------- ----------------- ------------------- ------------------ -------------- ------------
REVENUES $ 940,250 $ 1,109,347 $ 657,610 $ - $ 1,766,957 $ - $ 2,707,207
COSTS AND EXPENSES 1,084,593 884,803 221,718 124,526 (3) 2,524,737 (5)
6,000 (6) 1,237,047 134,121 (4) 4,980,498
-------------- --------------- --------------- ---------------- ------------------- ---------------- -------------
INCOME (LOSS) FROM OPERATIONS (144,343) 224,544 435,892 (130,526) 529,910 (2,658,858) (2,273,291)
OTHER INCOME (EXPENSE), net 18,917 (151,761) - (107,182) (7) (258,943) - (240,026)
-------------- --------------- --------------- ---------------- ------------------- ---------------- --------------
NET INCOME (LOSS) $ (125,426) $ 72,783 $ 435,892 $ (237,608) $ 270,967 $ (2,658,858) $ (2,513,317)
============== =============== =============== ================= =================== ================ ===============
BASIC AND DILUTED INCOME (LOSS)
PER SHARE $ (0.01) $ 0.21
============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC)
9,486,113 2,250,000 (8) 11,736,113
============== ================ ================
See accompanying notes to combining, condensed financial information.
Pro Forma Combining, Condensed Statement of Operations
For the Year Ended December 31, 1999
(Unaudited)
ONEOK
ONEOK ACQUISITION COMBINED PRO FORMA COMBINED
BETA RED RIVER PROPERTIES ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO-FORMA
---------------- ----------------- ---------------- ------------------- ------------------ ----------- ------------
Revenues $ 1,199,480 $ 3,188,758 $ 2,087,384 $ - $ 5,276,142 $ - $ 6,475,622
COSTS AND EXPENSES 3,638,973 2,863,497 940,267 528,219 (3) 912,418 (4)
24,000 (6) 4,355,983 1,720,847 (5) 10,628,221
--------------- --------------- --------------- ---------------- ---------------- ------------ -------------
INCOME (LOSS) FROM OPERATIONS (2,439,493) 325,261 1,147,117 (552,219) 920,159 (2,633,265) (4,152,599)
OTHER INCOME (EXPENSE), net (2,944,910) (509,826) - (420,661) (7) (930,487) - (3,875,397)
--------------- --------------- --------------- ---------------- ---------------- ------------ -------------
NET INCOME (LOSS) $ (5,384,403) $ (184,565) $ 1,147,117 $ (972,880) $ (10,328) $ (2,633,265) $(8,027,996)
=============== =============== =============== ================= ================= ============ =============
BASIC AND DILUTED INCOME (LOSS)
PER SHARE $ (0.66) $ (0.77)
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC)
8,160,000 2,250,000 (8) 10,410,000
=============== =========== ===============
See accompanying notes to combining, condensed financial information.
Notes to the Pro Forma Combining, Condensed Statement of Operations
(Unaudited)
(1) To reflect the acquisition of Red
River in a purchase transaction where Beta acquired 100% of the net assets of Red
River for 2,250,000 shares of Beta common stock. The acquisition was valued at
$14,455,000 including $100,000 of estimated acquisition costs. Based on an
analysis performed by Beta management, the assets and liabilities of Red River
are adjusted to their fair values, which approximate book values, except for the
evaluated oil and gas properties which were increased by $13,805,427 to their
estimated fair value based on the September 1, 1999 Ryder Scott Reserve Report.
This amount will be included in the full cost amortization base of the Company.
The adjustment also includes the removal of Red River's stockholders' equity
accounts.
(2) To reflect the acquisition of
the ONEOK properties under the purchase and sale agreement between Red River and
ONEOK for total consideration of $5,608,809.
(3) To reflect additional
amortization costs giving effect to the increase in the amortization base of the
evaluated properties due to the acquisition of the ONEOK properties by Red
River.
(4) To reflect additional amortization
costs giving effect to the increase in the amortization base of the evaluated
properties acquired through the merger of Beta and Red River. The amortization
base of Red River includes the amortization base of the ONEOK properties as if
they had been acquired by Red River from the beginning of the periods presented.
(5) To reflect the impairment charge,
on a consolidated basis, under full cost method of accounting for oil and properties
due to the book basis of the properties being greater than the calculated ceiling
assuming prices and costs in effect as of December 31, 1999 and March 31, 2000.
(6) Reflects estimated
incremental general and administrative expenses due to the acquisition of the
ONEOK properties.
(7) Reflects increased
interest expense, based upon the current rate for each of the period presented,
from borrowings under the Red River line of credit to finance the acquisition
of the ONEOK properties as if the borrowings had been outstanding as of the
beginning of the periods presented.
(8) The pro forma combined
weighted average common shares reflect the adjustment for the issuance of 2.25
million shares of Beta common stock to Red River stockholders, per the Agreement
and Plan of Merger.
GLOSSARY
"Acquisition of properties" are the costs
incurred to obtain rights to production of oil and gas. These costs include the
costs of acquiring oil and gas leases and other interests. These costs include
lease costs, finder's fees, brokerage fees, title costs, legal costs, recording
costs, options to purchase or lease interests and any other costs associated
with the acquisitions of an interest in current or possible production.
"Area of mutual interest" means, generally, an
agreed upon area of land, varying in size, included and described in an oil and
gas exploration agreement which participants agree will be subject to rights of
first refusal as among themselves, such that any participant acquiring any
minerals, royalty, overriding royalty, oil and gas leasehold estates or similar
interests in the designated area, is obligated to offer the other participants
the opportunity to purchase their agreed upon percentage share of the interest
so acquired on the same basis and cost as purchased by the acquiring
participant. If the other participants, after a specific time period, elect not
to acquire their pro-rata share, the acquiring participant is typically then
free to retain or sell such interests.
"Back-in interests" also referred to as a carried
interest, involve the transfer of interest in a property, with provision to the
transferor to receive a reversionary interest in the property after the
occurrence of certain events.
"Bbl" means barrel, 42 U.S. gallons liquid
volume, used in this proxy statement in reference to crude oil or other liquid
hydrocarbons.
"Bcf" means billion cubic feet, used in this
proxy statement in reference to gaseous hydrocarbons.
"BCFEQ" means billions of cubic feet of gas
equivalent, determined using the ratio of six thousand cubic feet of gas to one
barrel of oil, condensate or gas liquids.
"Casing Point" means the point in time at which
an election is made by participants in a well whether to proceed with an attempt
to complete the well as a producer or to plug and abandon the well as a
non-commercial dry hole. The election is generally made after a well has been
drilled to its objective depth and an evaluation has been made from drill
cutting samples, well logs, cores, drill stem tests and other methods. If an
affirmative election is made to complete the well for production, production
casing is then generally cemented in the hole and completion operations are then
commenced.
"Development costs" are costs incurred to drill,
equip, or obtain access to proved reserves. They include costs of drilling and
equipment necessary to get products to the point of sale and may entail on-site
processing.
"Exploration costs" are costs incurred, either
before or after the acquisition of a property, to identify areas that may have
potential reserves, to examine specific areas considered to have potential
reserves, to drill test wells, and drill exploratory wells. Exploratory wells
are wells drilled in unproven areas. The identification of properties and
examination of specific areas will typically include geological and geophysical
costs, also referred to as G&G, which include topological studies,
geographical and geophysical studies, and costs to obtain access to properties
under study. Depreciation of support equipment, and the costs of carrying
unproved acreage, delay rentals, ad valorem property taxes, title defense costs,
and lease or land record maintenance are also classified as exploratory
costs.
"Farmout" involves an entity's assignment of all
or a part of its interest in a property in exchange for the assignee's
obligation to expend all or part of the funds to drill and equip the
property.
"Future net revenues, before income taxes" means
an estimate of future net revenues from a property at a specified date, after
deducting production and ad valorem taxes, future capital costs and operating
expenses, before deducting income taxes. Future net revenues, before income
taxes, should not be construed as being the fair market value of the
property.
"Future net revenues, net of income taxes" means
an estimate of future net revenues from a property at a specified date, after
deducting production and ad valorem taxes, future capital costs and operating
expenses, net of income taxes. Future net revenues, net of income taxes, should
not be construed as being the fair market value of the property.
"Mcf" means thousand cubic feet, used in this
proxy statement to refer to gaseous hydrocarbons.
"MMcf" means million cubic feet, used in this
proxy statement to refer to gaseous hydrocarbons.
"MBbl" means thousand barrels, used in this proxy
statement to refer to crude oil or other liquid hydrocarbons.
"Gross" oil and gas wells or "gross" acres is the
total number of wells or acres in which Beta has an interest.
"Net" oil and gas wells or "net" acres are
determined by multiplying "gross" wells or acres by Beta's interest in such
wells or acres.
"Oil and gas lease" or "Lease" means an agreement
between a mineral owner, the lessor, and a lessee which conveys the right to the
lessee to explore for and produce oil and gas from the leased lands. Oil and gas
leases usually have a primary term during which the lessee must establish
production of oil and or gas. If production is established within the primary
term, the term of the lease generally continues in effect so long as production
occurs on the lease. Leases generally provide for a royalty to be paid to the
lessor from the gross proceeds from the sale of production.
"Overpressured reservoir" are reservoirs subject
to abnormally high pressure as a result of certain types of subsurface
conditions.
"Present value of future net revenues, before
income taxes" means future net revenues, before income taxes, discounted at an
annual rate of 10% to determine their "present value." The present value is
shown to indicate the effect of time on the value of the revenue stream and
should not be construed as being the fair market value of the properties.
"Present value of future net revenues, net of
income taxes" means future net revenues, net of income taxes discounted at an
annual rate of 10% to determine their "present value." The present value is
shown to indicate the effect of time on the value of the revenue stream and
should not be construed as being the fair market value of the properties.
"Production costs" means operating expenses and
severance and ad valorem taxes on oil and gas production.
"Prospect" means a geologic anomaly which may
contain hydrocarbons that has been identified through the use of 3-D and/or 2-D
seismic surveys and/or other methods.
"Proved oil and gas reserves" are 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. 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 reasonably be judged as economically productive
on the basis of available geological and engineering data. In the absence of
information on fluid contacts the lowest known structural occurrence of
hydrocarbons controls the lower proved limit of the reservoir.
"Proved developed oil and gas reserves" are
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. Additional oil and gas reserves
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 should 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 undeveloped oil and gas reserves" are
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.
"Reserve target" means a geologic anomaly which
may contain hydrocarbons that has been identified through the use of 3-D and 2-D
seismic surveys and other methods.
"Royalty interest" is a right to oil, gas, or
other minerals that is not burdened by the costs to develop or operate the
related property. The basic royalty interest is retained by the owner of mineral
rights when his property is leased for purposes of development.
"Trend" means a geographical area where similar
geological, geophysical, or oil and gas reservoir and production characteristics
may exist.
"Seismic Option" generally means an agreement in
which the mineral owner grants the right to acquire seismic data on the subject
lands and grants an option to acquire an oil and gas lease on the lands at a
predetermined price.
"Working interest" is an interest in an oil and
gas property that is burdened with the costs of development and operation of the
property.BUSINESS OF BETA
Beta Oil & Gas, Inc. is an oil and gas
company organized in June 1997 to engage in the exploration, development,
exploitation and production of natural gas and crude oil. Beta's operations are
currently focused in proven oil and gas producing trends primarily in South
Texas, Louisiana and Central California.
Beta believes that the availability of economic
3-D seismic surveys has fundamentally changed the risk profile of oil and gas
exploration in certain regions, specifically South Texas and Louisiana.
Recognizing this change in risk profile, Beta has
aggressively sought to acquire significant prospective acreage blocks for
targeted, proprietary, 3-D seismic surveys. As of December 31, 1999, Beta had
assembled approximately 38,000 gross acres under lease or option.
Approximately 94% of Beta's current acreage
position is evaluated by proprietary 3-D seismic data that Beta has acquired
through joint participation with operating oil and gas companies. From the data
generated by its initial proprietary seismic surveys, covering over 300 square
miles, in excess of 200 potential drillsites have been identified.
Approximately $11,000,000 has been utilized to
acquire working interests in lands and seismic data in the onshore Texas Gulf
Coast region. Beta's interests in the onshore Texas properties are operated by
Parallel Petroleum Corporation, Allegro Investments, Inc. and Sue Ann
Production, Inc. Drilling commenced on these projects during 1999 and has
resulted in eight discoveries of oil and gas to date. Representatives of
Parallel, Allegro and Sue Ann have informed Beta that drilling will continue in
these projects throughout the year 2000. Beta anticipates that participation in
exploratory and drilling projects in South Texas will constitute its primary
activity during 2000.
Approximately $ 7,000,000 has been invested in
leases, seismic and drilling in Louisiana. Drilling commenced on these prospects
in 1998 and has resulted in five oil and gas discoveries so far. It is expected
that Beta will participate in the drilling of a minimum of six wells in
Louisiana during 2000.
The balance of funds raised to date have been
utilized primarily to fund various domestic and international exploratory
activities. Beta's exploratory activities in areas outside of Texas have
resulted in two natural gas discoveries located in Central California. It is
anticipated that Beta will expend additional funds to explore these areas during
2000 and future periods.
Beta has to rely on joint ventures with qualified
operating oil and gas companies to operate its projects through the exploratory
and production phases. This has reduced general and administrative costs
necessary to conduct operations. As of the date of this proxy statement, Beta is
operating only one of the oil and gas wells or prospects in which it owns an
interest. The balance of Beta's wells or prospects are being operated by third
parties.
Technology
Beta participates in projects utilizing
economically feasible advanced technology in their exploration and development
activities to reduce risks, lower costs, and more efficiently produce oil and
gas. Beta believes that the availability of cost effective 3-D seismic surveys
makes its use in exploration and development activities attractive from a risk
management perspective in certain areas such as South Texas and Louisiana. In
certain instances, 3-D seismic surveys more accurately inform Beta in evaluating
drilling prospects than do conventional 2-D seismic and traditional evaluation
methods. During 1999, Beta participated in the drilling of ten South Texas
exploratory wells utilizing 3-D seismic. Seven of the Texas wells have been
completed for production. During the same period, Beta participated in the
drilling of seven Louisiana exploratory wells identified from 3-D seismic, of
which four have been completed for production. None of the Texas or Louisiana
prospects had been identified prior to the use of 3-D seismic. Beta management
believes that the use of 3-D seismic resulted in higher number of completions of
producing wells than would otherwise be the case without the use of the 3-D
seismic. 3-D seismic allows Beta and its partners to better image the potential
size of an exploratory target and distinguish between larger more profitable
targets and smaller less attractive targets.
Briefly, a seismic survey sends pulses of sound
from the surface, down into the earth, and records the echoes reflected back to
the surface. By calculating the speed at which sound travels through the various
layers of rock, it is possible to estimate the depth to the reflecting surface.
It then becomes possible to infer the structure of rock deep below the earth's
surface. Beta has focused its exploration activity in the Gulf of Mexico region
due to affordable and available seismic data, and the affordability of the
software and computer hardware necessary to peer through the layers of rock and
salt to locate heretofore undiscovered hydrocarbons. Beta evaluates
substantially all of its exploratory prospects using 3-D or enhanced 2-D seismic
surveys.
In evaluating certain of its exploratory
prospects, Beta also uses amplitude versus offset "AVO" technology. AVO analysis
can show the high contrast between the sand and shales and provides for better
interpretation of the reservoir sands to determine the presence of gas.
Beta retains experienced third-party consultants
and participates with experienced joint working interest owners to acquire,
process and interpret 3-D seismic surveys. Beta attempts to ensure the integrity
of the 3-D seismic analysis in each of its projects by emphasizing quality
control throughout the data acquisition, processing and interpretation. Whenever
possible, Beta also attempts to correlate or "model" the interpretations of 3-D
seismic surveys with wells previously drilled on or near the prospect being
evaluated.
Beta may supplement its exploration efforts with acquisitions of producing oil and gas properties. Beta
would seek to acquire producing properties that either are underperforming relative to their potential or are
candidates for 3-D seismic analysis.
Summary of Oil and Gas Operations
Capitalized costs at December 31 1998, and 1999 relating to Beta's oil and gas
activities are summarized as follows:
December 31, 1998 December 31, 1999
----------------- -----------------
United States Foreign United States Foreign
------- ------- ------- -------
Capitalized costs-
Evaluated properties $ 1,763,082 $ 1,624,218 $ 8,128,928 $ 1,681,270
Unevaluated properties 11,426,732 39,963 11,973,532 118,095
Less- Accumulated
depreciation,depletion,
amortization and impairment (46,473) (1,624,218) (2,115,957) (1,681,270)
------------ ----------- ------------ -----------
$ 13,143,341 $ 39,963 $17,986,503 $ 118,095
============ =========== ============ ===========
As Beta's properties are evaluated through
exploration, they will be included in the amortization base. Costs of
unevaluated properties in the United States at December 31, 1998 and 1999
represent property acquisition and exploration costs in connection with Beta's
Louisiana, Texas and California prospects. The prospects and their related costs
in unevaluated properties have been assessed individually and no impairment
charges were considered necessary for the United States properties for any of
the periods presented. The current status of these prospects is that seismic has
been acquired, processed and is currently being interpreted on the subject lands
within the prospects. Drilling commenced on the prospects in the first quarter
of 1999 and will continue in future periods. As the prospects are evaluated
through drilling in future periods, the property acquisition and exploration
costs associated with the wells drilled will be transferred to evaluated
properties where they will be subject to amortization.
Unevaluated costs as of December 31, 1999, outside
the United States represent costs in connection with the evaluation and proposed
acquisition of one or more exploration blocks in Australia.
As a result of a ceiling test calculation,
which limits capitalized costs, net of related deferred tax liability to the
aggregate of the estimated present value, discounted at 10 percent of future net
revenues from proved reserved plus lower of cost or fir market value of unproved
properties. Beta recognized an impairment of approximately $1,168,000 related to
its oil and gas properties during the fourth quarter of 1999. Beta recognized an
impairment of approximately $46,000 related to its oil and gas properties during
the fourth quarter of 1998.
During the year ended December 31, 1998 Beta
participated in the drilling of 6 wells within the United States. The property
acquisition and exploration costs associated with the wells totaling $1,763,082
were transferred to evaluated properties and were evaluated for impairment.
Since all of the proved reserves associated with the wells were non-producing or
behind pipe and no production had occurred as of December 31, 1998, no depletion
expense was recorded during the year ended December 31, 1998.
During the year ended December 31, 1999, Beta
participated in the drilling of 19 wells within the United States. The property
acquisition and exploration costs associated with the wells were transferred to
evaluated properties. Production commenced during the period and depletion
expense of $901,573 was recorded.
As a result of a ceiling test calculation, which
limits capitalized costs, net of related deferred tax liability, to the
aggregate of the estimated present value, discounted at 10 percent of future net
revenues from proved reserves plus lower of cost or fair market value of
unproved properties. Beta recognized an impairment of approximately $1,168,000
related to its oil and gas properties during the fourth quarter of 1998.
During 1998, Beta, through its wholly owned
subsidiary, BETAustralia, LLC secured an option to participate for a 5% working
interest in two petroleum licenses covering 2,798,000 acres (approximately 4,372
square miles). Per the terms of the option agreement, Beta exercised its option
to earn a 5% working interest by participating in the drilling of two offshore
test wells in the license areas. The wells were completed as dry holes. The
property acquisition and exploration costs associated therewith totaling
$1,624,218 were transferred to evaluated properties and charged to impairment
expense during the year ended December 31, 1998. The exploration licenses
expired in December 1998. Property acquisition and exploration costs associated
with a Brazilian prospect totaling $ 57,052 were transferred to evaluated
properties and charged to impairment expense during the year ended December 31,
1999.PROPERTIES OF BETA
1. Yegua and Frio Trend 3-D Seismic Joint Venture - Onshore Gulf Coast Region, Jackson County, Texas;
2. Transition Zone Project - Offshore and Onshore Gulf Coast Region, Texas and Louisiana;
3. Norcal Project - Onshore San Joaquin and Sacramento Basins, California; and
4. International - Onshore Australia and Brazil.
In substantially all of its project areas, Beta has entered into joint ventures with operators who have
extensive experience and expertise in those areas. This has allowed Beta to obtain working interests in a number
of prospects with minimal associated overhead.
