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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-5426
THE WISER OIL COMPANY
A DELAWARE CORPORATION
--------------------
I.R.S. EMPLOYER IDENTIFICATION NO. 55-0522128
8115 PRESTON ROAD, SUITE 400
DALLAS, TEXAS 75225
TELEPHONE: (214) 265-0080
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
------------------- -------------------
Common Stock-Par Value, $3.00 Per Share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether registrant has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and has been subject to such filing requirements for the
past 90 days. X .
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X .
---
As of February 26, 1999, registrant had outstanding 8,951,965 shares of common
stock, $3.00 par value ("Common Stock"), which is registrant's only class of
common stock.
The aggregate market value of registrant's Common Stock held by non-affiliates
based on the closing price on February 26, 1999 was approximately $15 million.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific incorporations are identified under the applicable item herein.)
Portions of the registrant's proxy statement furnished to stockholders in
connection with the May 17, 1999 Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference in Part III of this Report. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of the close of the registrant's fiscal year.
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TABLE OF CONTENTS
DESCRIPTION
Item Page
- ---- ----
PART I
1. BUSINESS.......................................................... 3
2. PROPERTIES........................................................ 25
3. LEGAL PROCEEDINGS................................................. 25
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 25
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................. 26
6. SELECTED FINANCIAL DATA........................................... 27
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 29
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 36
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................... 36
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 36
11. EXECUTIVE COMPENSATION............................................ 36
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................... 36
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 36
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K..................................................... 37
2
<PAGE>
The Wiser Oil Company
THE WISER OIL COMPANY
PART I
Item 1. Business
General
Founded in 1905, The Wiser Oil Company (the "Company" or "Wiser") is one of the
oldest public independent oil and gas companies in the United States. The
Company's total proved reserves have grown to 48.0 MMBOE (approximately 58% of
which were oil and NGLs) at December 31, 1998 from 24.3 MMBOE at December 31,
1991, and its annual net production has grown to 5.1 MMBOE in 1998 from 2.3
MMBOE in 1991. The Company's primary operations, representing approximately 49%
of its proved reserves at December 31, 1998, are located in the Permian Basin in
West Texas and Southeast New Mexico. Wiser has additional operations in Alberta,
Canada, the Appalachian Basin in Kentucky, Tennessee and West Virginia, and the
San Juan Basin in New Mexico.
Prior to 1991 the Company focused primarily on the acquisition of non-operated
interests in oil and gas properties. In 1991 the Company moved its headquarters
from Sistersville, West Virginia to Dallas, Texas and began to assemble a team
of experienced management with substantial acquisition, exploitation and
development expertise. After reviewing the Company's existing property portfolio
and refining the new business strategy, the management team began disposing of
the Company's non-strategic assets and acquiring and operating properties in new
core areas with the potential for increased reserves and production volumes.
Pursuant to this strategy, the Company acquired and developed properties in the
Permian Basin and Canada, and added reserves and production through workovers,
recompletions, waterfloods and CO2 gas injections, as well as the drilling of
exploratory, development and infill wells.
A substantial portion of the Company's growth in reserves and production volumes
since 1991 has been the result of (i) two enhanced oil recovery projects on
properties acquired from 1992 to 1996 in the Permian Basin and (ii) the
Company's 1994 acquisition and subsequent exploration on and exploitation of
properties in Alberta, Canada. From June 1993 through December 1998, the Company
completed 178 producing wells on its Maljamar waterflood project in Southeast
New Mexico. As a result, the Company's average daily net production from the
three units in this project increased to 2,582 BOE in 1998 from 580 BOE in
January 1993 (on a pro forma combined basis, assuming the Company had acquired
all three units at January 1, 1993). At its Wellman Unit in West Texas, the
Company used CO2 gas injection to increase average daily net production to 1,257
BOE in 1998 from 650 BOE in December 1993. In June 1994 the Company acquired oil
and gas properties located primarily in Alberta, Canada for $52.0 million. From
the date of their acquisition through December 1998, the Company completed 56
net wells on these properties. As a result, the Company's average daily net
Canadian production increased to 3,877 BOE in 1998 from 1,860 BOE in June 1994.
The Company's principal executive offices are located at 8115 Preston Road,
Suite 400, Dallas, Texas 75225, and its telephone number is (214) 265-0080.
