<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 2000
Quicksilver Resources Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 001-14837 75-2756163
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
777 West Rosedale Street, Fort Worth, Texas 76104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 665-5000
<PAGE>
This Current Report on Form 8-K/A is an amendment to the Current Report on Form
8-K filed on April 14, 2000, pursuant to Item 7(a).
<TABLE>
<CAPTION>
Page
<S> <C>
Item 7. Financial Statements of Assets Acquired
(a) CMS Oil & Gas Company's Michigan Properties
Report of Independent Public Accountants 3
Statements of Revenues and Direct Operating Expenses Years Ended
December 31,1999, 1998 and 1997 4
Notes to Statements of Revenues and Direct Operating Expenses Years
Ended December 31, 1999, 1998 and 1997 5
Terra Energy, Ltd.
Report of Independent Public Accountants 8
Consolidated Balance Sheets Years Ended December 31,1999 and 1998 9
Consolidated Statements of Income Years Ended December 31, 1999,
1998 and 1997 10
Consolidated Statements of Stockholders' Equity Years Ended December 31,
1999, 1998 and 1997 11
Consolidated Statement of Cash Flows Years Ended December 31, 1999,
1998 and 1997 12
Notes to Consolidated Financial Statements Years Ended December 31, 1999
and 1998 13
(b) Condensed Pro-Forma Statements of Income 21
(c) Exhibits
Signatures 23
</TABLE>
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Quicksilver Resources Inc.
We have audited the accompanying statements of revenues and direct operating
expenses of CMS Oil & Gas Company's Michigan properties, as described in Note 1,
for the three years ended December 31, 1999, 1998 and 1997. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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.
The accompanying statements of revenues and direct operating expenses reflect
the revenues and direct operating expenses attributable to CMS Oil & Gas
Company's Michigan properties, as described in Note 2, and are not intended to
be a complete presentation of the revenues and expenses of CMS Oil & Gas
Company's Michigan properties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the revenues and direct operating expenses of CMS Oil &
Gas Company's Michigan properties, as described in Note 1, for the three years
ended December 31, 1999, 1998 and 1997, in conformity with accounting principles
generally accepted in the United States of America.
Fort Worth, Texas
April 7, 2000
3
<PAGE>
CMS OIL & GAS COMPANY'S MICHIGAN PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES - Oil, gas and related product sales $36,363 $37,624 $48,050
DIRECT OPERATING EXPENSES -
Lease operating expenses 13,701 13,673 14,081
------- ------- -------
EXCESS OF REVENUES OVER DIRECT
OPERATING EXPENSES $22,662 $23,951 $33,969
======= ======= =======
</TABLE>
See notes to statements of revenues and direct operating expenses.
4
<PAGE>
CMS OIL & GAS COMPANY'S MICHIGAN PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
-----------------------------------------------------------------------------
1. THE PROPERTIES
The accompanying statements represent the revenues and direct operating
expenses attributable to the net interest in CMS Oil & Gas Company's
Michigan properties (the "Michigan Properties") in producing wells and
certain non-producing leases sold to Quicksilver Resources Inc.
("Quicksilver"). The total purchase price, including related affiliated
companies, was approximately $164 million, as adjusted, and the properties
are located in the state of Michigan. The acquisition was effective as of
January 1, 2000, and closed on March 31, 2000. These acquired properties
and their related operations are included in Quicksilver's consolidated
financial statements from the date of closing.
2. BASIS OF PRESENTATION
The historical financial statements reflecting financial position, results
of operations and cash flows required by accounting principles generally
accepted in the United States of America are not presented, since such
information is neither readily available on an individual property basis
nor meaningful for the properties acquired because the entire acquisition
cost is being assigned to oil and gas properties. Accordingly, the
statements of revenues and direct operating expenses are presented in lieu
of the financial statements required under Rule 3-05 of Securities and
Exchange Commission ("SEC") Regulation S-X.
The accompanying statements of revenues and direct operating expenses
represent CMS Oil & Gas Company's net ownership interest in the properties
acquired by Quicksilver and are presented on the successful efforts basis
of accounting. Depreciation, depletion and amortization; allocated general
and administrative expenses; interest expense and income; and income taxes
have been excluded because the property interest acquired represents only
a portion of a business, and the expenses incurred are not necessarily
indicative of the expenses to be incurred by Quicksilver.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of certain revenues for the reported period. Estimates and
assumptions are also required in the disclosure of contingent assets and
liabilities as of the date of the financial statements. Actual results may
differ from such estimates.