The following discussion contains forward looking statements. The projects discussed in this section may
never yield any additional commercial discoveries of hydrocarbons and, even if they do, they could result in a
loss to Beta. See "Risk Factors" for a discussion of the risk factors associated with the projects.
YEGUA/FRIO/WILCOX TREND 3-D SEISMIC JOINT VENTURE, JACKSON COUNTY, TEXAS
Beta presently owns working interests in four Onshore Gulf Coast exploration projects located in Jackson
County, Texas. The projects are operated by Parallel Petroleum Corporation, Allegro Investments, Inc. and
Sue-Ann Production Company. Approximately 15,000 gross acres, approximately
3,900 acres net to Beta's working interest, of oil and gas leases have been acquired in
these four projects as of December 31, 1998. As of December 31, 1999 , the operators had completed 3-D
seismic surveys over an area totaling 286 square miles within which these projects are located and were
evaluating seismic data to select drilling locations. Drilling commenced on Beta's project areas in the first
quarter of 1999.
The following projects in which Beta is participating will use the same seismic techniques that Parallel
has previously used to identify potential drill sites. The status of the projects is as follows:
1) Texana Project. Approximately 25,000 gross acres under seismic coverage;
294 gross acres under lease; 74 acres under lease net to Beta's 25%
working interest as of December 31, 1999 :
Approximately 40 square miles of 3-D seismic data has been acquired and processed. "Amplitude
Versus Offset" analysis and data interpretation has been completed. Approximately 10 potential
locations have been identified for drilling in 2000 and future periods. Drilling of exploratory wells is
expected to commence in the third quarter of the year 2000.
2) Formosa Grande Project. Approximately 92,000 gross acres under seismic coverage;
6,471 gross acres under lease; 1,618 acres under
lease net to Beta's 25% working interest at December 31, 1999 :
Approximately 140 square miles of 3-D seismic data has been acquired. The seismic data has been
interpreted and prospects identified. Drilling of exploratory wells commenced in the fourth quarter of 1999 and
has resulted in one dry hole to date. Approximately 46 additional potential locations have been identified for
drilling in 2000 and future periods. Two wells were drilled in the second quarter. One gas/condensate well has been completed,
the second well is currently being drilled.
3) Ganado Project. Approximately 25,000 gross acres under seismic coverage,
4,965 gross acres under lease; 993 acres under lease net to Beta's
20% working interest at December 31, 1999 :
Approximately 40 square miles of 3-D seismic data has been acquired and is in the interpretive
stages. Three exploratory wells have been drilled in this project this year. Two wells were dry holes and the
third well was completed for production. Approximately 91 additional locations have been identified for
drilling during 2000 and future periods, three well s are planned for the third quarter alone.
4) BWC Project. Approximately 42,440 gross acres under seismic coverage,
3,561 gross acres under lease; 1,175 acres under lease net to Beta's 12.5%
working interest at December 31, 1999 :
Approximately 66 square miles of 3-D seismic data has been acquired and is in the interpretive
stages. Drilling of exploratory wells commenced in the first quarter of 1999 and has resulted in seven oil
and gas discoveries out of eight wells drilled to date. Approximately 100 additional potential locations have
been identified for drilling in 2000 and future periods. Additional drilling is scheduled for the
third quarter of 2000.
Terms of Participation
All of the lands covered by the exploration agreements are subject to "area of mutual interest" provisions
described in the glossary preceding the "Business" section. The exploration agreements generally provide, among
other things, for participation by Beta and other participants on the following terms and conditions:
Participants were required to pay 133% of actual cost of initial land costs, consisting mainly of
seismic options, and the costs of acquiring, processing and interpreting seismic data. The 33%
premium was paid to unrelated parties as compensation for assembling the leases and conducting the
seismic operations. All costs incurred after the interpretation phase are billed to the
participants at actual cost. The post interpretation costs include the cost of drilling,
completing and equipping wells and the costs of acquiring leases. All of the projects are now in
the post-interpretive stage.
Once the seismic data has been acquired and interpreted, prospects will be designated within the seismic
survey areas. The parties to the agreement then have the option to participate in the prospect
according to their pro-rata working interest. Those parties who elect not to participate forfeit
their rights of participation in the specific prospect but retain the right to participate in other
prospects proposed in the seismic survey area which are outside of the specific prospect.
Those parties who elect to participate in a specific prospect then proceed to acquire oil and gas leases
within the prospect by exercising seismic options. The seismic options were acquired in advance of
seismic acquisition and convey the right to conduct seismic operations as well as the option to
enter into an oil and gas lease on the subject lands at a pre-determined price per acre. The
seismic option allows Beta and its partners to acquire and evaluate seismic data before actually
acquiring leases. After the seismic data has been evaluated, Beta and its partners can then
selectively acquire leases by exercising on acreage which is determined to be prospective from
seismic evaluation. Seismic options covering lands which are determined not to have oil and gas
potential are allowed to expire at no further cost to the participants. The cost of a seismic
option is usually much lower than the cost of acquiring a lease and it also prevents the mineral
owner lessor from leasing the oil and gas rights to another party during the term of the option.
Geological and Economic Overview of the Yegua/Frio/Wilcox Trend 3-D Joint Venture
The subject lands lie in close proximity to productive oil and gas fields which produce from the
Yegua/Frio/Wilcox intervals. Beta wishes to emphasize that the historical production results in the area are not
necessarily indicative of the results that Beta may obtain from its oil and gas prospects.
Within Beta's project areas, there are high potential exploration opportunities that are being defined with
the use of 3-D seismic. The Jackson County, Texas area has proven to be suitable for 3-D seismic as faulting
and structures are easily identified and many stratigraphic reservoirs exhibit hydrocarbon indicators from the
shallowest Miocene sands, throughout the Frio, and into the Vicksburg, Yegua, and Wilcox intervals. The Formosa
Grande Prospect Area has numerous regional down-to-the-coast faults that are easily identified at the top of the
Frio, but also has deep seated faulting that does not exhibit displacement at the shallower horizons. Very
often, these deep faults do create hydrocarbon traps. Most fields in this trend area exhibit multiple stacked
reservoirs.
A Frio level structure map exhibits numerous large four-way closures, primarily down-thrown to regional
growth faulting. These large structures have, for the most part, been exploited, some as early as the 1930s and
1940s. Although it is not readily apparent in regional mapping, much of the Frio production is stratigraphic in
nature, that is, trapped in channel sands that traverse structures, or in sands that "pinch out" up onto the
flanks of these large structures. Significant reserves may remain in similar traps which have not been developed
to date. Such traps should be readily defined with 3-D seismic data.
Beta's project areas appear to be located in a suitable "trend" area to apply 3-D seismic technology to
identify reserves that have been passed over in existing fields as well as to discover new reserves in deeper
pools and undrained fault segments in compartmentalized fields.
TRANSITION ZONE PROJECT
Beta has entered into several joint exploration agreements in southern Louisiana and Texas in an area which
is generally described as the Transition Zone.
The Transition Zone
The Transition Zone of Southern Louisiana and Texas covers the shoreline and near shore environments in the
Gulf of Mexico region. This region has been under-explored because acquisition of seismic data in the area was
very expensive and has historically been of less than ideal quality due to the problems inherent in gathering
data in the wide variety of environments encountered between land and deeper water offshore. Innovative
techniques have been utilized to acquire and process 3-D seismic data and quality data that provides the
opportunity to accurately interpret the structural and stratigraphic framework of the area.
All of the reserve targets will lie in the shallow waters or onshore. Depths of the reserve targets will
typically range from 3,000 to 15,000 feet. The average dry hole costs for these wells are expected to be
$1,500,000 for a straight hole and $2,000,000 for a directional hole to the 100% working interest. The
completion cost per well is estimated at $1,000,000 to $1,500,000 to the 100% working interest. Beta's prospects
in the Transition Zone are located within or adjacent to existing pipeline infrastructure. This will enable
wells drilled in the prospects to be connected to existing pipelines to transport oil and gas to markets.
The Cheniere Exploration Agreements
During 1999, Beta entered into joint exploration agreements with Cheniere Energy, Inc. on five natural gas
prospects located in Louisiana.
The following prospects in which Beta is participating have been identified from a proprietary 3-D seismic
survey acquired by Cheniere. The status of the prospects is as follows:
1) Cobra Prospect. All of the leases associated with this prospect were allowed to expire
:,br>
This prospect is located onshore in Cameron Parish, Louisiana. A well commenced drilling on this
prospect to a total depth of 12,500 feet in February 1999 and was determined to be non-commercial.
2) Shark Prospect. Approximately 752 gross acres under lease; 113 acres net to Beta's 15% working
interest:
This prospect is located offshore in West Cameron Block 49, Louisiana. A 9,900 foot test well commenced
drilling on this prospect in April 1999 and encountered pay. Noncommercial shows were encountered and the well was completed as a dry hole. A separate deeper 11,000 foot test is
planned for this prospect in the third quarter of 2000. In addition to the deep objectives, the teest will evaluate the previously encountered show zones in an updip position.
3) Redfish Prospect. Approximately 732 gross acres under lease; 110 acres net to Beta's 15% working
interest:
This prospect is located offshore in West Cameron
Block 49, Louisiana. A 10,000 foot test well was drilled on this prospect in
March 1999 and completed for production at an initial stabilized production rate
in excess of 15,000 mcf and 100 barrels of condensate per day. The well is
currently producing at a rate in excess of 14,000 mcf and 50 barrels of
condensate per day.
4) Stingray Prospect. Approximately 691 gross
acres under lease; 104 acres net to Beta's 15% working interest:
This prospect is located offshore in West Cameron
Block 49, Louisiana. A test well was drilled on this prospect in May of 1999.
The well was completed for production in September at a stabilized rate in
excess of 8,000 mcf and 60 barrels of condensate per day. The initial producing
zone has been depleted and the well has been re-completed in another producing
zone in a shallower interval. The well is currently producing approximately
6,000 mcf of natural gas and 40 barrels of condensate per day.
5) Heron Prospect. Approximately 1,139 gross acres under lease; 142 acres net to Beta's 12.5% working
interest
This prospect is located onshore in Cameron Parish, Louisiana. An 11,700 foot Planulina test was commenced
in September 1999 and completed as a dry hole.
The Rozel Exploration Agreement
Beta entered into a joint exploration agreement with Rozel Energy in 1998 to explore for oil and gas in the
Transition Zone of South Louisiana. Under this agreement, which expired on February 23, 1999, Rozel identified
prospects on the basis of a 3-D seismic survey completed by Fairfield Industries, one of the leading providers of
3-D seismic data for the Gulf of Mexico. Although the agreement with Rozel has expired, Beta continues to have
participation rights in acreage acquired and wells drilled before the expiration of the agreement.
Under the terms of the Rozel agreement, Beta provided a total of $480,000 of lease acquisition funding for
prospects before expiration of the agreement. Rozel identified the prospects utilizing the 3-D seismic data from
the Fairfield survey. In consideration for providing the lease acquisition funds, Beta is entitled, but not
obligated, to participate on a prospect by prospect basis in leases that were acquired by Rozel Energy during the
term of the agreement.
There are currently three remaining undrilled
prospects in which Beta has rights of participation. Beta's terms of
participation shall require it to pay approximately 12.5% of the costs of
drilling and completing the first well in each prospect to earn approximately a
9.375% working interest in the initial well and prospect acreage, a "third for a
quarter" basis. Beta's 9.375% working interest shall be further reduced to 8.8%
after the costs of the prospect have been recouped. Beta is obligated to pay a
$50,000 fee on those prospects in which it elects to participate. Beta shall be
entitled to reimbursement of lease funds advanced for prospects in which it
elects not to participate. Beta shall be entitled to such reimbursement if and
when Rozel either sells or otherwise conveys, i.e. farmouts, its interest in, or
drills, the prospect.
In addition to the three undrilled prospects, Beta
owns a 9.375% working interest in three producing wells and 5,000 acres
surrounding it. The OCS-G-13825 Minkfish #1, West Cameron Blk. 39, was drilled
to a depth of approximately 10,500 feet. The well commenced production in
January 1999 and is currently producing at a rate in excess of 4,000 mcf and 30
barrels of condensate per day. A second well, the Minkfish #2, was drilled and
completed in 1999 and the well is currently producing at rate in excess of
6,000 mcf and 100 barrels of condensate per day. A third well has been drilled
and completed and is currently shut in due to the need for well compression.
The compression will not be installed until such time that the second well requires
compression. At this time no specific date has been set for the compression
installation.
The Lapeyrouse 3-D Prospect
This prospect is in Terrebone Parish, South Louisiana, an area specifically targeted by Beta for its high
reserve potential based on historical production results that have been published for this area. Although the
main objective, the Duval, will be reached with a 14,800' test well, a total of twenty-one objectives will be
tested with one well bore. These consist of fourteen smaller objectives from 10,000' to 14,000' to pressure
point and seven larger objectives in abnormal pressure, over-pressured reservoir, through 16,000'.
Beta's working interest was purchased after detailed 3-D seismic was completed and interpreted. A total of
7,000 mineral acres have been leased to drill the multiple objectives stated above. Beta's working interest
varies between 2.5% and 6.25% in the project leases. Beta has acquired additional working interests from participants who
have declined to participate, which has increased Beta's working interest in the initial exploratory well to
19%. Estimated drilling costs to casing point for a proposed 14,800 foot test are $3,304,302 of which Beta
shall pay $627,817 for its proportionate 19% working interest. Estimated completion costs are $1,051,683 of
which Beta shall pay $199,819 for its proportionate 19% working interest, provided Beta elects to participate in
the completion. A well is expected to be drilled in the third quarter of 2000.
The Greens Lake Prospect
This prospect is in Galveston County, Texas on trend with the Eagel Point Vicksburg Sand discovery. The 2900
acre prospect lies within a proprietary 24 square mile S-D survey. Prospective sands include the Miocene, Lower
Frio and Vicksburg which are upthrown to a major regional fault. . Two wells, both to be drilled to a depth of
approximately 14,000 feet, are planned in this prospect, the first well to be drilled in the third quarter of 2000. . Beta has a 25% working interest in this prospect.
The Estherwood Prospect
The Estherwood Prospect is located onshore Acadia Parish, Louisiana within the Field Limits of the Lawson
Field. The operation involved the re-entry of the Sandefer #1 Pelto originally drilled in 1989. In December
1999 Beta re-entered the well. The Marg tex sand at 11,720' was tested and determined to non-commercial. Beta
has a 50% working interest in this prospect and is the operator.
NORCAL PROJECT, ONSHORE SAN JOAQUIN AND SACRAMENTO BASINS
Beta had entered into an exclusive eighteen month contract, which expired in April of 1999, to utilize 3-D
and 2-D seismic technology in a 500 square mile area of mutual interest with Source Energy LLC.
Beta has maintained a between a 30 to 75% working interest in certain prospects generated by
FrimodigSource Energy LLC in the San Joaquin and Sacramento Basins in Central and Northern California. As of
December 31, 1999, Beta has participated in the drilling of five wells in the Norcal Project. Two of the wells
have been completed for production:
1) The N.W. Buttonwillow #1 was completed in July 1998 flowing at a rate of 415 mcf per day and is
currently shut in due to high water production. The well
is being evaluated by the operator for abandonment. No decision has been reached at this time. Beta has a
75% working interest in this well.
2) The S.E. Garrison City #1 was completed and tested at a rate of 2,400 mcf per day. The well is awaiting
a pipeline hookup. Beta has a 30% working interest in this well.
In addition, Beta participated in the drilling of the S. Shafter #1, the Bowerbank #1 and the Buttonwillow
#1, all three of which were completed as dry holes. The Buttonwillow #1 is a different well than the N.W.
Buttonwillow #1.
INTERNATIONAL
Although the majority of Beta's exploration efforts are focused in the United States, management believes
that international exposure can reduce the business risks commonly associated with having operational activities
confined to one country.
Australian Projects
Beta has reviewed a number of exploration projects in the Asia Pacific Region and elected to participate in
two exploration areas covering four separate exploration permits in Eastern Australia. A description of the
areas is as follows:
1) Toko Syncline Project
Beta's wholly owned subsidiary BETAustralia LLC has signed an agreement with Dyad Australia, Inc. of
Midland, Texas to participate for a 20% working interest, 16.4% net revenue interest, in Dyad's rights to the
Toko Syncline Project. Dyad is the holder of exploration permits covering approximately 918,000 contiguous acres,
1,434 square miles, in the Georgina and Eromanga Basins of Western Queensland. Since the acquisition of the
permits, Dyad has acquired, analyzed, and reprocessed 400 miles of existing 2-D seismic data and identified four
potentially significant geological structures encompassing approximately 55,000 acres or 86 square miles. During
the period from 1964 to 1980, there were six wells drilled in the Toko Syncline that went deep enough to provide
meaningful subsurface control. Four were exploratory and two were full core tests by the Geological Survey of
Queensland. Of these six, only one well failed to identify oil or gas shows. At the time the wells were
drilled, there were no gas pipelines in the prospect areas available to transport natural gas, if commercial
amounts of gas could be discovered. The lack of pipelines in the area discouraged further exploration in the
area until now.
One of the structures is of particular interest due to a well, the Ethabuka #1 drilled on the structure in
1973 by Alliance Oil Development. The well encountered a persistent gas flow of 200 MCF of gas per day while
drilling. The well was abandoned 3,500 feet short of the initial target depth after twisting off the drill pipe
and making several unsuccessful efforts to reclaim the hole. This very significant show of gas was documented by
the Queensland Department of Minerals and Energy. At the time, there was no gas pipeline in the area.
The market for natural gas has increased significantly since then in the area. Western Queensland has a
large mining industry centered in the city of Mt. Isa. This area holds some of the world's largest deposits of
copper, lead, zinc, and phosphate. Previously, the mines and the associated processing and smelting plants were
fueled entirely by coal, which was shipped approximately 750 miles by rail. The Queensland government is
encouraging the introduction of natural gas as an energy source. Construction of a 14 inch gas transmission line
from southwest Queensland to Mt. Isa is now complete and transporting gas. The pipeline crosses the Toko
Syncline project area, exposing the project to a viable market for natural gas.
Dyad has entered into an agreement with a major U.S. concern for the funding of additional seismic data
acquisition and the drilling of an exploration well. Under the terms of the agreement, Dyad will have the
opportunity to buy into the exploratory well by reimbursing its proportionate share of actual costs after the
well has been drilled and evaluated. Dyad also has the option of postponing its buy-in until later stages in the
development program. Per the terms of the Beta-Dyad agreement, Beta has paid $100,000 to acquire 20% of Dyad's
working interest buy-in rights in the project area. If Dyad buys into the program after the initial exploratory
well has been drilled and evaluated, Beta will at that point, have the option of acquiring a net 10% working
interest at cost. If Dyad postpones its buy-in option until the later stages of the project, then its option to
purchase an interest will be incrementally reduced. Beta's working and net revenue interest in the Toko Syncline
project area will depend on if and when Dyad and its partners elect to buy-in to the project and will be reduced
in the later stages of the project if the buy-in option is not exercised and additional expenditures are incurred
by the funding partner. The funding partner will have exclusive marketing rights to hydrocarbons in the project
area, subject to an agreed minimum floor price to be received for hydrocarbons produced and sold.
Beta anticipates that the initial exploratory well could be drilled in the second quarter of 2000.
2) Stansbury Basin Project
In March 1998, Beta formed a wholly owned subsidiary called BETAustralia, LLC, a limited liability company
organized under the laws of California, for the purposes of participating in the Stansbury Basin Project and
other Australian projects. Beta made an initial cash advance of $320,000 to secure an option to participate for
a 5% working interest in two petroleum licenses covering 2,798,000 acres or approximately 4,372 square miles.