Certain oil and gas industry terms used herein are defined in the "Glossary of
Oil and Gas Terms" appearing at the end of this Item 1.
3
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The Wiser Oil Company
Principal Oil and Gas Properties
The following table summarizes certain information with respect to each of the
Company's principal areas of operation at December 31, 1998.
<TABLE>
<CAPTION>
Proved Reserves
-----------------------------------------
1998
Total Total Percent Average
Gross Oil Proved of Total Net
Oil and and NGLs Gas Reserves Proved Production
Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day)
--------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar............. 230 10,870 4,175 11,566 24% 2,582
Wellman.............. 16 8,463 965 8,624 18% 1,257
Dimmitt/Slash Ranch.. 81 1,660 9,931 3,315 7% 892
----- ------ ------- ------ --- ------
Total.............. 327 20,993 15,071 23,505 49% 4,731
Appalachian Basin...... 450 1,034 36,784 7,165 15% 1,382
San Juan Basin......... 2,300 45 20,767 3,506 7% 1,255
Other.................. 543 1,513 22,843 5,320 11% 2,752
----- ------ ------- ------ --- ------
Total United States.... 3,620 23,585 95,465 39,496 82% 10,120
Canada................. 312 4,403 24,516 8,489 18% 3,877
----- ------ ------- ------ --- ------
Total Company.......... 3,932 27,988 119,981 47,985 100% 13,997
===== ====== ======= ====== === ======
</TABLE>
Permian Basin
Maljamar. The Company's Maljamar properties are situated in Southeast New
Mexico. At December 31, 1998, the Maljamar properties contained 11.6 MMBOE of
proved reserves, which represented 24% of the Company's total proved reserves
and 10% of the Company's Present Value of total proved reserves.
The Maljamar properties consist primarily of three oil producing units acquired
by the Company in separate transactions between 1992 and 1996: the Maljamar
Grayburg and Caprock Maljamar Units, both of which are in Lea County, New
Mexico, and the Skelly Unit in Eddy County, New Mexico. The Maljamar Grayburg
Unit produces from the Grayburg and San Andres formations at depths ranging from
3,800 to 4,500 feet, and the Caprock Maljamar Unit produces from the same
formations at depths ranging from 4,000 to 5,000 feet. The Skelly Unit is
located approximately five miles west of the two Lea County units and produces
from the Seven Rivers, Grayburg and San Andres formations at depths ranging from
2,100 to 4,000 feet. The Company has a 100% working interest in each of these
units, which, along with some smaller adjacent properties, have been combined
into a single large scale waterflood project encompassing approximately 12,800
gross leasehold acres.
Exploitation efforts at the project are essentially complete and included
conversion of existing wells to injection wells and the drilling of infill
development wells on 20-acre spacing to create 40-acre five-spot water injection
patterns. From June 1, 1993 through December 31, 1998, the Company made capital
expenditures of approximately $75 million and completed 168 producing wells at
the project. At December 31, 1998, the project included 230 producing wells and
174 water injection wells, virtually all of which were operated by the Company.
During 1998, Wiser placed a total of 13 wells on production.
The Company's net production from the Maljamar properties averaged 2,308 Bbls of
oil, 68 Bbls of NGLs and 1,238 Mcf of natural gas per day in 1998. The Company's
cumulative net production from the Maljamar properties since acquired by the
Company has been 3,171 MBbls of oil and 1.6 Bcf of natural gas through December
31, 1998.
Wellman Unit. In 1993 the Company acquired a 62% working interest in and became
operator of the Wellman Unit in Terry County, Texas, located in the northwestern
edge of the Horseshoe Atoll. During 1998, the Company acquired an additional 28%
working interest in the Wellman Unit which increased the Company's working
interest to 90% as of December 31, 1998. At December 31, 1998, the Company's
Wellman property contained 8.6 MMBOE
4
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The Wiser Oil Company
of proved reserves, which represented 18% of the Company's total proved reserves
and 8% of the Company's Present Value of total proved reserves.