3. CONTINGENT LIABILITIES
Given the nature of the properties acquired and as stipulated in the
purchase agreement, Quicksilver is subject to loss contingencies, if any,
pursuant to existing or expected environmental laws, regulations and
leases covering the acquired properties.
4. OIL AND NATURAL GAS RESERVES INFORMATION (UNAUDITED)
Unaudited reserve information related to the properties acquired is
presented in the table below. Proved oil and gas reserves have been
estimated by Quicksilver's independent petroleum
5
<PAGE>
engineers as of January 1, 2000, and by CMS Oil & Gas Company's independent
petroleum engineers at January 1, 1999, 1998 and 1997, in accordance with
guidelines established by the SEC. Accordingly, the following reserve
estimates are based upon economic and operating conditions existing as of
each date.
There are numerous uncertainties inherent in establishing quantities of
proved reserves. The following reserve data represent estimates only and
should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Michigan
Properties or the cost that would be incurred to obtain equivalent reserves.
Estimated Reserves - Reserve quantities were estimated by Quicksilver's
independent petroleum engineers as of January 1, 2000, and by CMS Oil & Gas
Company's independent petroleum engineers at January 1, 1999, 1998 and 1997.
Changes in the estimated net quantities of crude oil and natural gas
reserves, all of which are located in the continental United States, are as
follows:
<TABLE>
<CAPTION>
Gas Oil
(Mmcf) (Mbbl)
<S> <C> <C>
Proved reserves:
As of January 1, 1997 137,431 930
Revision of estimates (7,988) 320
Production for 1997 (15,980) (311)
------- ----
As of January 1, 1998 113,463 939
Revision of estimates 5,238 279
Production for 1998 (14,140) (347)
------- ----
As of January 1, 1999 104,561 871
Revision of estimates 52,697 (350)
Production for 1999 (12,152) (286)
------- ----
As of January 1, 2000 145,106 235
======= ====
Proved developed reserves:
As of January 1, 1997 137,431 930
As of January 1, 1998 111,143 939
As of January 1, 1999 100,791 871
As of January 1, 2000 109,160 235
</TABLE>
Standardized Measure - The following tables present the Michigan Properties'
standardized measure of discounted future net cash flows and changes therein
relating to proved oil and gas reserves and were computed using reserve
valuations based on regulations prescribed by the SEC.
These regulations provide that the oil, condensate and gas price structure
utilized to project future net cash flows reflects current prices at each
date presented and has been escalated only when known and determinable price
changes are provided by contract. Future production, development and net
abandonment costs are based on current costs without escalation. The
resulting net future cash flows have been discounted to their present values
based on a 10% annual discount factor the years ended December 31, 1999, 1998
and 1997, in thousands, as follows:
6
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Future cash flows $ 341,639 $ 267,347 $ 354,560
Future production and development costs (161,261) (115,156) (148,289)
Future income tax expense (61,329) (51,745) (70,132)
--------- --------- ---------
Future net cash flows 119,049 100,446 136,139
10% annual discount for estimated
timing of cash flows (59,133) (33,273) (44,658)
--------- --------- ---------
Standardized measure of discounted future
net cash flows $ 59,916 $ 67,173 $ 91,481
========= ========= =========
</TABLE>
Changes in the standardized measure of discounted future net cash flows are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net changes in price and production costs $(21,988) $(27,750) $(38,863)
Revision of estimates 33,623 7,943 (8,427)
Changes in estimated future development costs 11,767 2,283 1,079
Net change in income taxes 3,738 12,522 23,328
Sales of oil and gas, net of production costs (22,662) (23,951) (33,969)
Accretion of discount 6,717 9,148 13,677
Other (18,452) (4,503) (2,109)
-------- -------- --------
Net decrease $ (7,257) $(24,308) $(45,284)
======== ======== ========
</TABLE>
Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves. Estimated future
development and production costs are determined by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves in
future years, based on year-end costs and assuming continuation of existing
economic conditions.
These estimates are furnished and calculated in accordance with requirements
of the Financial Accounting Standards Board and the SEC. Because of
unpredictable variances in expenses and capital forecasts, crude oil and
natural gas price changes, and the fact that the bases for such estimates vary
significantly, management believes the usefulness of these projections is
limited. Estimates of future net cash flows do not necessarily represent
management's assessment of future profitability or future cash flows for the
Michigan Properties.