Per the terms of the option agreement, Beta exercised its option to earn a 5% working interest by participating
in the drilling of two offshore test wells in the license areas. Beta incurred costs of $1,305,445 in the
drilling of the two wells. The wells were completed as dry holes. The costs associated therewith totaling
$1,625,000 have been transferred to evaluated properties and charged to impairment expense during the year ended
December 31, 1998. Beta has no current plans to conduct additional exploration activities in the Australian,
Stansbury Basin, license areas. The exploration licenses expired in December of 1998.
Additional Projects Under Review
Although Beta's initial international focus is Australia, management is currently reviewing several other
opportunities. However, there is no guarantee that any of these projects will ever reach fruition.
These are forward looking statements. The projects discussed in this section may never materialize and,
even if they do materialize, they could result in a loss to Beta. No formal agreements have been reached and
there can be no assurance that such a purchase will ever be completed and this potential acquisition should not
be relied upon in making an investment decision.
GENERAL
Beta holds interests in producing properties and undeveloped acreage in three states within the United
States.
COMPANY RESERVES
Beta had no proved reserves as of December 31, 1997. Beta's total net ownership in oil and gas reserves as
of December 31, 1998 and 1999 are based on independent engineering reports. The reserve quantities and
valuations for fiscal 1998 are based upon estimates by Veazey & Associates, Inc. The reserve quantities and
valuations for fiscal 1999 are based upon estimates by Ryder Scott Company.
Proved developed reserves are those that can be recovered through existing wells with existing equipment and
existing operating or tested recovery techniques. All of Beta's reserves are classified as proved developed
reserves. These reserves are located entirely within the United States.
Beta Oil & Gas, Inc.
Historical Reserve Information
as of December 31, 1998 and 1999
---------------------------------------------- ---------------- ----------------
DESCRIPTION 1998 1999
---------------------------------------------- ---------------- ----------------
Proved Developed Reserves
Oil (bbls) 1,461 13,201
Gas (mcf) 1,596,740 4,170,000
---------------------------------------------- ---------------- ----------------
Proved Reserves
Oil (bbls) 1,461 13,201
Gas (mcf) 1,596,740 4,170,000
---------------------------------------------- ---------------- ----------------
Future Net Cash Flows
Before Income Tax $2,553,762 $7,534,646
---------------------------------------------- ---------------- ----------------
Standardized Measure of
Discounted Future Net Cash Flows $1,716,608 $6,012,972
---------------------------------------------- ---------------- ----------------
As of December 31, 1997, Beta did not own working interest in any productive wells. As of December 31, 1998
Beta owned working interests in two, .84 net, wells which have been completed for production but which have not
yet commenced production. As of December 31, 1999 Beta owned working interests in thirteen, 1.84 net, wells
which have been completed and commenced production.
The following tables set forth the undeveloped and developed acreage of Beta as of December 31, 1998 and
1999:
Beta Oil & Gas, Inc. Acreage Holdings
As of December 31, 1998 and 1999
1998 1999
----------------------- ----------------------
UNDEVELOPED ACREAGE GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
------------------------------------- ----------- -- --------- ----------- ----------
California 200 150 520 156
Louisiana 7,502 485 11,680 1,460
Texas 59,038 10,955 18,167 4,435
------------------------------------- ----------- ----------- ----------- ----------
UNDEVELOPED ACREAGE 66,740 11,590 30,367 6,051
===================================== =========== =========== =========== ==========
1998 1999
------------------------------------- ----------- ----------- ----------- ----------
DEVELOPED ACREAGE GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
------------------------------------- ----------- ----------- ----------- ----------
California 600 450 580 300
Louisiana 5,000 470 6,423 682
Texas 0 00 1,058 141
------------------------------------- ----------- ----------- ----------- ----------
DEVELOPED ACREAGE 5,600 920 8,061 1,123
===================================== =========== =========== =========== ==========
The following table sets forth the results of Beta's drilling activities in the fiscal years ended
December 31, 1997, 1998 and 1999:
Beta Oil & Gas, Inc.
Summary of Drilling Activity
For Fiscal Years Ending December 31, 1997, 1998 and 1999
--------------------------------------- ------------- ------------- ------------
EXPLORATORY WELLS 1997 1998 1999
--------------------------------------- ------------- ------------- ------------
GROSS
Productive 0 2 12
Dry 0 6 9
--------------------------------------- ------------- ------------- ------------
TOTAL 0 8 21
======================================= ============= ============= ============
NET
Productive 0 .84 1.75
Dry 0 1.13 2.42
--------------------------------------- ------------- ------------- ------------
TOTAL 0 1.97 4.17
======================================= ============= ============= ============
--------------------------------------- ------------- ------------- ------------
DEVELOPMENT WELLS 1997 1998 1999
--------------------------------------- ------------- ------------- ------------
GROSS
Productive 0 0 0
Dry 0 0 0
--------------------------------------- ------------- ------------- ------------
TOTAL 0 0 0
======================================= ============= ============= ============
NET
Productive 0 0 0
Dry 0 0 0
--------------------------------------- ------------- ------------- ------------
TOTAL 0 0 0
======================================= ============= ============= ============
The oil and gas industry is highly competitive. Beta competes with a number of other companies, including
large oil and gas companies and other independent operators with greater financial resources and, in some cases,
with more experience. Companies that are active in the same geographic areas as Beta include, but are not limited
to, Basin Exploration Inc., Unocal Corp., Fina Inc., Kerr-McGee Corp., St. Mary Land & Exploration, Esenjay
Exploration and Cheniere Energy Inc.
Employees
As of the date of this proxy statement, Beta employs 7 full-time employees. Beta hires independent
contractors on an "as needed" basis only. Beta has no collective bargaining agreements with its employees. Beta
believes that its employee relationships are satisfactory. Due to its current level of growth, Beta anticipates
increasing its number of full-time employees to eight by the June of 2000.
Premises
Effective July 2000, Beta's operations will be conducted from their new office location in
Tulsa, OK. The re-location is in conjunction with the Red River merger. Beta
will share office space at Red River's existing office location. Beta terminated
its existing office lease effective July 1, 2000.
Litigation
There is no litigation currently pending or threatened against Beta.Beta Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Disclosure Regarding Forward-Looking Statements
Included in this report are 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. Although the
company believes that the expectations reflected in such forward-looking statements are reasonable, it can give
no assurance that such expectations reflected in such forward-looking statements will prove to have been correct.
All forward looking statements contained in this section are based on assumptions believed to be reasonable.
These forward looking statements include statements regarding:
Beta's financial position
Proved or possible reserve quantities and net present values of those reserves
Business strategy
Plans and objectives of management of Beta for future operations and capital expenditures
Beta can give no assurance that such expectations and assumptions will prove to be correct. Reserve
estimates of oil and gas properties are generally different from the quantities of oil and natural gas that
are ultimately recovered or found. This is particularly true for estimates applied to exploratory prospects.
Additionally, any statements contained in this report regarding forward-looking statements are subject to
various known and unknown risks, uncertainties and contingencies, many of which are beyond the control of
Beta. Such things may cause actual results, performance, achievements or expectations to differ materially
from the anticipated results, performance, achievements or expectations.
Factors that may affect such forward-looking statements include, but are not limited to:
Beta's ability to generate additional capital to complete its planned drilling and exploration activities
Risks inherent in oil and gas acquisitions, exploration, drilling, development and production; price
volatility of oil and gas
Competition from other oil and gas companies
Shortages of equipment, services and supplies
Government regulation
Environmental matters
Financial condition and operating performance of the other companies participating in the exploration,
development and production of oil and gas ventures that Beta is involved in
In addition, since substantially all of Beta's
prospects are currently operated by third parties, Beta may not be in a position
to control costs, safety and timeliness of work as well as other critical
factors affecting a producing well or exploration and development
activities.
Beta's working capital was a surplus of
$2,847,116 at March 31, 2000 compared to a surplus of $A2,034,268 at December 31, 1999
and a deficit of ($96,457) at December 31, 1998. Beta's working capital
increased between December 31, 1998 and March 31, 2000, primarily due to Beta's
completion of its initial public offering and the exercise of Beta common stock
warrants. In order to fund capital expenditures in early 1999, Beta obtained
short term debt financing in the form of $3,000,000 in bridge note financing
which is discussed below under "Bridge Note" and completed an initial public
offering in July 1999 which is discussed below under "Initial Public Offering."
In order to fund capital expenditures during 2000, Beta issued a warrant call
which is discussed below under Exercise of Warrants
Historical Cash Used In and Provided by Operating, Investing and Financing Activities
Beta financed all of its business activities
through December 31, 1998 through issuances of its common stock in private
placements. Beta raised net proceeds of $9,221,783 during 1997 and $6,548,632
during 1998 in these private placements. During the year ended December 31, 1999
Beta realized net proceeds of $2,835,000 from a bridge note financing, net
proceeds of $7,733,553 from an initial public offering and net proceeds of
$2,052,620 from exercise of Beta common stock warrants. The $3,000,000 face
amount of the bridge notes was repaid in full on July 7, 1999 from the proceeds
of the initial public offering. In addition, Beta received net proceeds of
$1,116,465 from the exercise of warrants during the three months ended March
31,2000.
The net proceeds of the private placements, the bridge note financing, the initial public offering and the exercise of warrants
have been primarily invested in oil and gas properties totaling $6,945,695, $8,928,201, and
$5,900,794 for the years ended December 31, 1999, 1998 and 1997,
respectively and $500,343 during the three months ended March 31, 2000.
Beta's cash balance at March 31,2000 was $2,296,899 compared to
$1,448,655 at December 31, 1999 and $198,043 at December 31, 1998. The change
in Beta's cash balance is summarized as follows:
The Year ended December 31, 1999
The three months ended March 31, 2000
Beginning Cash balance $ 198,043
$ 1,448,655
Sources of cash:
Cash provided by operating activities (1,262,655)
473,045
Cash provided by financing activities 9,759,960
1,107,661
Total sources of cash 8,497,305
1,580,706
Uses of cash:
Oil and gas property expenditures (6,945,695)
(500,343)
Other assets (increase in advances to industry partners)
(299,051) (232,119)
Furniture, fixtures and equipment (1,947)
-
(7,246,693) (732,462)
Ending Cash balance 1,448,655
=================2,296,899
=================
The timing of most of Beta's capital expenditures
is discretionary. Beta has no material long-term commitments associated with its
capital expenditure plans or operating agreements. Consequently, Beta has a
significant degree of flexibility to adjust the level of such expenditures as
circumstances warrant. The level of capital expenditures will vary in future
periods depending on the success it experiences on planned exploratory drilling
activities in future periods, gas and oil price conditions and other related
economic factors. Accordingly, Beta has not yet prepared an estimate of capital
expenditures for future periods beyond 2000.
Upon completion of the proposed merger with Red
River, Beta will guarantee approximately $3,000,000 of Red River's total
$7,700,000 indebtedness at December 31, 1999 with the Bank of Oklahoma.
In addition, at June 15, 2000, Red River increased its indebtedness with the Bank
of Oklahoma by approximately $5.6 million in connection with the ONEOK property
acquisition increasing the total indebtedness with such bank to approximately
$13,700,000.
In the opinion of Beta management, the estimated future net cash
flow from the Red River oil and gas properties and the ONEOK property
will be sufficient to repay the principal and interest associated with the Bank of
Oklahoma debt. This assessment is based on current oil and gas prices in effect
and current reserve estimates, all of which are subject to change. In the event
of substantial reductions in the prices received for oil and gas and/or downward
revisions of oil and gas reserve estimates, the cash flow from the Red River
properties may not be sufficient to service the Bank of Oklahoma debt. In this
event, Beta may be required to dedicate significant amounts of cash to service
debt requirements. The funds will have to come from one of the sources discussed
below under "Plan of Operation 2000." In the event that such funds are not
available, Beta will be compelled to sell oil and gas properties to repay the
debt.
Red River's 80% owned subsidiary, TCM, L.L.C.,
also has $2,165,000 of debt associated with its coal bed methane properties as
of December 31, 1999. The debt is not guaranteed by Red River and TCM has no
material amount of assets or properties other than the coal bed methane
properties. These are currently classified as unevaluated since they are still
in the testing phase. The lender's recourse for repayment of the debt is limited
to its mortgage on the coal bed methane properties and the proceeds of
production from those properties. At present, Beta does not intend to dedicate
any of its cash resources to the repayment of this debt since the lender's
recourse is limited.
Red River also has no material long-term
commitments associated with its capital expenditure plans or operating
agreements other than its planned activities in the "WEHLU" unit in Central
Oklahoma. The level of Red River's capital expenditures will vary in future
periods depending on the results it experiences in the "WEHLU" unit. Effective
February 18, 2000 Red River entered into an agreement with Avalon Exploration,
Inc. of Tulsa to jointly test and develop additional production in the Company's
30,000 acre producing WEHLU Unit in Central Oklahoma.
Bridge Note
During 1999 Beta completed the private placement
of a $3,000,000 bridge note financing to three institutional investors referred
to as the "1999 bridge financing." Beta issued promissory notes having a
maturity date of one year and bearing an interest rate of 10%. In addition, a
total of 459,000 shares of Beta common stock were issued in connection with the
1999 bridge financing. The $3,000,000 in bridge notes was repaid in full with
accrued interest on July 7, 1999 from the proceeds of Beta's initial public
offering.
Beta received net cash proceeds of $2,835,000 from
the bridge notes. The estimated fair market value of 429,000 shares of common
stock issued in connection with the bridge note of $2,574,000 was treated as a
discount and was amortized over the term of the promissory notes using the
interest method. The estimated fair market value of 30,000 additional shares of
common stock issued per the terms of the bridge note of $180,000 was immediately
expensed as interest during 1999. Accordingly, Beta incurred additional interest
expense of $2,754,000 because of the shares of Beta common stock issued in
connection with the bridge notes. The debt issuance costs of the 1999 bridge
financing of $89,100 were amortized as additional interest expense during the
year ended December 31, 1999.
Plan of Operation for 2000
In the opinion of Beta's management, the existing
working capital of Beta, net cash flow from operations and the exercise of
common stock purchase warrants subsequent to December 31, 1999 will be
sufficient to fund the operations and projected capital requirements of Beta
throughout 2000. Beta is allocating its cash resources from all sources,
including the net proceeds of the initial public offering, to the following
categories of expenditures:
1) Drilling and completion costs for wells on Beta's prospects which are estimated to be approximately
$4,100,000 for 2000. While it is difficult to predict the exact timing of when these wells will be
proposed for drilling, Beta's operating agreements generally provide a 30 day period in which to
elect participation in a proposed well. Generally funds must be advanced within 30 days or less
after the 30 day election period;
2) Costs of $750,000 estimated during 2000 to drill new wells, convert certain producing wells to saltwater
disposal wells, reactivate certain wells and fracture treat certain wells associated with the Red River
properties;
3) Leasehold acquisition costs which are estimated to be $665,000;
4) 3-D seismic acquisition costs only if funds are available; and
5) General and administrative overhead.
Beta's planned capital expenditures and administrative expenses could exceed those amounts budgeted and
could exceed Beta's cash from all sources. If this happens, it may be necessary for Beta to raise additional
funds. It is anticipated that additional funds will be raised from one or more of the following sources:
1) During 1997, Beta issued
approximately 797,000 callable common stock purchase warrants which are
exercisable at a price of $5.00 per share. Beta issued a call for these warrants
since its common stock has traded on Nasdaq at a market price equal to or
exceeding $7.00 per share for 10 consecutive days. Beta received proceeds of
approximately $4.0 million from the exercise of 796,000 warrants prior to their
expiration on May 25, 2000. equal to the exercise price times the number of
shares which are issued from the exercise of warrants.
2) Beta has approximately 388,000 callable common stock purchase warrants outstanding exercisable at a
price of $7.50 per share. Beta is able to call these warrants at any time after its common stock has traded
on Nasdaq at a market price equal to or exceeding $10.00 per share for 10 consecutive days. It is Beta's
intent to call all of these warrants at such time, if and when, the $10.00 trading price is achieved and
cash is needed to fund capital requirements. Beta will receive proceeds equal to the exercise price times
the number of shares which are issued from the exercise of warrants net of commission to the broker of
record, if any. Beta could realize net proceeds of approximately $2,900,000 from the exercise of these
warrants. There is no assurance that Beta will ever realize any proceeds from the $7.50 warrant calls.
3) Beta may seek bank or other debt financing at such time that cash flow from operations is established.
Beta is not able to predict when, if ever, such financing will be available. Beta is currently seeking bank
financing in the range of $1,000,000 to $5,000,000.
4) Beta may seek mezzanine financing, if available, on terms acceptable to Beta. Mezzanine financing
usually involves debt with a higher cost of capital as compared to conventional bank financing. Beta
would seek mezzanine financing in the range of $1,000,000 to $5,000,000. Beta would seek
to use this means of financing in the event that a particular acquisition did not have sufficient proved
producing reserve collateral to support a conventional bank loan.
5) Beta may realize additional cash flow from oil and gas wells to be drilled, if found to be productive.
Beta owns a working interest in wells that are currently producing and in additional wells which are
presently being completed and equipped for production. Beta currently estimates that during 2000 it will
generate approximately $3,400,000 of net cash flow after deducting lease operating expenses.
1) Forfeit its interest in wells that are proposed to be drilled;
2) Farm-out its interest in proposed wells;
3) Sell a portion of its interest in proposed wells and use the sale proceeds to fund its participation for
a lesser interest; and
4) Reduce general and administrative expenses.
These are forward looking statements that are
based on assumptions which in the future may not prove to be accurate. Although
Beta's management believes that the expectations reflected in such forward
looking statements are based on reasonable assumptions, it can give no assurance
that its expectations will be achieved.
Comparison of Results of Operations for the Period from Inception, June 6,
1997, through December 31, 1997 and the year ended December 31, 1998
During the period from inception, June 6, 1997,
through December 31, 1997 and the year ended December 31, 1998 Beta generated no
revenues.
General and administrative expenses for the
period from inception, June 6, 1997, through December 31, 1997 were $245,452
compared to $746,769 for the year ended December 31, 1998. This represents a
$501,317 or a 204% increase. The primary reasons for the increase were due
to:
(1) A full year of operations in 1998 as compared
to a partial year in 1997 .
(2) An increase in
the number of employees from three in 1997 to five in 1998.
(3) Costs related to Beta's initial public
offering.
Loss from operations totaled $(246,982) for the
period from inception, June 6, 1997, through December 31, 1997 compared to
$(2,429,343) for the year ended 1998. The primary reason for the increase in the
loss was due to an impairment expense of $1,670,691 recorded in 1998. During
1998 Beta participated in the drilling of two offshore test wells in Australia.
The drilling resulted in two dry holes. All of the property acquisition and
exploration costs associated with the Australian full cost pool totaling
$1,624,218 have been transferred to evaluated properties and charged to
impairment expense during 1998. In addition, it was determined that the
capitalized costs associated with the U.S. full cost pool exceeded their
cost ceiling by $46,473. Accordingly, an impairment write-down of $46,473
was recorded as of December 31, 1998.
Other income for the period from inception, June
6, 1997, through December 31, 1997 consisted of interest income in the amount of
$45,409. Beta realized $44,843 of interest income for 1998.
Net loss for the period from inception, June 6,
1997, through December 31, 1997 was $(201,573) compared to $(2,384,500) for the
year ended December 31, 1998. The increase in net loss was primarily due to the
impairment writedown of oil and gas properties.
Comparison of Results of Operations for the Years Ended December 31, 1998 and 1999
During the year ended December 31, 1999 Beta had
oil and gas revenues of $1,199,480. Beta's net production was 475,065 mcf at an
average price of $2.44 per mcf and 1,822 barrels of oil at an average price of
$23.03 per barrel. During the year ended December 31, 1998 Beta generated no
revenues.