The Company owns approximately 2,300 gross (2,100 net) leasehold acres in the
Wellman Unit. The Wellman Unit produces oil from the Wolfcamp Reef formation at
depths ranging from 9,100 to 10,000 feet through the injection of water and CO2
into the reservoir. Water injection at the unit began in 1979, and CO2 injection
began in 1983. The unit also includes a gas processing plant, which processes
wellhead gas produced from the unit. Wiser's interest in this plant is
proportionate to its working interest in the Wellman Unit. Processing at the
plant involves subjecting the wellhead gas to high pressure and low temperature
treatments that cause the gas to separate into various products, including NGLs,
residual natural gas and CO2. The NGLs and residual natural gas are sold to
pipeline companies, and the CO2 is reinjected into the unit's reservoir. At
December 31, 1998, the unit included 16 productive wells, three water injection
wells, three CO2 injection wells and three water disposal wells, all of which
were operated by the Company.
The Company's net production from the Wellman Unit averaged 754 Bbls of oil, 453
Bbls of NGLs and 300 Mcf of natural gas per day in 1998. The Company's
cumulative net production from the unit since acquired by the Company has been
1,801 MBbls of oil, 601 MBbls of NGLs and 421 MMcf of natural gas through
December 31, 1998.
In 1994 the Company began reconditioning the gas processing plant at the Wellman
Unit to enhance the extraction of NGLs and residual natural gas from the
wellhead gas. The Company completed the reconditioning project in June 1995 at a
total cost of approximately $6.0 million. For the year ended December 31, 1998,
the gas plant processed an average of 34 MMcf of gross natural gas and CO2 per
day and recovered an average of 611 Bbls of NGLs and 419 Mcf of residual natural
gas per day. The plant currently operates at 96% of its maximum capacity of 35
MMcf of gas per day.
Dimmitt/Slash Ranch Fields. The Company's Dimmitt/Slash Ranch properties are
situated in Loving County, Texas, 80 miles west of Midland, Texas. At December
31, 1998, the Dimmitt/Slash Ranch properties contained 3.3 MMBOE of proved
reserves, which represented 7% of the Company's total proved reserves and 8% of
the Company's Present Value of total proved reserves.
The Company owns approximately 5,320 gross (5,290 net) leasehold acres in the
Dimmitt Field, and has working interests in this acreage ranging from 75% to
100%. The Company acquired its initial interest in and became operator of the
field in 1993. The Dimmitt Field produces oil and gas from the Cherry Canyon and
Bell Canyon formations at depths ranging from 4,700 to 6,700 feet. At December
31, 1998, the field included 77 productive wells.
The Slash Ranch Field is a natural gas field that underlies the Dimmitt Field.
The Company owns approximately 4,160 gross (3,390 net) leasehold acres in the
Slash Ranch Field. The Slash Ranch Field produces from the Atoka, Fusselman and
Ellenburger formations at depths ranging from 15,000 to 20,000 feet. At December
31, 1998, the field included four producing wells, all of which were operated by
the Company. The Company's working interests in these wells range from 34% to
100%.
The Company's net production from the Dimmitt/Slash Ranch properties averaged
442 Bbls of oil and 2,701 Mcf of natural gas per day in 1998. The Company's
cumulative net production from the properties since acquired by the Company has
been 616 MBbls of oil and 5.0 Bcf of natural gas through December 31, 1998.
Appalachian Basin
The Company's Appalachian Basin properties are situated in Kentucky, Tennessee
and West Virginia. At December 31, 1998, these properties contained 7.2 MMBOE of
proved reserves, which represented 15% of the Company's total proved reserves
and 16% of the Company's Present Value of total proved reserves. The Appalachian
Basin reserves are long-lived reserves (generally, over 40 years) characterized
by gradual decline rates.
5
<PAGE>
The Wiser Oil Company
The Company has operated in Kentucky and Tennessee since 1917 and owns
approximately 123,000 gross (108,000 net) leasehold acres in 22 shallow natural
gas fields in southeastern Kentucky and northeastern Tennessee. The Company's
working interests in this acreage range from 33% to 100%. The Company has a 100%
working interest in approximately 90% of the total acreage. The primary
producing formations in these fields are the Maxon, Big Lime and Corniferous at
a maximum depth of less than 3,000 feet. At December 31, 1998, the Company owned
329 gross (296 net) productive wells in these fields, of which approximately 98%
were operated by the Company. Although daily production from individual wells in
the fields is low (on average, 30 Mcf per day), the production generally
receives a higher sales price than the Company's other natural gas production
because of the proximity of the fields to the northeastern United States gas
markets. The Company completed four development wells and one exploratory well
in Kentucky and Tennessee in 1998.