* * * * * *
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Quicksilver Resources Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Terra Energy,
Ltd. (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
Fort Worth, Texas
April 7, 2000
8
<PAGE>
TERRA ENERGY, LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In thousands, except for number of shares)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,088 $ 50
Accounts receivable - trade, net of allowance for doubtful accounts of $334,000 and
$145,000 in 1999 and 1998, respectively 6,156 11,620
Accounts receivable - related party 11,053 86,359
Inventories 2,347 3,378
Current portion of notes receivable 362 506
Other current assets 2,295 662
------- --------
Total current assets 23,301 102,575
INVESTMENTS IN EQUITY AFFILIATES 2,056 2,569
PROPERTIES, PLANT AND EQUIPMENT - Net ("successful efforts") 58,499 66,661
NOTES RECEIVABLE 1,332 1,239
OTHER ASSETS 4,111 4,873
------- --------
TOTAL $89,299 $177,917
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $14,396 $ 13,708
Accrued liabilities 658 5,451
Current portion of long-term debt 78 187
------- --------
Total current liabilities 15,132 19,346
LONG-TERM DEBT 2,108 1,851
DEFERRED INCOME TAXES 14,316 13,448
STOCKHOLDER'S EQUITY:
Common stock, no par value; 20,000,000 shares authorized,
12,065,422 shares issued and outstanding 1 1
Contributions from parent 25,445 115,728
Retained earnings 32,297 27,543
------- --------
Total stockholder's equity 57,743 143,272
------- --------
TOTAL $89,299 $177,917
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
TERRA ENERGY, LTD.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES:
Gas sales $15,644 $14,331 $15,279
Oil sales 183 191 310
Other operating 963 905 4,159
------- ------- -------
Total revenues 16,790 15,427 19,748
EXPENSES:
Operating, general and administrative expenses 5,816 5,582 5,515
Depletion, depreciation and amortization 6,665 5,260 5,580
------- ------- -------
Total expenses 12,481 10,842 11,095
------- ------- -------
INCOME FROM OPERATIONS 4,309 4,585 8,653
INTEREST EXPENSE, NET 159 21 31
OTHER INCOME, NET (2,988) (1,747) (995)
------- ------- -------
INCOME BEFORE INCOME TAXES 7,138 6,311 9,617
TOTAL INCOME TAX EXPENSE (BENEFIT) (170) 661 1,791
------- ------- -------
NET INCOME $ 7,308 $ 5,650 $ 7,826
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
TERRA ENERGY, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands, except number of shares)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contributions
Common Stock From Retained
-------------------------
Shares Amount Parent Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 12,065,422 $ 1 $ 63,810 $ 14,067 $ 77, 878
Net income 7,826 7,826
----------- --- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997 12,065,422 1 63,810 21,893 85,704
Net income 5,650 5,650
Contributions from parent 51,918 51,918
----------- --- -------- -------- ---------
BALANCE AT DECEMBER 31, 1998 12,065,422 1 115,728 27,543 143,272
Net income 7,308 7,308
Distributions to parent (90,283) (2,554) (92,837)
----------- --- -------- -------- ---------
BALANCE AT DECEMBER 31, 1999 12,065,422 $ 1 $ 25,445 $ 32,297 $ 57,743
=========== === ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
TERRA ENERGY, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,308 $ 5,650 $ 7,826
Charges and credits to net income not affecting cash:
Depreciation and amortization 6,665 5,260 5,580
Deferred income taxes 868 3,069 2,548
Gain on sale of fixed assets (173)
Provision for bad debts 300
Changes in assets and liabilities:
Accounts receivable - trade 5,164 3,773 3,661
Accounts receivable - related parties 75,306 (65,987) (18,849)
Inventory 1,031 (8) (2,062)
Other current assets (1,633) (661) 134
Other assets 762 261 6,726
Accounts payable - trade 688 (3,271) 6,709
Accrued liabilities (4,793) 3,159 (2,807)
-------- -------- --------
Net cash provided by (used in) operating activities 91,493 (48,755) 9,466
-------- -------- --------
INVESTING ACTIVITIES:
Net purchases of property and equipment 1,670 (7,397) (2,964)
Notes receivable 51 543 (2,288)
Investments in equity affiliates 513 (211) (2,358)
-------- -------- --------
Net cash provided by (used in) investing activities 2,234 (7,065) (7,610)
-------- -------- --------
FINANCING ACTIVITIES:
Long-term debt proceeds (payments) - net 148 159 1,762
Contributions (distributions) - parent (92,837) 51,918
-------- -------- --------
Net cash provided by (used in) financing activities (92,689) 52,077 1,762
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 1,038 (3,743) 3,618
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 50 3,793 175
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,088 $ 50 $ 3,793
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest expense $ 159 $ 21 $ 31
======== ======== ========
Cash paid for income taxes $ 265 $ 2,644 $ 369
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
TERRA ENERGY, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Terra Energy, Ltd. ("Terra") and its affiliates, Terra Pipeline Company
("TPC"), Kristen Corporation ("Kristen") and Energy Acquisition Company
("EAC"), are wholly owned subsidiaries of CMS Oil & Gas Company ("CMS").