During the year ended December 31, 1999 Beta incurred lease operating expenses of $81,538. Beta's average
lifting cost for this period was $.17 per mcf equivalent. During the year ended December 31, 1998 Beta incurred
no lease operating expense.
General and administrative expenses for the year ended December 31, 1999 were $1,418,240 compared to
$746,769 for the year ended December 31, 1998. This represents a $671,471 or a 90% increase over the prior year
period. The primary reasons for the increase were due to:
(1) An increase in operational activities in 1999 versus 1998;
(2) An increase in the number of employees from 5 in 1998 to 6 in 1999; and
(3) General and administrative Costs related to Beta's initial public offering and filing the S-1
registration statement which are not readily identifiable as offering costs.
Impairment expense for the year ended 1999 was $1,224,962 compared to $1,670,691 for the 1998 year. The
impairments for both years are as follows:
1998 1999 Total
---- ---- -----
Foreign cost pool $ 1,624,218 $ 57,052 $ 1,681,270
U.S. cost pool 46,473 1,167,910 1,214,383
------------- ------------ -------------
$ 1,670,691 $ 1,224,962 $ 2,895,653
============= ============ =============
Depreciation and depletion expense for the year ended December 31, 1999 was $914,233 compared to $11,883 for
the year ended December 31, 1998. This represents a $902,350 increase over the prior year period. The primary
reason for the increase is due to the fact Beta had no oil or gas production in the prior year period that would
give rise to depletion expense.
Loss from operations totaled $(2,439,493) for the year ended December 31, 1999 compared to $(2,429,343) for
the year ended December 31, 1998.
Other income for the year ended December 31, 1999 consisted of interest income in the amount of $21,741.
Beta realized $44,843 of interest income for the year 1998. The reason for the decrease was lower average cash
and cash equivalents balances for the 1999 period as compared to the 1998 period.
Cash interest expense $ 120,555
Amortization of note discount and fair market value of 459,000 shares 2,754,000
Amortization of deferred loan costs 89,100
Bridge note interest expense for the year ended December 31, 1999 $ 2,963,655=============
Net loss for the year ended December 31, 1999 was
$(5,384,403) compared to $(2,384,500) for the year ended December 31, 1998. The
increase in net loss was primarily due to the interest expense related to the
bridge note.
Three Months Ended
March 31
Increase
2000 1999 (Decrease)
Oil and gas sales $940,250 $29,664 3,070%
Net gas production (mcf) 331,833 18,455 1,698%
Net Oil production (barrels of oil) 1,125 - N/A
Average gas price $2.74 $1.61 70%
Average oil price $27.89 N/A N/A
Three Months Ended
March 31
Increase
2000 1999 (Decrease)
Lease operating expense $33,888 $9,035 275%
Average lifting cost per equivalent mcf $.10 $.49 (80%)
(1)
An increase in
operational activities in 2000 versus 1999 (approximately $69,000);
(2)
An increase in the number of employees from six in 1999 to seven in 1999 (approximately $16,000);
(3)
Costs related to Beta's merger with Red River (approximately $87,000); and
(4)
Costs related to being a publicily traded company(approximately $50,000).
Cash interest expense $ 36,843
Amortization of note discount and fair market value of 30,000 shares 405,354
Amortization of deferred loan costs 24,151
--------------
Bridge note interest expense for the three months ended March 31, 1999 $ 466,348
==============
As of December 31, 1999, Beta had available, to
reduce future taxable income, tax net operating loss carryforwards of
approximately $9,500,000 which expire in the years 2012 through 2019. As of
December 31, 1999, Beta has a deferred tax asset of $3,293,830
which is fully reserved for with a valuation allowance. Utilization of the tax
net operating loss carryforward may be limited in the event a 50% or more change
of ownership occurs within a three year period. The tax net operating loss
carryforward may be limited by other factors as well.
Cancellation of Warrants
On June 21, 1999, certain warrant holders agreed
to cancel 87,296 warrants to purchase common stock consisting of 20,000 warrants
exercisable at $5.00 per share and 67,296 warrants exercisable at $7.00 per
share. All of the cancelled warrants were non-callable with expiration dates on
March 12, 2003. The warrants were cancelled for no consideration pursuant to a
request by the National Association of Securities Dealers, the "NASD". The
warrant holders were certain NASD member firms and their employees who
participated in Beta's 1998 private placement, as well as Beta's legal counsel.
The cancellation request was made and complied with because the NASD determined
that these warrants could be deemed "underwriter's compensation" and the
continued existence of these warrants could result in the compensation for the
initial public offering exceeding the NASD guidelines. Therefore, all such
warrants which could be deemed "underwriter's compensation" in excess of NASD
guidelines have been cancelled for no consideration.
Initial Public Offering
On July 30, 1999, Beta completed its initial
public offering of common stock. Beta sold 1,465,490 shares of common stock at
$6.00 per share out of the 1,500,000 maximum number of shares offered pursuant
to its S-1 Registration Statement which was declared effective July 1, 1999.
Beta withdrew from registration the 34,510 unsold shares, the 150,000 shares
registered to satisfy an "Over-Allotment Option," and a total of 31,878 shares
issuable upon exercise of Selected Dealer Warrants in connection with the unsold
portion of the offering, including the Over-allotment Option.
Beta realized gross proceeds of $8,792,948 from
the sale of its common stock in the initial public offering, before deducting
commissions and offering expenses. On July 7, 1999, Beta applied $3,070,000 of
the proceeds from the offering towards the full repayment of the bridge notes
and accrued interest.Exercise of Warrants
On August 27, 1999, the board of directors
approved an incentive and non-statutory stock option plan which authorizes the
Compensation Committee to grant stock option awards to officers, directors and
employees. The plan provides, among other things, the following:
The maximum number of shares which may be
optioned and sold under the plan is 700,000 shares.
The per share exercise price for common
shares to be issued pursuant to the exercise of an option shall be no less than
the fair market value of Beta's common stock as of the date of grant.
The per share exercise price for common
shares to be issued to persons owning more than 10% of the voting stock of Beta
at the date of grant, shall be no less than 110% of the fair market value of
Beta's common stock as of the date of grant.
The maximum term of the options shall be a
maximum of 10 years or such lesser time period as the board of directors
determines. The maximum time period for options to be issued to persons owning
more than 10% of the voting stock of Beta at the date of grant shall be 5 years
from the date of grant.
The Compensation Committee of the board of
directors granted 97,500 options to officers, directors and employees as of
August 27, 1999 at an exercise price of $6.00 per share. All of the 97,500
options will expire on or before December 31, 2004. None of the 97,500 options,
or any additional options issued under the plan shall become exercisable until
such time as the shareholders of Beta have approved the plan as provided in
Beta's bylaws.
Beta Acquisition of Red River Energy, Inc.
Beta has entered into an agreement to purchase Red River Energy, Inc. of Tulsa, Oklahoma, a private oil and
natural gas company. The purchase price will be paid by the assumption of approximately $7.7 million existing
debt and the issuance of approximately 2.25 million shares of Beta common stock. The purchase is subject to
approval by Beta shareholders.
The assets of Red River Energy, Inc. consist of four components: 1) a 97.4% working interest (80% net
revenue interest) in a 30,160 acre unit which is currently producing approximately 2.8 MMBTU/d and 96 net Bopd from
22 active wells in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working interest (68% net
revenue interest) in 8,100 acres which are currently producing approximately 630 net MMBTU/d from 45 wells in the Atoka and
Gilcrease formations in Eastern Oklahoma; 3) a gas gathering system consisting of 40 miles of pipeline which is
currently transporting approximately 1950 MMBTU/d in Eastern Oklahoma; and 4) a 46 well coal bed methane project
also located in Eastern Oklahoma which is currently under development and producing approximately 600 MMBTU/d.
Red River Energy, Inc. is the operator of all its properties.
Beta intends to adopt SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," issued in June 1998 effective
with its fiscal year beginning January 1, 2000 as required by the Statement. Due
to Beta's current and anticipated limited use of derivative instruments,
management anticipates that adoption of SFAS 133 will not have any significant
impact on Beta's financial position or results of operations. SFAS 132,
"Employees' Disclosures about Pensions and other Postretirement Benefits," and
SFAS 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
were issued in 1998 and are not expected to impact Beta regarding future
financial statement disclosures, results of operations and financial
position.
Year 2000Y2K Problem
Beta has experienced no disruption in its
operations that management can attribute to Year 2000 issues. In addition, Beta
has seen no Year 2000 related problems or received any reports of such problems
from entities with which Beta transacts business.INFORMATION ABOUT RED RIVER
Red River was formed in 1997 and commenced
operations in early 1998. It was originally formed as a limited liability
company under Oklahoma law and named Red River Energy, L.L.C. Subsequent to
September 30, 1999, the members of the limited liability company exchanged their
member interests for shares of Red River Energy, Inc., which is an Oklahoma
corporation formed in 1999 but which had no activities, assets or shareholders
prior to its acquisition of the Red River Energy L.L.C. member interests from
the Red River Shareholders. Red River Energy, Inc. has elected to be taxed under
subchapter S of the Internal Revenue Code. This restructuring was undertaken due
to the desire of the Red River Shareholders to have an S corporation as the
parent company of their related business activities.. Red River Energy, L.L.C.
continues to hold title to the assets and operations of Red River as a wholly
owned subsidiary. The coal bed methane exploration, development and production
operations of Red River are conducted through TCM, L.L.C., an Oklahoma limited
liability company which is 80% owned by Red River.
BUSINESS OF RED RIVER
Red River engages in the oil and gas business in
the continental United States. It acquires, develops, operates and sells oil and
gas property interests of all types. Red River also focuses on the acquisition
of gas gathering systems associated with the producing fields in which it has an
interest. It owns and operates the West Edmond Hunton Lime Field Unit in central
Oklahoma, the Hitchita Field in Okmulgee and McIntosh Counties, and through its
80% owned subsidiary, TCM, L.L.C., coal bed methane gas wells in Tulsa and
Okmulgee Counties in Oklahoma. Red River also owns and operates a gas gathering
system located primarily in McIntosh County, Oklahoma.
Red River's headquarters are located in Tulsa,
Oklahoma. At March 31, 2000 Red River employed 14 persons on a full time
basis.
Red River's principal line of business is oil and
gas acquisition, exploration, development and production. Red River evaluates
producing oil and gas prospects from several perspectives. It reviews the
opportunities to produce and market the oil and gas production from the
properties, to participate in drilling activities on development locations and
to rework the wells to improve production and further develop the area.
Red River faces strong competition from many
other companies and individuals engaged in the oil and gas business, many of
which are very large, well-capitalized energy companies with substantial
capabilities. Red River may be at a competitive disadvantage in acquiring oil
and gas prospects since it must compete with these individuals and companies,
many of which have greater financial resources and larger technical staffs.
Red River's business is not dependent on a single
customer and its management does not believe that it will be in the foreseeable
future since oil and gas purchasers are readily available in today's
markets.
Red River's search for oil and gas is
concentrated in the continental United States, primarily in Oklahoma and Texas.
However, the acquisition, exploration, development, production and sale of oil
and gas are subject to many factors that are outside Red River's control. These
factors include worldwide and domestic economic conditions; oil import quotas;
availability of drilling rigs, casing and other supplies; proximity to
pipelines; the supply and price of other fuels and the regulation of prices,
production, transportation and marketing by federal and state government
authorities. The oil and gas industry has at times been faced with shortages in
tubular steel, increased prices in used steel casing and a shortage of drilling
rigs which have in the past delayed drilling activities by oil and gas
operators. Pumping units and other wellhead equipment have also been in short
supply from time to time.
Red River is subject to various federal, state
and local laws and regulations regarding environmental and ecological matters.
Environmental laws may necessitate significant capital outlays, which may
materially affect Red River's earnings potential and could cause material
changes in Red River's business. At the present time, however, environmental
laws have not materially hindered nor adversely affected Red River's
business.
Working capital is needed in the oil and gas
industry to finance the drilling and completion of wells, to finance major
workovers to enhance existing production, and to acquire undeveloped leasehold
interests and proved producing properties. At present, Red River is generating
sufficient revenue from operations and has sufficient credit lines to supply
current working capital requirements.
The monthly production from these properties for the first four months of 2000 has been as follows:
Bbls Oil Mcf Gas Bbls Water
Jan 3,994 81,785 30,624
Feb 3,653 72,163 33,682
Mar 3,732 79,183 30,982
Apr 4,610 79,309 38,694
Red River believes that there are a number of potential locations to drill additional development wells
on the properties. It is anticipated that during 2000 Red River will drill additional wells in this unit, but
the extent of this activity will be not be decided until Red River has reviewed the results of a pilot project
scheduled to commence third quarter of 2000. As described under Red River Management's Discussion and Analysis
of Financial Condition and Results of Operations - Plan of Operation 2000, Red River has entered into an
agreement with Avalon Exploration, Inc. of Tulsa, Oklahoma to jointly test for and develop additional production
on these properties.
Hitchita Field. Red River owns
approximately 8,100 acres (6,080 net acres) of oil and gas leases in the
Hitchita Field which is located in Okmulgee and McIntosh Counties in Oklahoma.
It has interests in 45 wells (34 net) and operates 39 of those wells. These
wells produce dry gas from various formations with depths ranging from 1700 to
2600'. Gas is sold into Red River Field Services low pressure gathering system.
Red River anticipates drilling one additional prospect in late 2000 and developing one of the prospects recently drilled.
Subsequent development operations in the area will depend in largely on the
results achieved from this additional drilling.
Gas Gathering System. Through its
wholly owned subsidiary, Red River Field Services, L.L.C., Red River owns a low
pressure gathering system in the Hitchita Field which comprises approximately 40
miles of pipeline and is connected to 47 wells. The system currently gathers
approximately 1,950 Mcf of natural gas per day. Red River is actively seeking
new well connections.
These properties secure a mortgage loan which had
an outstanding principal balance at December 1, 1999 of $7,694,229 and which
bears interest at the variable annual rate based on the prime rate of the lender
or LIBOR, whichever Red River elects from time to time, currently 8.25%. This
mortgage loan is a revolving credit facility.
Red River also has field equipment securing an
installment loan with an outstanding balance at December 1, 1999 of $152,723 and
which bears interest at the annual rate of 8.25%. The loan matures on October
31, 2001.
Hedging Transactions. From time
to time, Red River engages in hedging transactions in order to increase to some
extent the stability and reliability of the prices that it receives for its
natural gas production. Effective July 1,2000, Red River has
committed for one year to sell 2,700 Mmbtu per day of natural gas at a price of
$3.085 per Mmbtu, representing approximately 60% of Red River's average daily
gas production. Red River expects to continue to engage in
hedging transactions at times it believes are opportune as part of its overall
natural gas marketing strategy. While hedging arrangements may protect Red River
to some extent during the period of the hedging contract from the detrimental
effects of declining market prices in natural gas, they will also limit the
benefit that Red River would otherwise realize as a result of increases in
market prices during the period.
Leasehold and Well Data. The
following tables set forth information with respect to Red River's oil and gas
interests. This information is as of December 31, 1999, unless otherwise
indicated. Red River's interests are all located in the State of
Oklahoma:
Gross Acres Net Acres
----------- ---------
Total Developed leasehold acreage 37,960 35,389
Total Undeveloped leasehold acreage 0 0
Total Oil Gas
----- --- ---
Gross productive wells................... 99 39 60
Net productive wells..................... 88 38 50
Wells drilled: Total Oil Gas Dry
----- --- --- ---
1999 (through December 31)............... 1 0 1 0
1998..................................... 0 0 0 0
Year Ended Year Ended
---------- ----------
1998 1999
------ ----
Type of Wells Drilled:
Net productive exploratory...... 0 0
Net productive development...... 0 0.165
Net dry development............. 0 0
Year Ended Year Ended
----------- ----------
December 31, December
------------- --------
1998 31, 1999
---- --------
Oil production (Bbl)..................... 13,470 33,584
Gas production (Mcf)..................... 336,537 911,036
Average sales price:
Oil (per Bbl)........................ $12.38 $17.86
Gas (per Mcf)........................ $ 2.08 $2.20
Average production cost per
Mcfe.................................. $ 0.76 $ .91
There are numerous uncertainties inherent in
estimating quantities of proved reserves, including many factors beyond the
control of Red River. Reservoir engineering is a subjective process of
estimating subsurface accumulations of oil and gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and the interpretation of that data. As a result,
estimates by different engineers often vary, sometimes significantly. In
addition, physical factors, such as changes in product price, may justify
revision of these estimates. Accordingly, oil and gas quantities ultimately
recovered will vary from reserve estimates.
December 31, 1998 December 31, 1999
----------------- -----------------
Proved reserves:
Oil (Bbls)............................... 434,070 349,584
Gas (Mcf)................................ 15,542,000 12,402,000
Estimated future net revenues from oil
and gas reserves before income taxes:.... $ 26,427,079 $ 25,844,599
Standardized Measure of Discounted
Future Net Cash Flows:................... $ 8,365,009 $ 10,844,030
The coal bed methane development operations have
been financed primarily under a non-recourse credit facility with Duke Energy
Financial Services, Inc. The total amount of the principal due under that
facility at December 31, 1999 was $2,165,234 and the indebtedness bears interest
at prime plus one percentage point, which currently is 10%. Under the terms of
the credit facility, Duke Financial Services is entitled to receive overriding
royalty interests in these properties.
Legal Proceedings
Red River has no pending legal proceedings and,
to the knowledge of its management, no legal proceedings are threatened.
Management of Red River
Mr. Rolf N. Hufnagel, age 52, is the Chairman,
President and Chief Executive Officer of Red River Energy, Inc., which he
cofounded in 1997. His function at Red River is to set the course for Red
River's activities, while providing significant interaction within the oil and
gas industry so as to maintain sizeable deal flow for acquisition purposes. Mr.
Hufnagel is also directly involved with finding, evaluating, negotiating and
closing acquisition opportunities and Red River's capital needs. Prior to
forming Red River, Mr. Hufnagel founded and served as Chairman, President and
Chief Executive Officer of Carlton Resources Corporation, an oil and gas
acquisition company, from 1994 to 1998. From 1986 to 1992, Mr. Hufnagel served
as Senior Vice President of RAMCO Oil & Gas, Inc., a privately held property
acquisition company. Mr. Hufnagel's experience encompasses over 25 years. Mr.
Hufnagel received his Bachelor of Science from Cameron University and his Master
of Business Administration from the University of Oklahoma in 1974.
Mr. Robert E. Davis Jr. , age 48, is Executive Vice President and Chief Financial Officer of Red
River. He is responsible for the Company's financing and accounting activities as well as assisting in economic
evaluations of potential acquisition targets. Prior to cofounding Red River, Mr. Davis served as Executive Vice
President and Chief Financial Officer of Carlton Resources Corporation, an oil and gas acquisition company, from
1996 to 1998. From 1994 to 1996, Mr. Davis served as Executive Vice President and Chief Financial Officer of
American Central Gas Company in Tulsa, a natural gas gathering and processing company. In 1983, Mr. Davis
co-founded and served as Executive Vice President and Chief Financial Officer of Vesta Energy Company, a
nationally recognized natural gas marketing company. From 1986 through 1992, he also served as President and
Chief Executive Officer of Esco Energy, Inc., the holding company of Vesta Energy Co., Omega Pipeline Co. and
Esco Exploration Company. During his 25 years in the oil and gas industry, Mr. Davis also served as CPA with
Arthur Young & Company (now Ernst & Young LLP) in Tulsa, specializing in oil and gas taxation and accounting, a
commercial loan officer at United Oklahoma Bank in Oklahoma City and manager of drilling program sales and
administration with Andover Oil Company of Tulsa. Mr. Davis has a B.S. degree in finance and accounting from
the University of Oklahoma. He is a licensed certified public accountant in the state of Oklahoma.