The Company owns approximately 20,000 gross (14,000 net) leasehold acres in the
Blue Creek Field in Clay and Kanawha Counties, West Virginia. The Company has an
average 70% working interest in this acreage, which it acquired in February
1996. The Blue Creek Field produces from the Rosedale, Injun, Keener and Weir
formations, ranging from depths of 1,200 to 2,800 feet. At December 31, 1998,
the Company owned 121 gross (88 net) productive gas wells in this field, all of
which were operated by another company. During 1998, the Company participated in
the drilling of 28 gross (21 net) development wells in the Blue Creek Field and
an additional 55 low-risk exploratory drilling locations have been identified in
this field.
The Company owns and operates an extensive natural gas gathering and
transportation system located in its producing areas of Kentucky and Tennessee.
The system consists of approximately 340 miles of gas gathering pipelines, 6 gas
compressor stations, two gas processing plants and two gas storage reservoirs.
The pipelines have a throughput capacity of approximately 20 MMcf of natural gas
per day. During the year ended December 31, 1998, the pipelines gathered an
average of 11.3 MMcf of natural gas per day. The two processing plants have a
total capacity of 15 MMcf of natural gas per day. During the year ended December
31, 1998, the plants processed an average of 9.5 MMcf of natural gas per day and
recovered an average of 148 Bbls of NGLs per day. See "-Marketing of
Production."
The Company's net production from its Appalachian Basin properties averaged
6,967 Mcf of natural gas, 65 Bbls of oil and 156 Bbls of NGLs per day in 1998.
San Juan Basin
The Company's San Juan Basin properties are located in Rio Arriba County in
northwestern New Mexico. At December 31, 1998, the San Juan Basin properties
contained 3.5 MMBOE of proved reserves, which represented 7% of the Company's
total proved reserves and 10% of the Company's Present Value of total proved
reserves. The Company owns approximately 11,100 gross (5,300 net) leasehold
acres in the San Juan Basin. The Company's average 48% working interest in the
acreage was contributed in connection with a unitization of the wells in the San
Juan Basin fields in the 1950's, resulting in the ownership by the Company of
small non-operated working interests in the wells. At December 31, 1998, the
Company owned working interests in approximately 2,300 producing gas wells in
the San Juan Basin. These working interests range from 0.21% to 4.2% and average
approximately 1.8%. The Company's San Juan Basin properties produce from
multiple formations ranging from depths of 3,500 feet to 8,000 feet.
The Company's net production from these properties averaged 6,964 Mcf of natural
gas and 94 Bbls of oil per day in 1998. During the year ended December 31, 1998,
approximately 35% of the Company's net production from these properties was from
the Fruitland Coal seams. Such production generates nonconventional fuels income
tax credits for Wiser under Section 29 of the Internal Revenue Code of 1986, as
amended. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Results of Operations." The Company expects that future
development of the properties will depend on natural gas prices, and that its
share of the costs of any such future development activities will not be
significant.
Other U.S. Properties
6
<PAGE>
The Wiser Oil Company
The Company's other United States properties include properties located in the
Anadarko Basin in Texas and Oklahoma and the Gulf Coast onshore region.
Canada
In June 1994, Wiser established an important new core area with the completion
of a $52.0 million acquisition of Canadian oil and gas properties from Eagle
Resources, Ltd. The purchase included 7.2 MMBOE of proved reserves and 2.8 MMBOE
of probable reserves, approximately 127,000 net undeveloped acres, seven
exploration prospects and an existing staff of 23 persons. At December 31, 1998,
the Company's Canadian properties contained 8.5 MMBOE of proved reserves, which
represented 18% of the Company's total proved reserves and 29% of the Present
Value of the Company's total proved reserves.