CMS is a wholly owned subsidiary of CMS Energy Corporation ("CMS Energy"),
located in Dearborn, Michigan. Terra, along with its named affiliates, is
engaged in the acquisition, exploration, production and sale of natural
gas, crude oil and condensate and the gathering, processing and
transmission of natural gas. Terra currently has an interest in natural
gas and crude oil mineral leases and hydrocarbon-producing wells that are
located principally in the state of Michigan.
The consolidated financial statements include the named affiliates,
referred to collectively as the "Company." Investments in affiliated
companies (20% to 50% owned) are accounted for using the equity method.
Material intercompany transactions are eliminated in consolidation.
2. SIGNIFICANT EVENTS
On March 5, 2000, CMS entered into a purchase and sale agreement with
Quicksilver Resources Inc. ("Quicksilver"), whereby CMS agreed to sell
substantially all of the assets of the Company and other CMS oil and gas
properties in Michigan to Quicksilver for approximately $164 million,
subject to adjustments. The agreement was effective as of January 1, 2000,
and closed on March 31, 2000.
3. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Accounts Receivable - The Company's customers are large oil and natural
gas purchasers. The Company does not require collateral, and receivables
are generally due in 30 to 60 days. When collections of specific amounts
due are no longer reasonably ensured, an allowance for doubtful accounts
is established.
Major Customers - At December 31, 1999, two purchasers accounted for
approximately 80% and 10%, respectively, of the Company's total
consolidated oil and gas sales. The Company does not anticipate that the
loss of any of its present purchasers would adversely affect the Company's
consolidated business. The Company also believes that, in the event of a
loss of a present purchaser, other oil and gas purchasers located in the
Company's areas of production would offer competitive prices for such
production.
Inventories - Inventories are valued at the lower of cost (first-in,
first-out method) or market and consist of crude oil in tanks and well
equipment spare parts and supplies.
Properties, Plant and Equipment - The Company's oil and gas producing
activities are accounted for using the successful efforts method of
accounting in accordance with Statement of
13
<PAGE>
Financial Accounting Standards ("SFAS") No. 19, "Financial Accounting and
Reporting by Oil and Gas Producing Companies." In accordance with SFAS No.
19, the Company capitalizes the cost of property acquisitions, successful
exploratory wells, all development costs, and support equipment and
facilities when incurred. It expenses unsuccessful exploratory wells when
they are determined to be nonproductive. The Company also charges to
expense production costs, overhead and all exploration costs other than
exploratory drilling as incurred.
Depreciation, Depletion and Amortization - Depreciation and depletion of
producing oil and gas properties are computed using the unit-of-production
method based on estimated proved developed reserves determined by the
Company's petroleum engineers. Office, computer and automotive equipment
is depreciated using the straight-line method over estimated lives ranging
from 5 to 10 years.
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the future
anticipated cash flow expected to be generated by an asset is compared to
the carrying value of that asset. If the expected cash flow exceeds the
carrying value of the asset, no adjustment is required. If the carrying
value exceeds the future cash flow, the carrying value is reduced to
reflect impairment. The impairment loss is recorded as an expense in the
current period. The Company recorded impairment expenses of $720,000
during 1999, which is included in depletion, depreciation and
amortization.
Joint Venture Operations - Certain of the Company's exploration and
development activities relating to oil and gas are conducted jointly with
others. The accompanying consolidated financial statements reflect only
the Company's proportionate interest in such activities.
Revenue Recognition - The Company recognizes revenue as quantities of oil
and gas are sold or volumes of gas are transported to the buyer, and
utilizes the sales method of accounting for oil and gas imbalances. The
Company's net imbalance was immaterial at December 31, 1999.