Mr. Billy L. Baysinger, Jr., age 36, is Senior Vice President of Acquisitions for Red River. He is
responsible for identifying strategic acquisition candidates and coordinating the evaluation process of each
property set. In addition, Mr. Baysinger oversees the office administration and production land functions. From
1997 until 1998, Mr. Baysinger was employed by Carlton Resources Corporation and, its wholly owned subsidiary,
Magic Circle Energy Corporation as Vice President, Business Development. Prior to his employment with Carlton
Resources, Mr. Baysinger spent five years in the midstream sector of the oil and gas industry working for
Associated Natural Gas (PanEnergy Field Services and now Duke Energy). He has been active in the oil and gas
industry for nearly 15 years starting in 1985 as a geologist with Lynan Energy, Inc., a small private oil and gas
company. He managed gas marketing, contract administration and volume control functions during another five year
span. Mr. Baysinger received a Bachelor of Science degree in Geology from Oklahoma State University in 1985 and
his Master of Business Administration from Central State University in 1989. He is a member of the American
Association of Petroleum Geologists, Gas Processors Association and the Natural Gas Association of Oklahoma.
Mr. Brent A. Biggs, age 33, is the Vice President of Marketing for Red River. He is responsible for
managing Red River's product marketing efforts including the sale of natural gas, crude oil and liquids. He is
also a member of the acquisitions team. Prior to joining Red River in 1998, he was the Manager of Product
Marketing and Gas Supply for Carlton Resources Corporation from 1997 to 1998. Prior to joining Carlton
Resources, Mr. Biggs was Product-Marketing Manager for RAMCO Operating Company and RB Operating Company from 92
to 97. He has more than nine years experience in the oil and gas business and is a member of the Natural Gas
Association of Oklahoma. Mr. Biggs attended the University of Central Oklahoma and majored in Business
Management.
Ms. Janet L. McGehee, age 39, is Vice President of Engineering and is responsible for all the
engineering functions of Red River. She evaluates properties for acquisition opportunities and once a property
base is established she will be responsible for operations, development and enhancement of the properties. Prior
to the formation of Red River, she served as Engineering Manager for Carlton Resources from 1997 to 1998,
providing property evaluations to the bank and coordinating evaluations with third party engineering groups. She
also provided property enhancement with workover and recompletion proposals on the Magic Circle properties.
Prior to joining Carlton in 1997, she was a district engineer for Samson Resources from 1993 to 1996. In
addition, Ms. McGehee served as a petroleum engineer for Hawkins Oil & Gas, Inc. from 1983 to 1989, and a senior
engineer for Geodyne Resources, Inc. from 1990 to 1992, both in Tulsa. Ms. McGehee received a Bachelor of
Science in Petroleum Engineering from Texas A&M University. She is a Licensed Professional Engineer and a member
and director of the MidContinent Section of the Society of Petroleum Engineers.
Mr. Stephen J. Vogel, age 53, is the minority owner and President of TCM. L.L.C., an 80%-owned
subsidiary of Red River, which was created to operate Red River's coal bed methane projects. Mr. Vogel brings 25
years of oil and gas experience to Red River Energy. Prior to the formation of Red River, Mr. Vogel served as
Vice President of Operations for Carlton Resources from 1996 to 1998. Before joining Carlton Resources, Mr.
Vogel owned Star Production Corporation and worked as Senior Vice President of Operations and Chief Operating
Officer of RAMCO Oil & Gas, Inc. in Tulsa from 1987 to 1992. Mr. Vogel has worked in oil and gas engineering and
operations in the United States, the Pacific Rim, South America, and the Middle East. Mr. Vogel has served as a
senior engineer for Phillips Petroleum from 1974 to 1978, the Executive Vice President and Chief Operating
Officer of Texas International Petroleum from 1978 to 1981, President and Chief Operating Officer of Graceland
Petroleum in Oklahoma City from 1981 to 1982, Vice President of production for Eason Oil from 1983 to 1984, and
Vice President of Engineering and Acquisitions for Samson Resources in Tulsa in 1984. Mr. Vogel received both a
Bachelor of Science and Masters of Science in Mechanical Engineering from Oklahoma State University in 1968 and
1973, respectively. Mr. Vogel is a member of the Society of Petroleum Engineers and the American Society of
Mechanical Engineers. From 1968 to 1971, Mr. Vogel served in the United States Army in Germany and Vietnam.
Principal Shareholders Of Red River
The following table sets forth certain information concerning the number of shares of Red River common stock
owned beneficially, as of December 1, 1999 by each of the Red River shareholders. No shares of any other class
of equity securities are outstanding. All of the shares are beneficially owned by the named owners directly.
Beneficial Ownership
--------------------
Percent
Shares Of Total
------ --------
Name Of Beneficial Owner
Rolf N. Hufnagel 640 64%
Robert E. Davis, Jr. 160 16%
Billy L. Baysinger, Jr. 40 4%
Brent A. Biggs 40 4%
Janet L. McGehee 40 4%
Stephen J. Vogel 40 4%
Mark A. Biggs 40 4%
----------- ------------
All directors and officers as a group (7 persons)..... 1,000 100.0%
=========== ============
RED RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1)
Red River currently estimates that during 2000 it will generate approximately $2,500,000 of net cash flow from its producing
wells after deducting lease operating expenses.
2)
In the event the merger with Beta is consummated, Beta will
advance funds to Red River to cover certain capital expenditures. Beta has
already budgeted $900,000 for the current year to advance to Red River in
connection with Red River's planned activities in the WEHLU and McIntosh
properties.
1)
Defer or cancel planned exploitation and development activities;
2)
Farm-out its interest in proposed activities;
3)
Sell a portion of its interest in proposed wells and use the sale proceeds to fund its participation for a lesser interest;
and
4)
Reduce general and administrative expenses.
Quarter Ended March 31, 1999
Quarter Ended March 31, 2000
Oil production (Bbl).........................
8,079
8,982
Gas production (Mcf).....................
216,596
277,607
Average sales price:
Oil (per Bbl)........................
$10.80
$27.62
Gas (per Mcf)........................
$1.90
$2.61
Average production cost per Mcfe..........
$1.19
$.96
Year Ended Year Ended
December 31, December 31,
1998 1999
Oil production (Bbl)......................... 13,470 33,584
Gas production (Mcf)..................... 336,537 911,036
Average sales price:
Oil (per Bbl)........................ $12.38 $17.86
Gas (per Mcf)........................ $ 2.08 $2.20
Average production cost per
Mcfe.................................. $ 0.76 $.91
ADDITIONAL PROPOSAL FOR THE BETA SHAREHOLDERS'
CONSENT TO THE ADOPTION OF THE AMENDED
1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
The Plan as amended and restated is referred to as the "stock option plan." The stock option plan is
subject to approval by the written consent of the holders of a majority of the Beta common stock. We are
presenting the stock option plan for approval by the written consent of the holders of a majority of the issued
and outstanding shares of the Beta common stock. Our management currently
owns 22.45% of the issued and outstanding shares of Beta common stock. ALL SUCH SHARES OVER WHICH OUR MANAGEMENT EXERCISES VOTING POWER WILL
CONSENT TO THE APPROVAL OF THE STOCK OPTION PLAN. It will be necessary to secure the written consent of the
holders of a majority of the issued and outstanding shares of Beta common stock to obtain the required approval
of the stock option plan.
The stock option plan provides for the granting to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting of nonstatutory
stock options to directors who are not employees and consultants. In the case of employees who receive incentive
stock options which are first exercisable in a particular calendar year whose aggregate fair market value exceeds
$100,000, the excess of the $100,000 limitation shall be treated as a nonstatutory stock option under the stock
option plan.
The stock option plan is being administered by the Compensation Committee appointed by our board of
directors. This committee consists of two directors, Joe C. Richardson, Jr. and John Tatum, neither of whom is
an employee of Beta. As such, under Rule 16b-3, the grant of such stock options under the stock option plan to
officers and directors who are our employees is exempt from the short swing profits provisions under Section
16(b) of the Securities Exchange Act of 1934 ("1934 Act").
This committee has the power, subject to the approval of our board of directors, to determine the terms
of the options granted, including the number of shares subject to each option, the exercisability and vesting
requirements of each option, and the form of consideration payable upon the exercise of such option (i.e.,
whether cash or exchange of existing shares of Beta common stock in a cashless transaction or a combination
thereof).
A maximum of 700,000 shares of Beta common stock (which amount is subject to adjustment for stock
splits, stock dividends, combinations or reclassification of the Beta common stock) are reserved for issuance
under the stock option plan. As of the date of this proxy statement, stock options exercisable for a total of
97,500 shares of Beta common stock have been granted to a total of six employees as incentive stock options. Of
this amount, stock options for a total of 95,000 shares of Beta common stock have been granted to officers and
directors who are employees. The average exercise price of such stock options is $6.00 per share, which
represented an amount in excess of 110% of the fair market value of the average of the last reported highest bid
and lowest asked prices quoted on the Nasdaq Small Cap Market on August 27, 1999, which was the date such stock
options were granted. In the event that the stock option plan is not approved by a majority of the Beta
shareholders, the 97,500 stock options will be cancelled.
The stock option plan requires that the exercise price of the stock options granted under such plan
shall not be less than, but may be higher than, 100% of the fair market value per share as determined on the
date of grant. However, if an employee who is granted a Stock Option owns, at the time of grant, stock
representing move than 10% of the voting power of all classes of Beta Stock, the exercise price for options which
are incentive stock options may not be less than 110% of the fair market value per share on the date of grant.
So long as our stock is reported on The Nasdaq
Stock Market, the fair market value per share on the date of grant of a stock
option under the stock option plan shall be the average of the last reported
highest bid and the lowest asked prices quoted on the Nasdaq Small Cap Market
System or the Nasdaq National Market System on such date as is appropriate.
The Company's shares qualified on May 4, 2000 for designation on the Nasdaq
National Market System, so for future grants the fair market value per share shall be the closing
price of the Beta common stock as reported on such system on the date of grant,
or if our price is not quoted on such date, then the closing price as of the
last immediately preceding day on which the closing price is so reported.
The stock option plan will continue in effect for 10 years from August 20, 1999 (i.e., the date first
adopted by our board of directors), unless sooner terminated by our board of directors. Unless otherwise
provided by our board of directors, the stock options granted under the stock option plan will terminate
immediately prior to the consummation of a proposed dissolution or liquidation of Beta.
The options granted under the stock option plan are for a period of not more than 10 years after the
date of grant. However, in the case of an optionee who owns, at the time of grant, stock representing more than
10% of the combined voting power of all classes of Beta stock, the term of the options shall not be for more than
five (5) years.
Upon the termination of an optionee as our employee, he/she must exercise his/her option within three
(3) months (as set forth in such stock option) after he/she ceases to be our employee. If an optionee becomes
disabled and due to such disability ceases to be our employee, he/she must exercise his/her option within the
period of time not exceeding 12 months (as set forth in such stock option). Upon the death of an optionee whose
employment by us was not terminated prior to such event, the optionee's estate or person acquiring the right to
exercise such option by bequest or inheritance may exercise such option at any time within 12 months following
the date of such optionee's death but only to the extent that the optionee could have exercised such option
(under its terms) if his/her employment had continued uninterrupted for such 12 month period.
The options granted under the stock option plan may only be exercised by the optionee during his/her
lifetime and are not transferable except by will or by the laws of descent and distribution. The shares of Beta
common stock transferred to an optionee as a result of the exercise of a stock option are "restricted securities"
under Rule 144 as promulgated under the 1933 Act and may only be resold or transferred in compliance with such
rule and the registration requirements or an exemption from such requirements under the 1933 Act.SHAREHOLDER PROPOSALS
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Red River as of December 31, 1998 and
1999, and for the two years ended December 31, 1999, included in this proxy
statement, have been included in reliance on the report of Hein + Associates
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.EXPERTS
The unaudited supplementary oil and gas reserve information of Red River included in this proxy statement has
been included in reliance of the report of Ryder Scott Company, L.P. The unaudited supplementary oil and gas
reserve information appears elsewhere in this proxy statement on the authority of Ryder Scott Company, L.P.LEGAL OPINIONS
ANNEX A
(AGREEMENT AND PLAN OF MERGER)
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made this 19th day of November, 1999, by and among Beta Oil& Gas, Inc.,
a Nevada corporation ("Purchaser"), Beta Acquisition Company, Inc., an Oklahoma corporation ("Merger Sub"), and Red River Energy,
Inc., an Oklahoma corporation ("Company") and the shareholders listed in Schedule A attached to this Agreement, individually
----------
(collectively, "Red River Shareholders".
RECITALS
A. The Company is engaged in the ownership, leasing, acquisition, exploration, drilling and development of oil and gas
property, located in Oklahoma and the production and sale of oil and gas; B. The Purchaser owns 100% of the issued and outstanding
capital stock of Merger Sub;
B. The Purchaser owns 100% of the issued and outstanding capital stock of Merger Sub:;and
C. Purchaser desires to acquire the Company's business by merging the Merger Sub with and into the Company in accordance
with the terms and conditions of this Agreement in a transaction designed and intended to meet the requirements of Section ("ss.")
368(a)(l)(A) andss.368(a)(2)(E) of the Internal Revenue Code of 1986, as amended ("Code") and as a result of such transaction the
Company, following the merger of Merger Sub with and into the Company which shall be the Surviving Corporation and, as such, shall
become a subsidiary of the Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Certain Definitions. The definitions set forth below shall apply to the meaning of the terms as used throughout this
-----------------------------
Agreement. All other capitalized terms shall have the meaning as defined in other sections of this Agreement.
1.1 "Affiliate" shall mean with reference to a particular Person (i) any Person, directly or indirectly, owning, controlling or
holding with power to vote 10% or more of the outstanding voting securities of such particular Person; (ii) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by such particular
Person; or (iii) any Person, directly or indirectly, controlled by, controlling or under common control with such particular Person
1.1 "Agreement" shall mean this Agreement and Plan of Merger.
1.1 "Beta Common Stock" shall mean the $.001 par value voting common stock of the Purchaser.
1.1 "Closing" shall mean the consummation of the transactions contemplated by this Agreement.
1.1 "Closing Date" shall mean the date on which the Closing occurs pursuant to Section 2.4 hereof.
1.1 "Commission" shall mean the United States Securities and Exchange Commission.
1.1 "Company" shall mean Red River Energy, Inc., an Oklahoma corporation, and its predecessor, Red River Energy, L.L.C. which
became a wholly owned subsidiary of Red River Energy, Inc. in a reorganization underss.351 of the Code.
1.1 "Effective Time" shall mean the time when the Certificate of Merger is filed as provided in Section 2.5 hereof and the
Merger of Merger Sub with and into the Company becomes effective under applicable law.
1.1 "Red River Shareholders" shall mean the shareholders set forth in Schedule A attached to this Agreement, who collectively,
----------
as of the date of this Agreement, own all of the issued and outstanding Red River Stock.
1.1 "Red River Stock" shall mean the $1.00 par value voting common stock of the Company, which is the only authorized capital
stock of the Company.
1.1 "Employment Agreements" shall mean those Employment Agreements attached hereto as Exhibit 7.1.9.
-------------
1.1 "Merger" shall have the same meaning as set forth in Section 2.2 hereof.
1.1 "Person" shall mean an individual, partnership, corporation, trust, limited liability company, unincorporated organization,
association or joint venture or a government, or an agency, political subdivision or instrumentality thereof.
1.1 "Purchaser" shall mean Beta Oil & Gas, Inc., a Nevada corporation.
1.1 "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.
1.1 "Surviving Corporation" shall have the same meaning as set forth in Section 2.2 of this Agreement.
1.1 "Year 2000 Compliance" shall mean that (a) no value for current date will cause any interruption in operation; (b)
date-based functionality will behave consistently for dates prior to, during and after Year 2000; (c) in all interfaces and data
storage, the first two digits in the year of any date are specified either explicitly or by unambiguous algorithms; (d) year 2000
will be recognized as a leap year; and (e) the year "00" will be read and correctly interpreted as the year "2000."
All other capitalized terms shall have the meanings as specified elsewhere in this Agreement.
1. The Merger and Consideration
----------------------------
1.1 Red River Consideration. On the Closing Date, the shares of Red River Stock owned by the Red River Shareholders, consisting
of 1,000 shares of Red River Stock which constitutes all of the issued and outstanding shares of the Company's capital stock, shall
be converted into and become, and there shall be paid and issued, in exchange for such shares, Two Million Two Hundred Fifty Thousand
(2,250,000) shares of Beta Common Stock which shall be issued by the Purchaser to the Red River Shareholders. Such shares of Beta
Common Stock shall be divided and issued to each Red River Shareholder in proportion to their respective ownership interests in the
Red River Stock as set forth in Schedule A attached hereto.
----------
1.1 Merger. At the Effective Time and subject to and upon the terms and conditions of this Agreement and in accordance with
Oklahoma law, Merger Sub shall be merged with and into the Company (the "Merger") and as a result of such Merger the separate
corporate existence of the Merger Sub shall cease and the Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereafter sometimes referred to as the "Surviving Corporation".
The Merger will have the effect set forth in the Oklahoma General Corporation Act. The Surviving Corporation may, at any
time after the Effective Time, take any action, including executing and delivering any certificates, instruments and documents as
shall be determined by the Board of Directors of the Surviving Corporation to be necessary and appropriate, in the name and on
behalf of either the Company or Merger Sub in order to carry out and effectuate the transactions contemplated by this Agreement.
1.1 Shareholder Approvals. Subsequent to the date of this Agreement and prior to the Effective Time, the parties hereto shall
obtain the requisite shareholder approval as required under their respective Articles or Certificate of Incorporation and Bylaws and
under Nevada and Oklahoma law as follows:
a Purchaser Approval. Pursuant to Section 1.4b of Article XII of the Purchaser's Bylaws, the Purchaser, through its Board of
Directors, shall duly call, give notice of, convene shareholders for the approval of this Agreement and the issuance of the shares of
Beta Common Stock for the number of shares as contemplated under Section 2.1 hereof, all in accordance with Nevada law, its Articles
of Incorporation and Bylaws. In addition, the Purchaser as the holder of 100% of Merger Sub's issued and outstanding Common Stock
shall approve, by written consent of its Board of Directors, this Agreement and the Merger contemplated hereby in accordance with
Oklahoma law and the Certificate of Incorporation of Merger Sub; and
a Company Approval. The Company, acting through its Board of Directors shall duly call, give notice of, convene and hold a
special meeting of its shareholders (the "Special Meeting") to consider and vote upon the approval and adoption of this Agreement and
the Merger contemplated hereby, or shall seek the requisite written consent of its shareholders, all in accordance with Oklahoma law
and its Certificate of Incorporation and Bylaws. The Company shall hold the Special Meeting or obtain such written consent as soon
as practicable after the date hereof.
1.1 Closing. The Closing Date shall occur on that date which is on or before three (3) days after the satisfaction and receipt
of any and all required conditions and approvals, including any required approval of the shareholders of Purchaser; but in no event
later than March 31, 2000. The Purchaser and the Company will use best efforts to close as soon as possible upon execution of this
Agreement. In the event that the Closing Date falls on a Saturday, Sunday or Federal holiday, then the next succeeding date which is
not a Saturday, Sunday or Federal holiday shall be the Closing Date. The Closing shall take place at the offices of the Company,
6120 S. Yale, Suite 813, Tulsa, Oklahoma, 10:00 a.m. Central Standard Time on the Closing Date, or at such other time or place as
mutually agreed by the parties hereto. Such Closing may be accomplished by facsimile transmission of Closing Documents and facsimile
signatures, provided that the original of such signed documents are transmitted to the party or parties entitled to receive such
documents within three (3) business days following the Closing Date. The Closing shall be effective as of the close of business of
the Closing Date. At the Closing, (a) the Company and the Red River Shareholders will deliver to Merger Sub and the Purchaser the
various certificates and instruments and documents referred to in Section 7.1 hereof, (b) Purchaser and Merger Sub will deliver to
the Company and the Red River Shareholders the various certificates, instruments and documents referred to in Section 7.2 hereof, and
(c) Purchaser and Merger Sub will deliver to the Red River Shareholders in the manner provided below in Section 7.2.1 the Stock
Certificates evidencing the consideration issued in the Merger.