The following table summarizes certain information with respect to each of the
Company's principal Canadian areas of operation at December 31, 1998:
<TABLE>
<CAPTION>
Proved Reserves
---------------------------------------
Percent 1998
Total Total of Total Average
Gross Oil Proved Canadian Net
Oil and and NGLs Gas Reserves Proved Production
Gas Wells (MBbls) (MMcf) (MBOE) Reserves (BOE/Day)
--------- -------- ------ -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Evi........... 14 1,895 -- 1,895 22% 930
Provost....... 75 853 1,252 1,062 13% 857
Portage....... 13 -- 3,939 657 8% 407
Elm........... 5 309 1,484 556 7% 52
Pine Creek.... 7 122 1,370 350 4% 163
Other......... 198 1,224 16,471 3,969 46% 1,468
--- ----- ------ ----- --- -----
Total Canada.. 312 4,403 24,516 8,489 100% 3,877
=== ===== ====== ===== === =====
</TABLE>
Evi. The Company's Evi Field is located approximately 400 miles north of
Calgary. At December 31, 1998, the Evi Field contained 1,895 MBOE of proved
reserves, which represented 22% of the Company's total Canadian proved reserves
and 31% of the Present Value of the Company's total Canadian proved reserves.
The Company owns approximately 5,280 gross (2,080 net) leasehold acres in the
Evi Field, and has an average 42% working interest in this acreage. The Evi
Field produces oil from the Granite Wash formation at depths ranging from 4,900
to 5,000 feet. The Company's net production from the Evi Field averaged 930 Bbls
of oil per day in 1998. At December 31, 1998, the Company owned 14 gross (5.1
net) productive wells and 2 gross (0.4 net) water disposal wells in the field,
of which 11 productive wells and both water disposal wells were operated by
Wiser.
Provost. The Company's Provost properties are located approximately 210 miles
northeast of Calgary. At December 31, 1998, the Provost properties contained
1,062 MBOE of proved reserves, which represented 13% of the Company's total
Canadian proved reserves and 9% of the Present Value of the Company's total
Canadian proved reserves.
The Company owns approximately 7,090 gross (4,630 net) leasehold acres in the
Provost properties, and has an average 65% working interest in this acreage. The
Provost properties produce mainly from the Dina formation at depths of 3,070 to
3,170 feet. The Provost Dina `X' and Cummings W3W Pools are the Company's main
producing pools in these properties and water injection in these pools began in
1990 and 1998, respectively. The Company drilled 4 wells in the Provost
properties in 1998 and plans to drill 3 additional wells in Provost in 1999.
The Company's net production from the Provost properties averaged 857 Bbls of
oil per day in 1998. At December 31, 1998, the Company owned 75 gross (51.8 net)
productive wells and 4 gross (3 net) water injection wells on the properties, of
which 56 gross productive wells and all four water injection wells were operated
by the Company.
7
<PAGE>
The Wiser Oil Company
Portage. The Company's Portage properties are located approximately 350 miles
northeast of Calgary. At December 31, 1998, the Portage properties contained 657
MBOE of proved reserves, which represented 8% of the Company's total Canadian
proved reserves and 12% of the Present Value of the Company's total Canadian
proved reserves.
The Company owns approximately 19,200 gross (11,488 net) leasehold acres in the
Portage properties, and has an average 60% working interest in this acreage. The
Portage properties produce from the Grand Rapids and Nisku formations at depths
of 850 and 1,400 feet, respectively. At December 31, 1998, the Company owned 13
gross (11.3 net) productive wells, 11 of which were operated by Wiser. The
Portage properties commenced production in March 1998 and net production from
the Portage properties averaged 2,442 Mcf of natural gas per day in 1998.
Elm. The Company's Elm properties are located approximately 500 miles northwest
of Calgary in British Columbia. At December 31, 1998, the Elm properties
contained 556 MBOE of proved reserves, which represented 7% of the Company's
total Canadian proved reserves and 4% of the Present Value of the Company's
total Canadian proved reserves.
The Company owns approximately 9,140 gross (4,570 net) leasehold acres in the
Elm properties, and has an average 50% working interest in this acreage. The Elm
properties produce from the Gething formation at depths of 4,000 to 4,100 feet.
At December 31, 1998, the Company owned 5 gross (3.0 net) productive wells, all
of which were operated by Wiser. The Company's net production from the Elm
properties averaged 52 Bbls of oil per day in 1998.