Environmental Compliance and Remediation - Environmental compliance costs,
including ongoing maintenance and monitoring, are expensed as incurred.
Environmental remediation costs, which improve the condition of a
property, are capitalized.
Income Taxes - Deferred taxes are established for all temporary
differences between the book and the tax basis of assets and liabilities
at rates that will be in effect in the years the temporary differences are
expected to reverse.
Disclosure of Fair Value of Financial Instruments - The Company's
financial instruments include cash and cash equivalents, accounts
receivable, notes receivable, accounts payable and long-term debt. The
carrying amounts reflected in the consolidated balance sheets for
financial assets and the carrying amounts for financial liabilities
approximate fair value due to the maturities, nature and interest rates of
such instruments.
Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Comprehensive Income - Comprehensive income is the same as net income.
14
<PAGE>
REcently Issued Accounting Standards - The Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which is effective for fiscal years beginning after June 15,
2000. This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities.
4. NOTES RECEIVABLE
Notes receivable for the years ended December 31, 1999 and 1998, consist of
the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Promissory note for overriding royalty interests in various oil
and gas properties $ 965 $ 965
Promissory note for working interests and overriding royalty
interests in various properties 604 604
Various other notes 125 176
------ ------
1,694 1,745
Less current portion (362) (506)
------- ------
$1,332 $1,239
====== ======
</TABLE>
5. PROPERTIES, PLANT AND EQUIPMENT
Capitalized costs for the years ended December 31, 1999 and 1998, consist of
the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Proved oil and gas properties $ 68,901 $66,629
Unproved oil and gas interests 4,004 6,725
Accumulated depletion and depreciation (16,682) (9,100)
-------- -------
56,223 64,254
Other equipment 3,319 3,355
Accumulated depreciation (1,043) (948)
-------- -------
$ 58,499 $66,661
======== =======
</TABLE>
15
<PAGE>
6. OTHER ASSETS
Other assets for the years ended December 31, 1999 and 1998, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Intangible contracts $ 5,183 $ 5,183
Less accumulated amortization (1,118) (350)
------- -------
Net intangible contracts 4,065 4,833
Other long-term assets 46 40
------- -------
$ 4,111 $ 4,873
======= =======
</TABLE>
Intangible contracts represent contract rights associated with the properties
originally acquired by the Company. The rights are amortized using the
straight-line method over the life of the contracts.
7. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt for the years ended December 31, 1999 and 1998, consists of
the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Notes payable $1,624 $1,635
Various loans 562 403
------ ------
2,186 2,038
Less current maturities (78) (187)
------ ------
$2,108 $1,851
====== ======
</TABLE>
In December 1997, the Company entered into an agreement with a gas purchaser
in Michigan to borrow $1.7 million. Principal and interest payments are due
and payable when distributions are made that are attributable to the
Company's membership interest in a pipeline company. The unpaid balance of
the note is due on December 31, 2009. Interest accrues at 7% per annum.
16
<PAGE>
Long-term debt maturities are as follows (in thousands):
Years ending December 31:
2000 $ 78
2001
2002
2003
2004
Thereafter 2,108
------
$2,186
======
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of
December 31, 1999, and 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets $ 50 $ 50
Deferred tax liabilities - properties, plant and equipment 14,366 13,498
------- -------
Net deferred tax liabilities $14,316 $13,448
======= =======
</TABLE>
The provisions for income taxes for the years ended December 31, 1999, 1998
and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
U.S. federal:
Current $(1,038) $(2,408) $ (757)
Deferred 868 3,069 2,548
------- ------- ------
$ (170) $ 661 $1,791
======= ======= ======
</TABLE>
A reconciliation of the statutory federal income tax rate and the effective
tax rate for the years ended December 31, 1999, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
U.S. federal statutory tax rate 35.00 % 35.00 % 35.00 %
Permanent differences - nonconventional fuels credit (37.40) (24.31) (16.38)
------ ------ ------
Effective income tax rate (2.40)% 10.69 % 18.62 %
====== ====== ======
</TABLE>
17
<PAGE>
9. RELATED PARTY TRANSACTIONS
Terra has an agreement with CMS Marketing, Services and Trading ("MS&T"), a
subsidiary of CMS, whereby MS&T purchases uncommitted domestic natural gas
owned or controlled by Terra. Under the agreement, MS&T provides Terra with
various accounting and administrative services.