1.1 Consummation of the Transaction at the Closing. Purchaser, Merger Sub and the Company will each carry out the procedures
specified under the applicable provisions of Oklahoma law as shall be necessary and appropriate to assure the effectiveness of the
Merger. The Merger shall be consummated by filing the Certificate of Merger with the Secretary of State of Oklahoma in such form as
required by, and executed in accordance with the relevant provisions of Oklahoma law to the extent required. Such Certificate of
Merger shall provide for an amendment to the Company's Certificate of Incorporation to change its name to "Beta Operating Company."
1.1 Effect of Merger. At the Effective Time:
1.1.1 Surviving Corporation. Merger Sub shall be merged with and into the Company, with the Company as the Surviving Corporation,
and the separate existence of Merger Sub shall cease. As a result of the Merger, the Red River Shareholders who held stock
certificates representing the Red River Stock prior to the Merger shall cease to have any rights with respect to such stock and all
rights, privileges, powers, franchises and interests of the Company and all of its properties, whether real, personal or mixed, all
debts due on whatever account, and every other interest of the Company, whether tangible or intangible shall be deemed to vest in the
Surviving Corporation without further act or deed, and all claims, demands, property and every other interest shall be as of the
Effective Time the property of the Surviving Corporation to the same extent as previously owned or held by the Company.
1.1.1 Certificate of Incorporation. Except as contemplated by Section 2.5, the Certificate of Incorporation of the Company in
effect at and as of the Effective Time shall remain the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law.
1.1.1 Bylaws. The Bylaws of the Company, as in effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation until thereafter amended as provided by law and provisions of such Bylaws.
1.1.1 Directors and Officers. Immediately prior to the Effective Time of the Merger, the directors and officers of the Company as
constituted immediately prior to the Effective Time shall tender their resignations to the Company as agreed upon in Exhibit 2.6.4.
-------------
The number of directors of the Surviving Corporation and the persons serving as Directors of the Surviving Corporation shall be a
minimum of three (3) directors and a maximum of six (6) directors (the exact number of which shall be determined by resolution of the
directors of the Surviving Corporation). The number of directors and the individuals who shall serve as directors of the Surviving
Corporation shall be determined by the Purchaser, as the sole shareholder of the Surviving Corporation immediately following the
Effective Time and such persons as so appointed shall continue to hold office until their successors have been duly nominated,
elected or appointed as provided under the Surviving Corporation's Bylaws as may subsequently be amended in accordance with the
provisions thereof. The officers of the Surviving Corporation shall be appointed, immediately following the Effective Time and the
election by the Purchaser of the directors of its Board of Directors, by the directors of the Surviving Corporation and such officers
as so appointed shall hold such offices in the Surviving Corporation following the Effective Time, until such time as their
successors have been duly appointed and qualified.
1.1.2 The Merger. From and after the Effective Time, the Merger shall have all the effects provided for a merger under Oklahoma
law, , which law shall govern the Surviving Corporation.
1.2 Effect on Capital Stock.
1.2.1 Conversion of Red River Stock. At the Effective Time, as a result of the Merger and without any action on the part of
Purchaser, Merger Sub, the Company or the holders of any of their securities, all of the issued and outstanding shares of Red River
Stock immediately prior to the Effective Time, held by the Red River Shareholders shall be delivered for surrender to the Purchaser
on the Closing Date and at the Effective Time converted into the right to receive all of the shares of Beta Common Stock payable
under this Agreement.
The certificate or certificates representing Red River Stock shall after the Effective Time cease to
have any rights with respect to such shares of Red River Stock except the right to the issuance of the number of shares of Beta
Common Stock as provided in Schedule A attached hereto for such Red River Stock upon the surrender of such certificate or
-----------
certificates in accordance with this Section 2.7 hereof. Upon the filing of the Certificate of Merger with the Secretary of State
of Oklahoma, as a consequence of the Merger and without any other action on the part of the parties to this Agreement, each of the
issued and outstanding shares of Red River Stock shall be cancelled and retired by the Surviving Corporation in exchange for the
shares of Beta Common Stock as provided in Section 2.1 hereof and as set forth in Schedule A attached hereto and all other shares of
----------
the Company's capital stock shall automatically be cancelled and retired and no payment by the Purchaser or Merger Sub shall be made
with respect to any such other capital stock, if any, of the Company. At the Closing, the Company shall issue to the Purchaser a
stock certificate, registered on the Company's stock transfer records, in the Purchaser's name representing 1,000 shares of the
Surviving Corporation's Common Stock, which shall have been duly authorized by the Board of Directors of the Company as constituted
immediately prior to the Closing Date and such shares as so issued shall constitute the only issued and outstanding shares of the
Surviving Corporation.
1.2.2 Subsequent Transfer: Loss, Stolen or Destroyed Certificates. After the Effective Time, there shall be no transfer on the
stock transfer books of the Surviving Corporation of shares of Red River Stock that were registered as outstanding immediately prior
to the Effective Time other than the shares issued in the name of the Purchaser as required in Section 2.7.1 hereof. If any
registered certificate for the Company shall have been lost, stolen or destroyed, the Surviving Corporation, upon making of an
Affidavit signed by the person claiming such certificate to have been lost, stolen or destroyed and setting forth the facts and other
information relating to such loss or destruction shall, subject to the provisions of this Section 2.7.2, deliver a stock certificate
for the appropriate shares of Beta Common Stock for the Red River Stock represented by such certificate in accordance with Section
2.1.1 hereof to the Person(s) legally entitled thereto. The Surviving Corporation, in the sole discretion of its Board of Directors
and as a condition precedent to the delivery of the shares of Beta Common Stock in exchange for the shares of Red River Stock
represented by such certificate, may require the owner of such lost, stolen or destroyed certificate to provide a bond or other
security in such sum as it reasonably may direct as indemnity against any claim that may be made against the Surviving Corporation
with respect to the certificate alleged to have been so lost, stolen or destroyed.
1.2.3 Merger Sub Stock. Each share of the $.001 par value common stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be cancelled and converted into the 1,000 shares of the Surviving Corporation's Common Stock as provided in
Section 2.7.1 hereof, all of which shares shall be owned and held of record in the name of the Purchaser.
1.2.4 Dissenting Shares. As provided in Section 3.1.4 hereof, the Red River Shareholders shall take whatever action is necessary
and appropriate effectively to waive under the applicable provision of the Oklahoma General Corporation Act their rights to an
appraisal of the shares of Red River Stock held by each of them, which represent all the authorized, issued and outstanding shares of
the Red River Stock on and prior to the Closing Date.
2. Conditions Precedent to Obligations
-----------------------------------
2.1 Conditions Precedent to the Purchaser's and Merger Sub's Obligations. The obligations of Purchaser and Merger Sub to be
performed under this Agreement on or before the Closing Date are subject to each and all of the following conditions, any one or more
of which may, however, be waived in whole or in part by Purchaser.
2.1.1 Representations and Warranties. The representations and warranties of the Company herein contained shall be true on and as
of the date hereof and as of the Closing Date in all material respects with the same force and effect as though made on and as of
said date.
2.1.2 Performance of Obligations. The Company shall have performed in all material respects all of the Company's covenants,
undertakings, obligations, conditions and agreements required to be performed by it under this Agreement.
2.1.3 Performance at Closing. The Company shall have performed each of the acts it is required to perform and delivered each of
the certificates and other documents it is required to deliver, or appeared at Closing ready, willing and able to perform each of the
acts it is required to perform and deliver each of the certificates and other documents it is required to deliver.
2.1.4 Waiver of Dissenter's Rights. The Red River Shareholders shall have provided the Company prior to Closing a legally binding
instrument executed by such Shareholders waiving all of their rights for an appraisal of the Red River Stock owned by them in
accordance with the Oklahoma General Corporation Act and any other applicable provisions under Oklahoma law and to the extent
applicable under Nevada law.
2.1.5 Absence of Restraining Action. No suit, action or other proceeding shall be pending, or threatened, before any court or
governmental agency in which it will be, or it is, sought to restrain or prohibit or to obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated hereunder.
2.1.6 Absence of Litigation. The Company shall have disclosed to Purchaser in Exhibit 4.1.20 all suits, actions or other
---------------
proceedings pending before any court or governmental agency, or threatened against or affecting the Company and Purchaser shall be
satisfied that no such suit, action or other proceeding, if adversely determined, would have a material adverse effect on the value
of the business, assets, or properties of the Company, or the value of the Red River Stock.
2.1.7 No Attachment. None of the Company's assets or properties shall have been attached or levied upon or passed into the hands
of a receiver or assignee for the benefit of creditors. No petition or similar instrument shall have been filed with respect to the
Company under any bankruptcy or insolvency law, and no injunction or restraining order shall have been instituted against the Company
that would have a material adverse effect on the Company.
2.1.8 No Liens, Indebtedness. Except as set forth in Exhibit 3.1.8, the Company shall not be subject to indebtedness nor its
--------------
properties or assets subject to liens or encumbrances of any kind, other than (i) indebtedness and liens for current taxes, wages and
operating expenses in the normal course of business, payment of which at the time of Closing shall not yet be due; (ii) indebtedness
identified in the Company's Financial Statements as set forth in Exhibit 4.1.7 attached hereto; (iii) any accounts payable or loans
-------------
advanced to the Company subsequent to the Financial Statement Date which were incurred in the ordinary course of its business; (iv)
any other indebtedness approved by the Purchaser; or (v) Permitted Encumbrances (as hereinafter defined).
2.1.9 Resignations. Purchaser and Merger Sub shall have received the resignation dated as of the Closing Date of each director of
the Company and the officers of the Company as agreed upon in Exhibit 2.6.4 that Purchaser requests so resign prior to the Closing.
-------------
2.1.10 Corporate Records. Purchaser and Merger Sub shall have received the stock books, minute books, and corporate seal (if any)
of the Company and its subsidiaries, if any.
2.1.11 Consents and Waivers. All consents from third parties, including without limitation the Notification and Report Form only
to the extent required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations
thereunder ("HSR Act"), as well as any other consent or waiver required under any other Licenses, Leases, Permits, Approvals or
Contracts set forth in Exhibits 4.1.17, 4.1.22, 4.1.24 and 4.1.28 attached hereto and as provided in Section 4.1.31 hereof and any
---------------- ------ ------- ------
other person or governmental bodies, necessary for the consummation of the transactions contemplated hereby shall have been obtained.
2.1.12 Absence of Adverse Changes. The Company shall not have suffered any material adverse change in its financial condition,
business, property or assets since the date of the Company's Financial Statements as set forth in Exhibit 4.1.7 attached hereto
-------------
2.1.13 Opinion of Counsel. Purchaser and Merger Sub shall have received an opinion of counsel for the Company dated as of the
Closing Date in form or substance as may reasonably requested by Purchaser.
2.1.14 Certificates. Purchaser and Merger Sub shall have received the certificates and other closing documents required to be
received under Section 7.1.6 and otherwise under Section 7.1 hereof on or prior to the Closing Date.
2.1.15 Shareholder Approval. The shareholders of the Company shall have approved the Merger and the other transactions
contemplated by this Agreement in accordance with the Oklahoma General Corporation Act.
2.2 Conditions Precedent to the Company's and Red River Shareholders' Obligations. The obligations of the Company and the Red
River Shareholders to be performed under this Agreement at Closing are subject to each and all of the following conditions, any one
or more of which may, however, be waived in whole or in part by the Company or the Red River Shareholders.
2.2.1 Representations and Warranties. The representations and warranties of Purchaser and Merger Sub set forth in this Agreement
shall be true and correct in all material respects on and as of the date hereof and as of the Closing Date with the same effect as if
made on and as of the said date.
2.2.2
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
R E C I T A L S
Name Number of Shares
Rolf N. Hufnagel 1,440,000
Robert E. Davis, Jr. 360,000
Stephen J. Vogel 90,000
Janet L. McGehee 90,000
Billy L. Basinger, Jr 90,000
Brent A. Biggs 90,000
Mark A. Biggs 90,000
BETA OIL & GAS, INC.
a Nevada Columbia corporation
By: /s/ J. Chris Steinhauser
Its:Chief Financial Officer
BETA ACQUISITION COMPANY, INC.
an Oklahoma corporation
By: /s/ J. Chris Steinhauser
Its: President
RED RIVER ENERGY, INC.
an Oklahoma corporation
By: /s/ Rolf Hufnagel
Its: President
THE RED RIVER SHAREHOLDERS
/s/Rolf N. Hufnagel
/s/Robert E. Davis, Jr.
/s/Stephen J. Vogel
/s/Janet L. McGehee
/s/Billy L. Baysinger, Jr.
/s/Brent A. Biggs
/s/Mark A. Biggs
Schedule A
To the First Amendment to Agreement and Plan of Merger
Dated January 19, 2000
Red River Shareholders
RED RIVER BETA
Rolf N. Hufnagel 640 Shares 1,440,000 Shares
Robert E. Davis, Jr. 160 Shares 360,000 Shares
Billy L. Baysinger, Jr. 40 Shares 90,000 Shares
Brent A. Biggs 40 Shares 90,000 Shares
Mark A. Biggs 40 Shares 90,000 Shares
Janet L. McGehee 40 Shares 90,000 Shares
Stephen J. Vogel 40 Shares 90,000Shares
Total 1,000 Shares 2,250,000 Shares
APPENDIX A
TO THE FIRST AMENDMENT TO AGREEMENT AND
PLAN OF MERGER DATED JANUARY 19, 2000
Name Number of Shares Stock Certificate No.
Rolf N. Hufnagel 1,440,000
Robert E. Davis, Jr. 360,000
Stephen J. Vogel 90,000
Janet L. McGehee 90,000
Billy L. Basinger, Jr. 90,000
Brent A. Biggs 90,000
Mark A. Biggs 90,000
POSITION OF AGENT
LIABILITY OF AGENT
NOTICES OF DEFAULT
DOCUMENTS
ADVERSE CLAIMS
COMPENSATION LIEN
THE COMPANY:
Beta Oil and Gas, Inc.,
a Nevada corporation
by:/s/J. Chris Steinhauser
Chief Financial Officer
Red River Energy, Inc.,
an Oklahoma corporation
by:/s/Rolf N. Hufnagel
Rolf N. Hufnagel, President
/s/Rolf N. Hufnagel
Rolf N. Hufnagel, individually and
as Agent for the Red River Shareholders
signatory to the Merger Agreement as
authorized by the First Amendment to
the Merger Agreement, dated
January 19, 2000
H.T.C. ESCROW COMPANY
by:/s/Denis B. Clanahan
SCHEDULE A
INSTRUCTIONS FOR HOLDING STOCK CERTIFICATE
THE COMPANY:
Beta Oil and Gas, Inc.,
a Nevada corporation
by:/s/ J. Chris Steinhauser
J. Chris Steinhauser
Chief Financial Officer
Red River Energy, Inc.,
an Oklahoma corporation
by:/s/ Rolf N. Hufnagel
Rolf N. Hufnagel, President
/s/ Rolf N. Hufnagel
Rolf N. Hufnagel, individually and
as Agent for the Red River
Shareholders signatory to the Merger
Agreement as authorized by the
First Amendment to the Merger Agreement,
dated January 19, 2000
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
R E C I T A L S
The
Closing Date shall occur on that date which is on or before three (3) days after
the satisfaction and receipt of any and all required conditions and approvals as
set forth in Section 1 of the Second Amendment to the Merger Agreement, but in
no event shall the Closing occur later than December 31, 2000; provided,
however, that notwithstanding anything contained in the foregoing to the
contrary, the Closing Date shall occur no sooner than three (3) days after the
date that Purchaser in using its reasonable best efforts has satisfied the
requirements of Sections 3.2.12 and 3.2.13 or if the Closing has not occurred by
June 30, 2000, the Closing shall not occur until three (3) days after such
registration statement has been declared effective by the Commission; and
provided further that so long as Purchaser has used its best efforts to file the
registration statement as provided herein, and any delays in filing or having
the registration statement declared effective are for any reason beyond
Purchasers control and relate to delays by Red River, the Closing shall
occur within three (3) days after the necessary conditions and approvals under
Section 1 of the Second Amendment have occurred. At the Closing, the shares of
Beta Common Stock as contemplated under Section 7.2.1 shall be delivered by the
escrow agent consistent with the provisions of the First Amendment to the Merger
Agreement and the Escrow Agreement and Instructions attached thereto.
As soon as reasonably possible after filing the Definitive Proxy Statement, and no later than June 30,
2000, the Purchaser shall prepare and file with the Commission a Shelf Registration Statement for the
purpose of registering the resale in the market from time to time of the Subject Securities by Holders or
by
potential assignees of such Holders to which all or part of such Holders' Subject Securities may be
transferred in a No-Sale Transaction.
8.1.2
Prior to Closing Date. By the Company or Purchaser or Merger Sub if the
other party shall have fraudulently and intentionally misrepresented any
representation of a material nature or willfully breached any material warranty
contained herein, and such misrepresentation or breach shall not have been cured
by the earlier of (i) thirty (30) days after the giving of notice of such party
of such misrepresentation or breach or (ii) the Closing Date.
9.20
Specific Performance. In the event either party breaches any provision of this
Agreement, fails to perform or is in breach of any covenant contained in this
Agreement, or makes a misrepresentation of any representation or breaches any
warranty contained in this Agreement which does not involve a fraudulent or
intentional misrepresentation of a material fact or a willful breach of a
material warranty, the nonbreaching partys sole recourse shall be the
right to seek specific performance of the Merger Agreement in a court of
competent jurisdiction having jurisdiction over the breaching party; provided,
however, that the nonbreaching party shall be entitled to the remedies set forth
in Sections 9.12 or 9.13, whichever section is applicable to the party which is
not in breach of this Agreement. If the misstatement or breach of a
representation or warranty involves a fraudulent or intentional
misrepresentation of a material fact or a willful breach of a material warranty,
the nonbreaching party shall have the right to terminate this Agreement in
accordance with Section 8.1.2 or shall be entitled to seek specific performance
of this Agreement as provided in this Section 9.20.
BETA OIL & GAS, INC.
a Nevada corporation
By: /s/Steve Antry
Steve Antry
Its: President
BETA ACQUISITION COMPANY, INC.
an Oklahoma corporation
By: J. Chris Steinhauser
Its: President
RED RIVER ENERGY, INC.
an Oklahoma corporation
By: /s/Rolf Hufnagel
Its: Rolf Hufnagel
THE RED RIVER SHAREHOLDERS
/s/Rolf N. Hufnagel
Rolf N. Hufnagel
/s/Robert E. Davis, Jr.
Robert E. Davis, Jr.
/s/Stephen J. Vogel
Stephen J. Vogel
/s/Janet L. McGeehee
Janet L. McGeehee
/s/Billy L. Baysinger, Jr.
Billy L. Baysinger, Jr.
/s/Brent A. Biggs
Brent A. Biggs
/s/Mark A. Biggs
Mark A. Biggs
ANNEX B
Red River Energy, Inc.
and Subsidiaries
Consolidated Financial Statements
For the Years Ended
December 31, 1998 and 1999
and the Three Months Ended March 31, 1999 and 2000 (Unaudited)INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditor's Report............................................. B-2
Consolidated Balance Sheets - December 31, 1998, 1999 and March 31, 2000 (unaudited)................. B-3
Consolidated Statements of Operations - For the Years Ended December 31, 1998 and 1999 and For the Three Months Ended March 31, 1999 and 2000 (unaudited) ........ B-4
Consolidated Statement of Stockholders' Equity - For the Years Ended
December 31, 1998 and 1999 and For the Three Months Ended March 31, 2000 (unaudited)........................................................ B-5
Consolidated Statements of Cash Flows - For the Years Ended December 31, 1998 and 1999 and For the Three Months Ended March 31, 1999 and 2000 (unaudited)............. B-6
Notes to Consolidated Financial Statements.......................................................... B-7
INDEPENDENT AUDITOR'S REPORT
Red River Energy, Inc.