Pine Creek. The Company's Pine Creek properties are located approximately 240
miles northwest of Calgary. At December 31, 1998, the Pine Creek properties
contained 350 MBOE of proved reserves, which represented 4% of the Company's
total Canadian proved reserves and 3% of the Present Value of the Company's
total Canadian proved reserves. The Company owns approximately 9,120 gross
(2,480 net) leasehold acres in the Pine Creek properties, and has a 27% working
interest in this acreage. The Pine Creek properties produce gas from the Bluesky
and Gething formations at depths of 8,000 to 8,200 feet. At December 31, 1998,
the Company owned 7 gross (1.7 net) productive wells in the Pine Creek
properties, all of which were operated by a third party. The Company's net
production from the Pine Creek properties averaged 521 Mcf of natural gas per
day and 165 Bbls of NGLs per day in 1998.
Other Canadian Properties. The Company owns interests in approximately 30 other
Canadian properties, primarily located in its principal areas of operation. For
the year ended December 31, 1998, these properties individually represented less
than 5%, and in the aggregate represented approximately 46%, of the Company's
total Canadian proved reserves.
Exploration Activities
United States
The objective of Wiser's domestic exploration program is to maintain and develop
an inventory of high quality drilling opportunities. Exploration prospects have
been generated in-house and through alliances with other oil companies by
utilizing advanced technology that includes 3-D seismic, and pre and post-stack
inversion techniques.
In 1998 the Company's exploration efforts were, and continue to be, focused on
specific exploration plays that are economically viable during this period of
depressed oil prices. Specifically, the Company is concentrating on relatively
low-risk, largely gas prone areas. Wiser has deferred or dropped higher-risk oil
or gas prospects, and long-term projects that will not yield an adequate return
on investment. Wiser will retain control of most of these deferred projects, and
will have the option of continuing work when prices improve.
In 1998, Wiser participated in 29 gross (18 net) domestic exploration wells,
compared with 18 gross (10 net) wells in 1997, spending $10.5 million in 1998
and $8.9 million in 1997 on domestic exploration. The Company has budgeted a
nominal amount for its 1999 domestic exploration program pending improvement in
oil prices during 1999.
8
<PAGE>
The Wiser Oil Company
The Company is currently focusing its domestic exploration activities in the
following geographical areas:
South Texas. In this area the Company has continued to utilize 3-D seismic
surveys to identify relatively shallow (3,000-8,500 ft), Frio and Yegua drilling
prospects, primarily in Jim Wells and Refugio Counties. During 1998 three
additional 3-D seismic surveys were acquired, adding 75 square miles of data to
an existing 80 square mile grid of 3-D seismic data. In 1998 Wiser participated
in 21 gross wells (15 net) in South Texas of which 11 were completed as gas
wells (7 net), 2 as oil wells (2 net), and 9 wells were plugged and abandoned (6
net).
While the interpretation of the most recently acquired seismic data is
continuing, approximately 30 low-risk, gas-prone drilling prospects have been
identified for future drilling. The Company's working interests in these
prospects range from approximately 40% to 80%.
West Texas. At the Coyonosa Prospect in Pecos County, the Company drilled one
dry hole and drilled and completed one oil well during 1998. The Company has a
38% working interest in the Coyonosa Prospect and may drill an additional well
at the Coyonosa Prospect in 1999.
Wiser has also identified for future drilling several shallow gas prospects
(6,500 ft.) in the Indian Mesa and Panther Bluff Prospects in Pecos County.
Wiser has a 25% working interest in both the Indian Mesa and Panther Bluff
Prospects.
Gulf Coast. During 1998, the Company participated in the drilling of two dry
holes (.8 net) at the Tecumseh Prospect in West Feliciana Parish, Louisiana.
Wiser does not plan to drill any additional wells at this prospect. The Company
completed the acquisition and processing of two 3-D seismic surveys in the Gulf
Coast area during 1998. At the Bison Ridge Prospect in Lafayette Parish,
Louisiana, a 62 square mile 3-D seismic survey was completed and is currently
being interpreted. Wiser has a 25% working interest in the Bison Ridge prospect.
The Company has also completed the processing and interpretation of a 3-D
seismic survey and identified a future drilling location in the Castleberry
Prospect, in Conecuh County, Alabama where the Company has a 50% working
interest. Wiser also has a 50% working interest at the Little Crow Prospect in
southwest Mississippi, where seismic interpretation is complete and a future
drilling location has been identified.