10. SUPPLEMENTAL INFORMATION (UNAUDITED)
Supplemental Information for Oil and Gas Producing Activities (Unaudited) -
Proved oil and gas reserves have been estimated by Quicksilver's
independent petroleum engineers as of January 1, 2000, and by CMS Oil & Gas
Company's independent petroleum engineers at January 1, 1999, 1998 and
1997, in accordance with guidelines established by the Securities and
Exchange Commission ("SEC"). Accordingly, the following reserve estimates
are based upon economic and operating conditions existing as of each date.
There are numerous uncertainties inherent in establishing quantities of
proved reserves. The following reserve data represent estimates only and
should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Company's oil
and gas properties or the cost that would be incurred to obtain equivalent
reserves.
Estimated Reserves - Changes in the estimated net quantities of crude oil
and natural gas reserves, all of which are located in the continental
United States, are as follows:
<TABLE>
<CAPTION>
Reserve Quantities Gas Oil
(Mmcf) (Mbbl)
<S> <C> <C>
Proved reserves:
As of January 1, 1997 109,191 109
Revision of estimates 6,810 (49)
Production for 1997 (6,831) (18)
------- ---
As of January 1, 1998 109,170 42
Revision of estimates (23,729) (17)
Production for 1998 (6,433) (14)
------- ---
As of January 1, 1999 79,008 11
Revision of estimates 97,139 513
Production for 1999 (6,178) (11)
------- ---
As of January 1, 2000 169,969 513
======= ===
Proved developed reserves:
As of January 1, 1997 105,536 109
As of January 1, 1998 101,614 42
As of January 1, 1999 78,439 11
As of January 1, 2000 140,585 513
</TABLE>
18
<PAGE>
The significant revision of estimates for the change in the estimated
natural gas reserves in 1998 is primarily due to the decline in gas prices
during 1998, making it uneconomical for the Company to produce those
reserves.
The revision of estimates in 1999 is a result of significant proved
developed and proved undeveloped reserves estimated to be produced
subsequent to 2014.
Standardized Measure - The following tables present the Company's
standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves and were computed using
reserve valuations based on regulations prescribed by the SEC.
These regulations provide that the oil, condensate and gas price structure
utilized to project future net cash flows reflects current prices at each
date presented and has been escalated only when known and determinable
price changes are provided by contract. Future production, development and
net abandonment costs are based on current costs without escalation. The
resulting net future cash flows have been discounted to their present
values based on a 10% annual discount factor for the years ended December
31, 1999, 1998 and 1997, as follows (in thousands).
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Future cash flows $ 394,529 $174,700 $ 277,606
Future production and development costs (209,305) (94,449) (129,536)
Future income tax expense (62,976) (27,285) (50,344)
--------- -------- ---------
Future net cash flows 122,248 52,966 97,726
10% annual discount for estimated timing of
cash flows (60,722) (19,728) (41,088)
--------- -------- ---------
Standardized measure of discounted future net
cash flows $ 61,526 $ 33,238 $ 56,638
========= ======== =========
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net changes in price and production costs $ (7,472) $(25,438) $(61,928)
Revision of estimates 57,982 (20,000) 6,449
Changes in estimated future development costs 5,934 8,348 (2,755)
Net change in income taxes (14,573) 12,055 20,711
Sales of oil and gas, net of production costs (9,757) (8,534) (10,121)
Accretion of discount 3,324 5,664 9,684
Other (7,150) 4,505 (2,244)
-------- -------- --------
Net increase (decrease) $ 28,288 $(23,400) $(40,204)
======== ======== ========
</TABLE>
Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves. Estimated future
development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and
gas reserves in future years, based on year-end costs and assuming
continuation of existing economic conditions.
19
<PAGE>
These estimates are furnished and calculated in accordance with requirements
of the FASB and the SEC. Because of unpredictable variances in expenses and
capital forecasts, crude oil and natural gas price changes, and the fact that
the bases for such estimates vary significantly, management believes the
usefulness of these projections is limited. Estimates of future net cash
flows do not necessarily represent management's assessment of future
profitability or future cash flows to the Company.
Costs incurred in oil and gas property acquisition, exploration and
development activities for the years ended December 31, 1999, 1998 and 1997,
totaled $1,536, $7,397 and $2,964, respectively, in thousands.