Tulsa, Oklahoma
We have audited the consolidated balance sheets of Red River Energy, Inc. and subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Red River Energy, Inc. and subsidiaries as of December 31, 1998 and 1999 and the results
of their operations and their cash flows for the years then ended in conformity with generally accepted accounting
principles.
Certified Public AccountantsRED RIVER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31, March 31,
1998 1999 2000
------------------ ------------------- ------------------
(unaudited)
ASSETS
Current Assets:
Cash $ 48,980 $ 366,653 $ 470,063
Accounts receivable 335,002 308,572 336,654
Advance on drilling contract 30,000 - -
Prepaid expenses - 600 23,948
---------------- --------------- ----------------
Total current assets 413,982 675,825 830,665
Oil and Gas Properties, at cost (full cost method)
Evaluated properties 5,224,845 5,897,603 6,000,615
Unevaluated properties 1,143,656 2,708,661 2,803,122
Less accumulated amortization of full cost pool (137,936) (548,334) (656,290)
---------------- --------------- ----------------
Net oil and gas properties 6,230,565 8,057,930 8,147,447
Other Operating Property and Equipment, at cost
Gas gathering system - 1,303,160 1,306,173
Support equipment 1,012,335 1,096,415 1,116,615
Less accumulated depreciation (38,118) (201,315) (266,657)
---------------- --------------- ----------------
Net other operating property and equipment 974,217 2,198,260 2,156,131
Furniture, Fixtures and Equipment, net 39,316 28,194 29,884
Other assets - 8,818 8,818
---------------- --------------- ----------------
Total Assets $ 7,658,080 $ 10,969,027 $ 11,172,945
================= ================ ================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Current portion of long-term debt $ 68,424 $ 2,233,176 $ 2,246,317
Accounts payable, trade 303,931 161,329 280,389
Accounts payable, related party 95,931 57,023 63,818
Accrued interest 36,154 126,989 156,488
Other accrued liabilities 2,300 60,855 48,077
---------------- --------------- ----------------
Total current liabilities 506,740 2,639,372 2,795,089
Long-Term Debt, less current portion 6,421,095 7,767,386 7,742,804
---------------- --------------- ----------------
Total liabilities 6,927,835 10,406,758 10,537,893
Commitments (Note 8) - - -
Stockholders Equity
Common stock, $1.00 par value, 50,000 shares authorized,
1,000 shares issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 1,238,911 1,255,500 1,255,500
Accumulated deficit (509,666) (694,231) (621,448)
---------------- --------------- ----------------
Total stockholders equity 730,245 562,269 635,052
---------------- --------------- ----------------
Total Liabilities and Stockholders Equity $ 7,658,080 $ 10,969,027 $ 11,172,945
================ ================ ================
See accompanying notes to consolidated financial statements.
RED RIVER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended For the three months ended
December 31, March 31,
1998 1999 1999 2000
------------------- ------------------- ------------------ -------------------
(unaudited) (unaudited)
Revenues:
Oil and gas sales $ 865,356 $ 2,852,121 $ 499,635 $ 972,127
Field services - 336,637 - 137,220
Total revenue 865,356 3,188,758 499,635 1,109,347
Costs and Expenses:
Oil and gas production costs 316,533 1,148,421 315,624 318,652
Field services - 148,354 - 60,549
General and administrative 685,573 980,627 261,074 329,281
Depreciation, depletion and amortization
expense 182,747 586,095 97,892 176,321
Total costs and expenses 1,184,853 2,863,497 674,590 884,803
Income (Loss) From Operations (319,497) 325,261 (174,955) 224,544
Other Income (Expense):
Gain (loss) on sale of fixed assets (20,000) 2,438 2,438 -
Interest expense, net (168,851) (512,264) (104,757) (151,761)
Other, net (1,318) - 214 -
Total other income (expense) (190,169) (509,826) (102,105) (151,761)
Net Income (Loss) $ (509,666) $ (184,565) $ (277,060) $ 72,783
See accompanying notes to consolidated financial statements.
RED RIVER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
Additional Total
Common Stock Paid-in Accumulated Stockholders
Shares Amount Capital Deficit Equity
---------------- ---------------- ------------------- -------------------- ---------------------
Common stock issued to form the company 1,000 $ 1,000 $ 379,000 $ - $ 380,000
Contribution of equipment by officers - - 774,000 - 774,000
Contribution of salaries by stockholders - - 217,800 - 217,800
Additional cash contributions by officers - - 38,565 - 38,565
Distributions to stockholders - - (170,454) - (170,454)
Net loss - - - (509,666) (509,666)
Balances, December 31, 1998 1,000 1,000 1,238,911 (509,666) 730,245
Contribution of salaries by stockholders - - 151,200 - 151,200
Distributions to stockholders - - (134,611) - (134,611)
Net loss - - - (184,565) (184,565)
Balances, December 31, 1999 1,000 1,000 1,255,500 (694,231) 562,269
Net income (unaudited) - - - 72,783 72,783
Balances, March 31, 2000 (unaudited) 1,000 $ 1,000 $ 1,255,500 $ (621,448) $ 635,052
See accompanying notes to consolidated financial statements.
RED RIVER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended for the three months ended
December 31, March 31,
1998 1999 1999 2000
------------------- ------------------ ------------------ ------------------
Cash Flows From Operating Activities: (unaudited) (unaudited)
Net income (loss) $ (509,666) $ (184,565) $ (277,060) $ 72,783
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization
182,747 586,095 97,892 176,321
Contribution of salaries by stockholders
217,800 151,200 69,300 -
(Gain) loss on sale of equipment 20,000 (2,438) (2,438) -
(Increase) decrease in:
Accounts receivable (335,002) 26,430 96,273 (28,082)
Advance in drilling contract (30,000) 30,000 30,000 -
Prepaid expenses - (600) (320) (23,348)
Other assets - (8,818) - -
Increase (decrease) in:
Accounts payable, trade 303,931 (142,602) (32,660) 119,060
Accounts payable, related party 95,931 1 (38,908) - 6,795
Accrued interest 36,154 90,835 (29,009) 29,499
Other accrued liabilities 2,300 58,555 18,511 (12,778)
Net cash provided by (used in) operating activities
(15,805) 565,184 (29,511) 340,250
Cash Flows From Investing Activities:
Capital expenditures for:
Evaluated oil and gas property (5,224,845) (672,758) (643,156) (103,012)
Unevaluated oil and gas property (1,127,656) (1,565,005) (818,385) (94,461)
Gas gathering system - (1,303,160) (1,254,399) (3,013)
Support equipment (284,335) (106,623) (95,007) (20,199)
Furniture, fixtures and equipment (46,009) (1,378) (4,714)
Proceeds from sale of property and equipment
10,000 24,981 24,981 -
Net cash (used in) investing activities (6,672,845) (3,623,943) (2,785,966) (225,399)
Continued
See accompanying notes to consolidated financial statements.RED RIVER ENERGY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the years ended For the three months ended
December 31, March 31,
1998 1999 1999 2000
------------------- ------------------ ------------------ ------------------
Cash Flows From Financing Activities: (Unaudited) (unaudited)
Cash borrowings from line of credit 6,274,734 3,584,729 2,852,175 -
Issuance of notes payable 345,000 - - -
Principal payments on borrowings (130,215) (73,686) (38,322) (11,441)
Proceeds from sale of stock 380,000 - - -
Capital contributions 38,565 - - -
Distributions to stockholders (170,454) (134,611) (7,695) -
Net cash provided (used) by financing
activities 6,737,630 3,376,432 2,806,158 (11,441)
Increase in Cash and Cash Equivalents
48,980 317,673 (9,319) 103,410
Cash and Cash Equivalents, at beginning of period
- 48,980 48,980 366,653
Cash and Cash Equivalents, at end of period
$ 48,980 $ 366,653 39,661 $ 470,063
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest $ 152,342 $ 499,380 $ 140,911 $ 149,199
Non-cash investing and financing transactions:
Assets contributed by stockholders $ 774,000 $ - $ - $ -
RED RIVER ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1999 is unaudited)
1. Nature of Operations:
Red River Energy, LLC ("Red River Energy") was incorporated in the State of Oklahoma in November 1997, with operations commencing
in February 1998, to engage in the business of oil and gas exploration, acquisition, production, development, marketing, and
transportation in the United States.
The Company also conducts business through its subsidiaries TCM, LLC ("TCM") and Red River Field Services, LLC ("Red River
Field"). TCM was formed by Red River Energy and was incorporated in the State of Oklahoma in November 1997, with operations
commencing in August 1998, to explore, produce, market, and transport coal bed methane gas from leases located in Eastern
Oklahoma. Red River Field was incorporated in the State of Oklahoma in March 1999 to market and transport gas produced by Red
River Energy and others from leasehold interests located in Eastern Oklahoma.
In November 1999, the members of Red River Energy exchanged their units of ownership interest for stock in Red River Energy, Inc.
(Red River) an Oklahoma corporation that has elected to be taxed as an S corporation. As a result of this transaction, Red River
is now the parent of Red River Energy and the former members of Red River Energy now own all of the issued and outstanding stock
of Red River.
Also in November 1999, Red River entered into a binding Agreement and Plan of Merger with Beta Oil & Gas Inc. (Beta). The merger
consideration consists of Beta common stock. Under the agreement, Beta has also agreed to guarantee certain of the Company's bank
indebtedness. Upon closing of the agreement, the shareholders of Red River will convert all issued and outstanding common stock
into 2.25 million shares of Beta common stock. Completion of the agreement is contingent upon approval by Beta shareholders.
2. Summary of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include the accounts of Red River and subsidiaries ("the
Company"). All significant intercompany accounts and transactions have been eliminated in consolidation.
TCM has 1,000 member units outstanding at December 31, 1999 with 800 units owned by the Company and 200 units owned individually
by a stockholder of the Company as a minority interest. Upon formation of TCM, the Company committed to contribute cash and
assets to be used on establishing and developing TCM. The minority member contributed cash of $20. For the additional cash and
assets contributed, the Company received no additional ownership units. Under the operating agreement, the Company is to receive
all income and losses of TCM until such time as the total amount of income allocated to the Company equals the amount of cash,
service, and equipment contributions made to TCM. Thereafter, profits and losses of TCM will be allocated to the two owners in
proportion to their respective ownership interests. Distributions are limited to available cash as defined in the operating
agreement.
ANNEX C
BETA OIL & GAS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITOR'S REPORT
Beta Oil & Gas, Inc.
Newport Beach, California
Certified Public Accountants
Orange, California
February 22, 2000
BETA OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 December 31, March 31,
1999 2000
------------------ ------------------ ----------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 198,043 $ $
1,448,655 2,296,899
Accounts receivable -
Oil and gas sales - 745,493
671,767
Other 9,678
1,178 1,178
Prepaid expenses 14,951
104,241 95,085
------------------ ------------------ ----------------
Total current assets 222,672
2,299,567 3,064,929
------------------ ------------------ ----------------
Oil and Gas properties, at cost (full cost method):
Evaluated properties 3,387,300
9,810,198 10,294,405
Unevaluated properties 11,466,695 12,091,627
12,107,762
Less--accumulated depletion and impairments (1,670,691) (3,797,227)
(4,355,106)
------------------ ------------------ ----------------
Net oil and gas properties 13,183,304 18,104,598
18,047,061
------------------ ------------------ ----------------
Furniture, Fixtures and Equipment, at cost,
Less - accumulated depreciation of $13,413 , $26,072 and
$29,264 at December 31, 1998, and 1999, and March 31, 22,943 12,231 9,039
2000 (unaudited)respectively
Other Assets 166,028 465,079
697,198
Deferred Offering Costs 23,524 - -
------------------ ------------------ ----------------
$ 13,618,471 $ 20,881,475 $ 21,818,227
================== ================== ================
(Continued)
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
Beta Oil & Gas, Inc. was incorporated under the laws of the State of Nevada on June 6, 1997 to participate in the
oil and gas acquisition, exploration, development and production business in the United States and
internationally. Beta's wholly owned subsidiary, BETAustralia, LLC, was formed on February 20, 1998 as a limited
liability company under the laws of the State of California for the purposes of participating in the acquisition,
evaluation and development of exploration blocks in Australia.
In November 1999, the Company formed the wholly owned subsidiary Beta Acquisition Company, Inc. under the laws of
the State of Oklahoma to participate in oil and gas acquisitions in the United States.
Operations
Since its inception, Beta has participated as a non-operating working interest owner in the acquisition of
undeveloped leases, seismic options, lease options and foreign concessions and has participated in extensive
seismic surveys and the drilling of test wells on its undeveloped properties. Further leasehold acquisitions and
seismic operations are planned for 2000 and future periods. In addition, exploratory drilling is scheduled
during 2000 and future periods on Beta's undeveloped properties. It is anticipated that these exploration
activities together with others that may be entered into will impose financial requirements which will exceed the
existing working capital of Beta. Management plans to raise additional equity and/or debt capital to finance its
continued participation in planned activities. In the opinion of Beta management, current cash flow projections
indicate that Beta can continue as a going concern even if additional financing is unavailable. However, if
additional financing is not available, Beta will be compelled to reduce the scope of its business activities. If
Beta is unable to fund planned expenditures, it may be necessary to:
1. Forfeit its interest in wells that are proposed to be drilled;
2. Farm-out its interest in proposed wells;
3. Sell a portion of its interest in prospects and use the sale proceeds to fund its participation for a
lesser interest; and
4. Reduce general and administrative expenses.
Principles of Consolidation
The consolidated financial statements include the accounts of Beta and its wholly-owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
Beta's financial statements are based upon a number of significant estimates, including oil and gas reserve
quantities which form the basis for the calculation of amortization and impairment of oil and gas propertiesBETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oil and Gas Properties
Beta follows the full cost method of accounting for oil and gas producing activities and, accordingly,
capitalizes all costs incurred in the acquisition, exploration, and development of proved oil and gas properties,
including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals. All general
corporate costs are expensed as incurred. In general, sales or other dispositions of oil and gas properties are
accounted for as adjustments to capitalized costs, with no gain or loss recorded. Amortization of evaluated oil
and gas properties is computed on the units of production method based on all proved reserves on a country by
country basis. Unevaluated oil and gas properties are assessed for impairment either individually or on an
aggregate basis. The net capitalized costs of evaluated oil and gas properties (full cost ceiling limitation)
are not to exceed their related estimated future net revenues discounted at 10%, and the lower of cost or
estimated fair value of unproved properties, net of tax considerations.
Joint Ventures
All exploration and production activities are conducted jointly with others and, accordingly, the accounts
reflect only Beta's proportionate interest in such activities. Beta is a non-operator in all of its oil and gas
producing activities to date.
Revenue Recognition
Revenue is recognized upon delivery of oil and gas production.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment is stated at cost. Depreciation is provided on furniture, fixtures and
equipment using the straight-line method over an estimated service life of three years.
Income Taxes
Beta accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.
Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that
arise from financial instruments exist for groups of customers or counterparties when they have similarBETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The estimated fair values for financial instruments under FAS No. 107, Disclosures about Fair Value of Financial
Instruments, are determined at discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated fair values of Beta's financial
instruments, which includes all cash, accounts receivable and accounts payable, approximate the carrying values
in the financial statements at December 31, 1998 and 1999.
Stock Based Compensation
Beta has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB25) and related interpretations in accounting for its employee stock options. In accordance with FASB
Statement No. 123 Accounting for Stock-Based Compensation (FASB123), Beta will disclose the impact of adopting
the fair value accounting of employee stock options. Transactions in equity instruments with non-employees for
goods or services have been accounted for using the fair value method as prescribed by FASB123.
Loss Per Common Share
Basic earnings per share excludes dilution and is calculated by dividing net loss by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of the entity. Potential common
shares for all periods presented were anti-dilutive and excluded in the earnings per share computation.
Cash Equivalents
For purposes of the Statements of Cash Flows, cash and cash equivalents include cash on hand, amounts held in
banks and highly liquid investments purchased with an original maturity of three months or less.
Impact of Recently Issued Standards
Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," issued in June
1998 effective with its fiscal year beginning January 1, 2000 as required by the Statement. Due to Beta's
current and anticipated limited use of derivative instruments, management anticipates that adoption of SFAS 133
will not have any significant impact on Beta's financial position or results of operations.
Segment InformationBETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized costs at December 31,1998 and 1999 and March 31, 1999 relating to Beta's oil and gas
activities are summarized as follows:
Year ended Year ended Three months ended
December 31, 1998 December 31, 1999 March 31, 2000
United States Foreign United States Foreign United States Foreign
-------------- ------- ------------- ------- ------------- -------
Capitalized costs-
Evaluated properties $ 1,763,082 $ 1,624,218 $ 8,128,928 $ 1,681,270 $ 8,613,135 $ 1,681,270
Unevaluated properties 11,426,732 39,963 11,973,532 118,095 11,988,882 118,880
Less- Accumulated depreciation,
depletion, amortization
and impairment (46,473) (1,624,218) (2,115,957) (1,681,270) (2,673,836) (1,681,270)
------------- ----------- ----------- ---------- ----------- ----------
$ 13,143,341 $ 39,963 $ 17,986,503 $ 118,095 $ 17,928,181 $ 118,880
============= =========== ============ =========== ============ ===========
Costs incurred in oil and gas producing activities are as follows:
Inception (June 6, 1997) Year ended Year ended
through December 31, 1997 December 31, 1998 December 31, 1999
------------------------------ ------------------------------- -------------------------------
United States United States United States
Foreign Foreign Foreign
------------- ------------- ------------- ------------- ------------- --- -------------
Property acquisition $ 3,835,540 $ - $ 2,808,123 $ 323,463 $ 1,810,331 $ 114,632
=============== ============== ============== ============== ============== ==============
Exploration $ 2,035,254 $ 30,000 $ 4,510,897 $ 1,310,718 $ 5,122,866 $ -
============== ============== ============== ============== ============== ==============
Development $ - $ - $ - $ - $ - $ -
============== ============== ============== ============== ============== ==============
The three months ended
March 31, 2000
---------------------------- ------------------------------
United States
Foreign
------------------------ ------------- -------------
------------------------
Property acquisition $ 15,350$ 786
------------------------ ============== ==============
------------------------
Exploration $ 484,207$ -
------------------------ ============== ==============
------------------------
Development $ - $ -
------------------------ ============== ==============
As Beta's properties are evaluated through exploration, they will be included in the amortization base. Costs
of unevaluated properties in the United States at December 31,1998 and 1999 represent property acquisition and
exploration costs in connection with Beta's Louisiana, Texas and California prospects. The prospects and their
related costs in unevaluated properties have been assessed individually and no impairment charges were considered
necessary for the United States properties for any of the periods presented. The current status of these
prospects is that seismic has been acquired, processed and is being interpreted on an ongoing basis on the
subject lands within the prospects. Drilling commenced on the prospects in the first quarter of 1999 and will
continue in future periods. As the prospects are evaluated through drilling in future periods, the property
acquisition and exploration costs associated with the wells drilled will be transferred to evaluated properties
where they will be subject to amortization.BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unevaluated costs incurred outside the United States represent costs in connection with the acquisition of
properties in Australia.
At December 31, 1998 and 1999, and march 31, 2000, capitalized unevaluated properties consist of the following:
December 31, 1998 December 31, 1999 March 31, 2000
---------------------- ---------------------- ---------------
Unproved property acquisition cost $ 6,476,043 $ 7,056,414 7,072,549
Exploration costs 4,990,652 5,035,213 5,035,213
---------------------- ---------------------- ---------------
$ 11,466,695 $ 12,091,627 12,107,762
====================== ====================== ===============
During 1998, Beta, through its wholly owned subsidiary, BETAustralia, LLC secured an option to participate for a
5% working interest in two petroleum licenses covering 2,798,000 acres (approximately 4,372 square miles). Per
the terms of the option agreement, Beta exercised its option to earn a 5% working interest by participating in
the drilling of two offshore test wells in the license areas. The wells were completed as dry holes. The property
acquisition and exploration costs associated therewith totaling $1,624,218 were transferred to evaluated
properties and charged to impairment expense during the year ended December 31, 1998. The exploration licenses
expired in December 1998. Additional costs of $57,052 were transferred to and charged to impairment expense
during 1999.BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 1999 Beta completed the private placement of a $3,000,000 bridge promissory
note financing to three institutional investors (the "1999 bridge financing"). In connection with the 1999
bridge financing, Beta granted the investors a security interest in all of Beta's assets. In addition, a total
of 459,000 shares of Beta common stock were issued in connection with the 1999 bridge financing. The $3,000,000
in bridge notes was repaid in full with accrued interest on July 7, 1999 from the proceeds of Beta's initial
public offering.