Canada
Wiser focuses its Canadian exploration activities in specific regions within the
Western Canadian Sedimentary Basin in close proximity to known producing
horizons where the potential for significant reserves exists. The Company's
technical personnel have considerable experience in this focus area. During
1998, the Company drilled 6 gross (3 net) exploratory wells, of which 3 gross (2
net) were successful. The Company spent $2.1 million on exploration in Canada in
1998 and has budgeted a nominal amount for its 1999 Canadian exploration program
pending improvement in oil prices during 1999.
The Company is currently focusing its Canadian exploration activities in the
following geographical areas:
West Central Alberta. In 1998, the Company successfully completed an exploratory
well at the Sunchild prospect and identified a second prospect to the south of
Sunchild at the Ferrier prospect. A follow-up well location has been identified
at Sunchild, and an exploratory well location has been identified at Ferrier for
future exploratory drilling. The Company's working interests in the Sunchild and
Ferrier prospects range from 27% to 50%.
At the Wild River prospect, the Company finsihed drilling a 14,000 foot
exploratory well in March of 1999 and this well is currently being tested. The
Company has a 50% working interest in the Wild River prospect.
9
<PAGE>
The Wiser Oil Company
Southeast Alberta. The Company initiated a waterflood in the Cummings W3W Pool
at Provost during 1998. Wiser's average working interest in the Provost
properties is 65%.
International
Peru. The Company participated in an unsuccessful exploratory well in Peru in
1998 at a net cost of $1.6 million to Wiser and currently the Company has no
additional plans to participate in exploration programs in Peru.
Brazil. In 1998, Wiser elected to withdraw from its Brazilian exploration and
development program.
Marketing of Production
The Company markets its production of oil, natural gas and NGLs to a variety of
purchasers, including large refiners and resellers, pipeline affiliate
marketers, independent marketers, utilities and industrial end-users. To help
manage the impact of potential price declines, Wiser has developed a portfolio
of long- and short-term contracts with prices that are either fixed or related
to market conditions in varying degrees. Most of the Company's production is
sold pursuant to contracts that provide for market-related pricing for the areas
in which the production is located.
During the year ended December 31, 1998, revenues from the sale of production to
Highland Energy Company, Koch Oil Co. Ltd. and Enron Oil Trading and
Transportation represented approximately 34%, 13% and 9%, respectively, of the
Company's total oil and gas revenues. The sales to Koch Oil Co. Ltd. accounted
for approximately 55% of the Company's revenues from sales of its Canadian
production in 1998. The Company believes it would be able to locate alternate
purchasers in the event of the loss of any one or more of these purchasers, and
that any such loss would not have a material adverse effect on the Company's
financial condition or results of operations.
Crude Oil. The Company sells its crude oil and condensate to various refiners
and resellers in the United States and Canada at posting-related and spot-
related prices that also depend on factors such as well location, production
volume and product quality. The Company typically sells its crude oil and
condensate production at or near the well site, although in some cases it is
gathered by the Company or others and delivered to a central point of sale. The
Company's crude oil and condensate production is transported by truck or by
pipeline and is typically committed to arrangements having a term of one year or
less. The Company has not engaged in crude oil trading activities. Revenue from
the sale of crude oil and condensate totaled $29.8 million for the year ended
December 31, 1998 and represented 50% of the Company's total oil and gas
revenues for 1998.
From time to time, the Company enters into crude oil and natural gas price
hedges to reduce its exposure to commodity price fluctuation. See "Quantitative
and Qualitative Disclosures about Market Risk - Commodity Price Risk" and Note
1 to the Company's Consolidated Financial Statements included elsewhere in this
Report.
10
<PAGE>
The Wiser Oil Company
Natural Gas. The Company sells its produced natural gas and gathered gas to
utilities, marketers, processor/resellers and industrial end-users primarily
under market-sensitive, long-term contracts or daily, monthly or multi-month
spot agreements. An insignificant amount of the Company's natural gas is
committed to long-term, fixed-price sales agreements. To accomplish the delivery
and sale of certain of its natural gas, the Company has entered into long-term
agreements with various natural gas gatherers that deliver its gas to points of
sale on major transmission pipelines.