Capitalized costs for oil and gas properties at December 31, 1999, 1998 and
1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Proved oil and gas properties $ 68,901 $66,629 $ 70,964
Unproved oil and gas interests 4,004 6,725 3,382
Accumulated depletion and depreciation (16,682) (9,100) (12,369)
-------- ------- --------
Total $ 56,223 $64,254 $ 61,977
======== ======= ========
</TABLE>
Results of operations from producing activities for the years ended December
31, 1999, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Oil and gas sales $13,413 $12,502 $13,823
Operating expenses (3,656) (3,968) (3,702)
Depletion and depreciation (5,022) (4,076) (5,211)
------- ------- -------
4,735 4,458 4,910
Income taxes 170 (661) (1,791)
------- ------- -------
Results of operations from producing activities
(excluding corporate overhead and interest costs) $ 4,905 $ 3,797 $ 3,119
======= ======= =======
</TABLE>
* * * * * *
20
<PAGE>
CONDENSED PRO FORMA STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND THE
TWELVE MONTHS ENDED DECEMBER 31, 1999
(In thousands)
-------------------------------------------------------------------------------
On March 31, 2000, the Company completed the acquisition from CMS Oil &
Gas Company, a subsidiary of CMS Energy Corporation, of CMS properties
located primarily in Michigan for $164 million, subject to subsequent
adjustments. The CMS properties consist of interests in approximately
3,050 gross (650 net) producing oil and gas wells located on approximately
512,000 gross (450,000 net) acres. Holditch-Reservoir Technologies
Consulting Services, a Schlumberger company, estimated proved reserves
attributable to the CMS acquisition of 315.1 Bcf of natural gas and 747.8
Mbbls of crude oil and condensate, and 143.9 Mbbls of natural gas liquids,
or a total of 320.4 Bcfe with an estimated SEC PV-10 value as of January
1, 2000 of $184.0 million. Approximately 81% of the proved reserve volumes
is classified as proved developed. Current daily production from the CMS
properties is estimated to be 49 Mmcfe.
Financing for the acquisition was accomplished through restructuring
Quicksilver's senior bank facility, the sale of $43 million in
Subordinated Notes, and the monetization of $25 million of the
accompanying Section 29 tax credits to a major financial institution.
The acquisition was accounted for under the purchase accounting method,
and consists of both CMS producing properties as well as common stock of
Terra Energy Ltd.
The following summary pro forma financial information gives the effect of
the acquisition on the Company's historical income statements as though
the acquisition had occurred at the beginning of the periods presented.
Adjustments were made to reflect a combined depletion rate, incremental
general administrative expense and interest expense on acquisition debt.
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
---------------------------------------------------------
Historical Adjustments Pro
Forma
-------------- ---------------- -------------
<S> <C> <C> <C>
Revenues $ 15,979 $ 14,570 a $ 30,549
Expenses $ 14,005 $ 13,232 b $ 27,237
Net Income $ 1,269 $ 877 c $ 2,146
Basic and diluted earnings per share $ 0.07 $ 0.05 $ 0.12
</TABLE>
a Adjustment consists of additional gas, oil and other revenues from
the acquisition properties
b Adjustments consist of:
Operating Expenses related to acquisition properties $ 5,810
Additional Administrative Costs 375
Depletion Expense 3,043
Interest Expense on Acquisition Debt 4,004
-------
$13,232
=======
c Includes tax effect of Adjustments at statutory tax rates
21
<PAGE>
<TABLE>
<CAPTION>
For the Twelve Months Ended December 31, 1999
---------------------------------------------------------
Historical Adjustments Pro Forma
-------------- ---------------- -------------
<S> <C> <C> <C>
Revenues $ 52,320 $ 54,227 a $ 106,547
Expenses $ 49,297 $ 50,088 b $ 99,385
Net Income $ 3,162 $ 1,992 c $ 5,154
Basic and diluted earnings per share $ 0.24 $ 0.15 $ 0.39
</TABLE>
a Adjustment consists of additional gas, oil and other revenues from
the acquisition properties
b Adjustments consist of:
Operating Expenses related to acquisition properties $18,994
Additional Administrative Costs 1,500
Depletion Expense 13,421
Interest Expense on Acquisition Debt 16,014
Interest Expense 159
-------
$50,088
=======
c Includes tax effect of Adjustments at statutory tax rates
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUICKSILVER RESOURCES INC.
By: _______________________________
Glenn M. Darden
President and Chief Executive Officer
Date:______________________________
23