Beta received net cash proceeds of $2,835,000 from the bridge notes. The estimated fair market value of 429,000
shares of common stock issued in connection with the bridge note of $2,574,000 was treated as a discount and was
amortized over the term of the promissory notes using the interest method. The estimated fair market value of
30,000 additional shares of common stock issued per the terms of the bridge note of $180,000 was immediately
expensed as interest during the year ended December 31, 1999. Accordingly, Beta incurred additional interest
expense of $2,754,000 because of the common stock issued in connection with the bridge notes. The debt issuance
costs of the 1999 bridge financing of $89,100 were amortized as additional interest expense during the year ended
December 31, 1999.
During the year ended December 31, 1999, Beta incurred interest expense of $2,966,651, substantially all of
which related to the bridge notes. Interest expense related to the bridge notes for the 1999 period consists of
the following:
Cash interest expense $ 120,555
Amortization of note discount and fair market value of 459,000 shares 2,754,000
Amortization of deferred loan costs 89,100
Bridge note interest expense for the year ended December 31, 1999 $ 2,963,655
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the number of shares reserved for the exercise of common stock purchase warrants
as of December 31, 1998 and 1999:
12/31/1998 Warrants Warrants Warrants 12/31/1999 Callable/Non-
Expiration Date Exercise Price Exercised Cancelled Granted Shares Callable
--------------- --------------- --------- - ------- ------ --------
Shares
-------
06/23/2002 $2.00 230,000 (50,000) - - 180,000 Non-Callable
09/05/2002 $5.00 266,667 (15,270) - - 251,397 Non-Callable
10/01/2002 $4.50 10,000 - - - 10,000 Non-Callable
12/30/2002 $4.50 224,310 (56,180) - - 168,130 Non-Callable
09/05/2002 $5.00 797,245 (324,692) - - 472,553 Callable (a)
01/27/2003 $3.75 100,000 - - - 100,000 Non-Callable (c)
02/04/2003 $5.00 2,000 - - - 2,000 Non-Callable
03/12/2003 $5.00 230,100 - (20,000) - 210,100 Non-Callable
03/12/2003 $7.50 100,000 - - - 100,000 Non-Callable
03/13/2003 $7.50 50,000 - - - 50,000 Callable (b)
03/12/2003 $7.00 121,383 - (67,296) - 54,087 Non-Callable
03/12/2003 $7.50 365,958 - - - 365,958 Callable (b)
04/08/2004 $5.00 - - - 50,000 50,000 Non-Callable (e)
08/03/2004 $6.00 - - - 25,000 25,000 Callable (d)
08/16/2004 $6.00 - - - 30,000 30,000 Non-Callable
09/01/2004 $6.00 - - - 20,000 20,000 Non-Callable
09/08/2004 $7.50 - - - 133,122 133,122 Non-Callable
09/10/2004 $6.38 - - - 1,000 1,000 Non-Callable(f)
09/14/2004 $6.00 - - - 50,000 50,000 Callable (d)
11/02/2004 $6.38 - - - 10,000 10,000 Non-Callable
----------------------------------------------------
2,497,663 (446,142) (87,296) 319,122 2,283,347
====================================================
(a) Beta will be entitled to call these warrants at any time on and after the date that its common stock is
traded on any exchange, including the NASD Over-the-Counter Bulletin Board, at a market price equal to or
exceeding $7.00 per share for 10 consecutive trading days.
(b) Beta will be entitled to call these warrants at any time on and after the date that its common stock is
traded on any exchange, including the NASD Over-the-Counter Bulletin Board, at a market price equal to or
exceeding $10.00 per share for 10 consecutive trading days.
(c) On January 27, 1998, Beta issued 100,000 common stock purchase warrants exercisable at a price of $3.75
per share to an officer of Beta. The exercise price was equal to the market value of the common stock on
the date of grant. The warrants vest as follows: (a) 25,000 warrants vested immediately; (b) 25,000
shall vest upon the first anniversary of the employee's employment (January 27,1998) with Beta; (c) 25,000
shall vest upon the second anniversary of employment; and (d) 25,000 shall vest upon the third anniversary
of employment. If the officer ceases employment during the vesting period, all nonvested warrants shall
be forfeited.
(d) Warrants issued in connection with the acquisition of evaluated oil & gas properties. Beta will be
entitled to call these warrants at any time on and after the date that its common stock is traded on any
exchange, including the NASD Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$12.00 per share for 10 consecutive trading days.
(e) Warrants granted to a new director for services.
(f) Warrants granted to an employee.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As stated in Note 2, Beta has not adopted the fair value accounting prescribed by FAS123 for employees. Had
compensation cost for stock options issued to employees been determined based on the fair value at grant date for
awards in the year ended December 31, 1998 and 1999 consistent with the provisions of FAS123, Beta's net loss and
net loss per share would have been adjusted to the pro forma amounts indicated below:
December 31, 1998 December 31, 1999
----------------- -----------------
Net loss $(2,473,000) $(5,470,000)
============ ============
Loss per common share $(.39) $(.67)
====== ======
1998 1999
---- ----
Expected volatility 0% 54.42%
Expected life in years 2-3 2
Dividends None None
Risk free interest rate 5.6% 5.07% - 5.84%
On June 21, 1999, certain warrant holders agreed to cancel 87,296 warrants to
purchase common stock consisting of 20,000 warrants exercisable at $5.00 per
share and 67,296 warrants exercisable at $7.00 per share. All of the cancelled
warrants were non-callable with expiration dates on March 12, 2003. The warrants
were cancelled for no consideration pursuant to a request by the National
Association of Securities Dealers, the "NASD". The warrant holders were certain
NASD member firms and their employees who participated in Beta's 1998 private
placement, as well as Beta's legal counsel. The cancellation request was made
and complied with because the NASD determined that these warrants could be
deemed "underwriter's compensation" and the continued existence of these
warrants could result in the compensation for the initial public offering
exceeding the NASD guidelines. Therefore, all such warrants which could be
deemed "underwriter's compensation" in excess of NASD guidelines have been
cancelled for no consideration.BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax (expense) for the period from inception through December 31, 1997 and the years ended 1998 and 1999
is comprised of the following:
Inception Year ended Year ended
(June 6, 1997) to December 31, December 31,
December 31, 1997 1998 1999
---------------------- -------------------- --------------------
Current:
Federal $ - $ - $ -
State - (800) (800)
---------------------- -------------------- --------------------
$ - $ (800) $ (800)
====================== ==================== ====================
Deferred:
Federal $ - $ - $ -
State - - -
---------------------- -------------------- --------------------
$ - $ - $ -
====================== ==================== ====================
Inception
(June 6, 1997) Year ended Year ended
to December 31, December 31, December 31,
1997 1998 1999
----------------- --------------- ---------------
Amount of expected tax
(expense) benefit $ 68,535 $ 810,458 $ 1,829,677
Non-deductible expenses (713) (23,759) (13,846)
State taxes, net - (800) (800)
Change in beginning balance
of valuation allowance (67,822) (786,699) (1,815,831)
----------------- --------------- ---------------
Total $ - $ (800) $ (800)
================= =============== ===============
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, December 31,
1998 1999
---------------- ----------------
Long-term deferred tax assets (liabilities)
Net operating loss carryforwards $ 1,714,694 $ 3,989,087
Furniture, fixtures and equipment - (130)
Oil and gas properties (605,173) (695,387)
---------------- ----------------
1,109,521 3,293,830
Valuation allowance (1,109,521) (3,293,830)
---------------- ----------------
Net long term deferred tax asset $ - $ -
================ ================
Utilization of the tax net operating loss carryforward may be limited in the event a 50% or more change in
ownership occurs within a three year period.
(7) OTHER
Related Party Transactions
During the period from inception (June 6, 1997) through December 31, 1997, and for the years ended December 31,
1998 and 1999, a director of Beta was paid $20,000, $60,000 and $77,500, respectively, pursuant to a consulting
contract for management and geologic evaluation services. In addition, the director subscribed to 350,000 shares
of Beta's common stock at a price of $0.05 per share ("founder shares").
A second director of Beta subscribed to 50,000 founder shares at a price of $0.05 per share. In addition, a legal
firm with whom the director is a shareholder, subscribed to 20,000 founder shares at a price of $0.05 per share.
The legal firm represents Beta as general counsel. The legal firm also received 20,000 common stock purchase
warrants presently exercisable at a price of $6.00 per share until expiration on September 1, 2004.
A third director of Beta subscribed to 400,000 founder shares at a price of $0.05 per share.
Beta entered into an expense sharing agreement with Beta Capital Group, Inc., a company owned by the President
and Chairman of the Board, and the Treasurer of Beta. The agreement provides for the allocation and
reimbursement of certain office expenses such as office rent, secretarial support, office supplies, marketing
materials and telephone charges between Beta and Beta Capital Group, Inc. During the period from inception
through December 31, 1997 Beta made payments totaling $9,940 to Beta Capital Group, Inc. in connection with this
agreement. During the years ended December 31, 1998 and 1999 Beta paid $17,000 and $2,891, respectively, in
connection with this agreement.BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective October 1, 1999, Beta entered into a new agreement to lease office space. The lease agreement provides
for a 36 -month term expiring in September 2002. Monthly rent payments under the lease agreement commenced in
October 1999. Beta is recognizing rent expense ratably over the term of the lease. Total minimum future rental
payments under this lease are as follows:
Year ended December 31, 2000 $ 41,472
===========
Year ended December 31, 2001 $ 47,969
===========
Year ended December 31, 2002 $ 37,363
===========
Beta Acquisition of Red River Energy, Inc.
Beta Oil & Gas, Inc. (Beta) entered into an agreement on November 19, 1999 to purchase Red River Energy, Inc.
of Tulsa, Oklahoma, a private oil and natural gas company. The purchase price will be paid by the issuance of
approximately 2.25 million shares of Beta common stock. The purchase is subject to approval by Beta shareholders.
The assets of Red River Energy, Inc. consist of four components: 1) a 97.4% working interest (80% net revenue
interest) in a 30,160 acre unit which is currently producing approximately 3.65 MMBTU/d and 120 Bopd from 22
active wells in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working interest (68% net revenue
interest) in 7,500 acres which are currently producing 960 MMBTU/d from 45 wells in the Atoka and Gilcrease
formations in Eastern Oklahoma; 3) a gas gathering system consisting of 40 miles of pipeline which is currently
transporting approximately 1650 MMBTU/d in Eastern Oklahoma; and 4) a 46 well coal bed methane project also
located in Eastern Oklahoma which is currently under development and producing approximately 600 MMBTU/d. Red
River Energy, Inc. is the operator of all its properties.
Stock Option Plan
On August 27, 1999, the board of directors approved an incentive and non-statutory stock option plan which
authorizes the Compensation Committee to grant stock option awards to officers, directors and employees. The
plan provides, among other things, the following:
The maximum number of shares which may be optioned and sold under the plan is 700,000 shares.
The per share exercise price for common shares to be issued pursuant to the exercise of an option shall
be no less than the fair market value of Beta's common stock as of the date of grant.
The per share exercise price for common shares to be issued to persons owning more than 10% of the
voting stock of Beta at the date of grant, shall be no less than 110% of the fair market value of Beta's
common stock as of the date of grant.
The maximum term of the options shall be a maximum of ten years or such lesser time period as the board
of directors determines. The maximum time period for options to be issued to persons owning more than 10% of
the voting stock of Beta at the date of grant shall be five years from the date of grant.BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employment Contracts
Beta has executed an employment contract dated June 23, 1997 with its president who also serves as a director.
The contract provides for an indefinite term of employment at an annual salary of $150,000
commencing in October of 1997 and an annual car allowance of up to $12,000. The contract may be
terminated by Beta without cause upon the payment of the following:
(a) Options to acquire the common stock of Beta in an amount equal to 10% of the
then issued and outstanding shares containing a five year term, piggyback registration rights
and an exercise price equal to 60% of the fair market value of the shares during the sixty day
period of time preceding the termination notice, such amount not to exceed $3.00 per share.
(b) A cash payment equal to two times the aggregate annual compensation.
(c) In the event of termination without cause, all unvested securities issued by Beta to the
Employee shall immediately vest and Beta shall not have the right to terminate or otherwise
cancel any securities issued by Beta to the Employee.
Deferred Compensation
In 1998, the Company began to offer a simple individual retirement account (IRA) plan for all employees meeting
certain eligibility requirements. Employees may contribute up to 3% of the employees eligible compensation.
Beta's contribution to the plan for the years ended December 31, 1998 and 1999 was $4,693 and $-0- respectively.
(8) OTHER ASSETS
Other assets of approximately $166,000 and $465,000 at December 31, 1998 and 1999, and
$697,000 as of March 31, 2000, respectively, consisted of unapplied well prepayments.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following supplementary information is presented in compliance with United States Securities and Exchange
Commission regulations and is not covered by the report of Beta's independent auditors. The information required
to be disclosed for the years ended 1998 and 1999 in accordance with FASB Statement No. 69, "Disclosures About
Oil and Gas Producing Activities," is discussed below and is further detailed in the following tables. There
were no oil and gas reserves as of December 31, 1997.
The reserve quantities and valuations for fiscal 1998 are based upon estimates by Veazey & Associates, Inc.
and Beta's management. The reserve quantities and valuations for fiscal 1999 are based upon estimates by Ryder
Scott Company. Proved reserves are 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. Reservoirs are considered proved if economic
producibility is supported by either actual production or a 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 reasonably be judged
as economically productive on the basis of available geological and engineering data. In the absence of
information on fluid contacts the lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
Proved developed reserves are reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. Additional oil and gas reserves 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 should 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.
Beta wishes to emphasize that the estimates included in the following tables are by their nature inexact and are
subject to changing economic, operating and contractual conditions. At December 31, 1999 most of Beta's reserves
are attributable to recently completed wells that have little or no production history as of that date. Reserve
estimates for these wells are subject to substantial upward or downward revisions after production commences and
a production history is obtained. Accordingly, reserve estimates of future net revenues from production may be
subject to substantial revision from year to year. Reserve information presented herein is based on reports
prepared by independent petroleum engineers.
The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting
Standards Board and, as such, do not necessarily reflect Beta's expectations for actual revenues to be derived
from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation
process, as discussed previously, are equally applicable to the standardized measure computations since these are
the basis for the valuation process.BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHANGES IN QUANTITIES OF PROVED PETROLEUM AND NATURAL GAS RESERVES
------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1999 (Unaudited)
----------------------------------------------------------
PROVED RESERVES (Bbls) (Mcfs)
Balance at December 31, 1997 - -
Extensions and discoveries 1,461 1,596,740
------------ -----------
Balance at December 31, 1998 1,461 1,596,740
Extensions and discoveries 13,932 4,228,627
Revisions of previous estimates (370) (1,180,302)
Production (1,822) (475,065)
------------- -----------
Balance at December 31, 1999 13,201 4,170,000
============= ==============
Oil Gas
PROVED DEVELOPED RESERVES (Bbls) (Mcfs)
December 31, 1997 - -
============= =============
December 31, 1998 1,461 1,596,740
============= =============
December 31, 1999 13,201 4,170,000
============= =============
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED PETROLEUM AND NATURAL GAS RESERVES (Unaudited)
For the year For the year
ended December ended December
31, 31,
1998 1999
---------------- ----------------
Future cash inflows $ 2,978,861 $ 9,141,659
Future costs-
Production (343,478) (905,242)
Development (81,621) (701,771)
---------------- ----------------
Future net cash inflows before income tax 2,553,762 7,534,646
Future income tax - -
---------------- ----------------
Future net cash flows 2,553,762 7,534,646
10% discount factor (837,154) (1,521,674)
---------------- ----------------
Standardized measure of discounted future net cash flows $ 1,716,608 $ 6,012,972
================ ================
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED PETROLEUM AND NATURAL GAS RESERVE
QUANTITIES (Unaudited)
For the year For the year
ended December ended December
31, 31,
1998 1999
---------------- ----------------
Standardized measure of discounted future net cash
flows--beginning of year $ - $ 1,716,608
Oil & gas sales, net of costs - (1,117,941)
Extensions and discoveries, net of future costs 1,716,608 6,374,495
Changes in prices and costs - 447,063
Change in development costs - (443,525)
Accretion of discount - 171,661
Revisions of previous estimates - (1,135,389)
---------------- ----------------
Standardized measure of discounted future net cash
flows--end of year $ 1,716,608 $ 6,012,972
================ ================
ANNEX D
ANNEX D
ONEOK RESOURCES COMPANY
Statements of Revenues and Direct Operating
Expenses
of
Certain Properties Being Sold to Red River
Energy, Inc.
For the Years Ended
December 31, 1998 (unaudited) and 1999
and
For the Three Months Ended
March 31, 1999 and 2000 (unaudited)
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report......................................................................................D-3
Statements of Revenues and Direct Operating Expenses - For the Years Ended
December 31, 1998 (unaudited) and 1999 and For the Three Months Ended
March 31, 1999 and 2000 (unaudited)..........................................................................D-4
Notes to Statements of Revenues and Direct Operating Expenses.....................................................D-5
INDEPENDENT AUDITORS REPORT
The Stockholders and Board of Directors
ONEOK Resources
Company
Tulsa, Oklahoma
Orange, California
ONEOK PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1998 1999 1999 2000
------------------ ------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
REVENUES:
Oil and gas sales $ 1,767,840 $ 2,087,384 $ 384,776 $ 657,610
COSTS AND EXPENSES:
Oil and gas production costs 767,200 940,267 216,007 221,718
---------------- ---------------- ---------------- ----------------
EXCESS OF REVENUES OVER DIRECT OPERATING
EXPENSES $ 1,000,640 $ 1,147,117 $ 168,769 $ 435,892
=============== ================ ================ ================
See accompanying notes to this financial statement
BETA OIL & GAS, INC.
AMENDED AND RESTATED 1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
Adopted by Directors: Effective January 6, 1999
Adopted by Shareholders: Effective ____________
BETA OIL & GAS, INC.
organized under the laws of Nevada
ATTEST:
By/s/ Steve Antry /s/Lisa Antry
Chairman Secretary
REQUEST FOR CONSENT
BETA OIL & GAS, INC. (Company)
6120 S. Yale, Suite 813
Tulsa, Oklahoma 741360THIS IS A REQUEST FOR THE CONSENT OF THE SHAREHOLDERS TO THE
ACTION TO BE TAKEN AS TO THE RESOLUTION SET FORTH BELOWON OR AFTER, BUT NO EARLIER THAN, SEPTEMBER 11, 2000
CONSENT TO ACTION IN LIEU OF A SPECIAL MEETING
OF THE SHAREHOLDERSREQUEST FOR CONSENT
BETA OIL & GAS, INC. ("Company")
6120 S. Yale, Suite 813
Tulsa, Oklahoma 74136THIS IS A REQUEST FOR THE CONSENT OF THE SHAREHOLDERS TO THE
ACTION TO BE TAKEN AS TO THE RESOLUTION SET FORTH BELOWON OR AFTER, BUT NO EARLIER THAN, SEPTEMBER 11 , 2000
CONSENT TO ACTION IN LIEU OF A SPECIAL MEETING
OF THE SHAREHOLDERS
RESOLVED FURTHER, that this consent may executed in multiple counterparts, all of which shall be taken
together and considered a single consent.
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