In Kentucky and Tennessee, the Company owns and operates an extensive natural
gas gathering and transportation system consisting of approximately 340 miles of
pipeline, 8 gas compressor stations, two gas processing plants and two gas
storage reservoirs. The Company utilizes this system to procure, aggregate and
deliver natural gas produced from over 260 wells that are owned and operated by
the Company, comprising most of its Appalachian Basin natural gas production,
together with natural gas produced from wells owned and operated by others, in
meeting its delivery obligations under a sales contract with a local utility.
This sales contract, which expires on October 31, 1999, provides for market-
related pricing plus payment of a stated standby demand charge based on an
established peak-day delivery obligation. The maximum daily volume of natural
gas that the utility may demand is subject to annual adjustment (never to exceed
12,000 Mcf per day) and currently is fixed at 8,910 Mcf per day. The maximum
annual volume of natural gas that the utility may demand under this contract is
limited to 2,200,000 Mcf. The Company also utilizes its Kentucky/Tennessee
gathering and transportation system to transport natural gas on behalf of third
parties and natural gas purchased from third parties for resale.
The Company believes that it has sufficient production from its properties, and
from those of others tied to its gathering and transportation system, to meet
the Company's delivery obligations under its existing natural gas sales
contracts.
NGLs. From its natural gas processing plants in West Texas and Kentucky, the
Company sells NGLs to independent marketers for resale. A direct pipeline
connection to the Texas Gulf Coast market area facilitates the sale of NGLs from
the Company's Wellman Unit, and enables the Company to receive prices that are
representative of the daily market value of NGLs on the Texas Gulf Coast, less
transportation and fractionation costs. The market for NGLs in Kentucky is less
competitive, with higher transportation costs in that region due to the absence
of product pipelines. The Company's average price in 1998 for NGLs sold from
Company-operated plants or under processing agreements with others was $9.25 per
Bbl. Prices for NGLs attributable to natural gas sold to plants operated by
others are generally included in the prices reported by the Company for the sale
of its natural gas.
Price Considerations. Crude oil prices are established in a highly liquid,
international market, with average crude oil prices received by the Company
generally fluctuating with changes in the futures price established on the
NYMEX for West Texas Intermediate Crude Oil ("NYMEX-WTI"). The average crude oil
price per Bbl received by the Company in 1998 was $12.46. The average NYMEX-WTI
closing price per Bbl for 1998 was $14.43.
Natural gas prices in each of the geographical areas in which the Company
operates are closely tied to established price indices which are heavily
influenced by national and regional supply and demand factors and the futures
price per MMBtu for natural gas delivered at Henry Hub, Louisiana established on
the NYMEX ("NYMEX-Henry Hub"). At times, these indices correlate closely with
the NYMEX-Henry Hub price, but often there are significant variances between the
NYMEX-Henry Hub price and the indices used to price the Company's natural gas.
Average natural gas prices received by Wiser in each of its operating areas
generally fluctuate with changes in these established indices. The average
natural gas price per Mcf received by the Company in 1998 was $1.84. The average
NYMEX-Henry Hub price per MMBtu for 1998 was $2.14, computed by averaging the
closing price on the last three trading days for the prompt month NYMEX natural
gas futures contract applicable to each month in 1998. The average natural gas
price received by the Company in 1998 was lower than such 1998 NYMEX-Henry Hub
price as a result of pricing differentials determined by the location of the
Company's natural gas production relative to the Henry Hub trading point and
lower natural gas prices generally applicable to Canadian natural gas production
relative to U.S. production.
11
<PAGE>
The Wiser Oil Company
Oil and Gas Reserves
The following table sets forth the proved developed and undeveloped reserves of
the Company at December 31, 1998:
<TABLE>
<CAPTION>
Oil and NGLs (MBbls) Gas (Mmcf) Total Reserves (MBOE)
-------------------------------- ------------------------------- ------------------------------
Developed Undeveloped Total Developed Undeveloped Total Developed Undeveloped Total
--------- ----------- ------ --------- ----------- ------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permian Basin
Maljamar................. 10,218 652 10,870 4,101 74 4,175 10,902 664 11,566
Wellman.................. 8,463 -- 8,463 965 -- 965 8,624 -- 8,624
Dimmitt/Slash Ranch...... 1,439 221 1,660 9,501 430 9,931 3,022 293 3,315
------ ----- ------ ------- ----- ------- ------ ----- ------
Total.................. 20,120 873 20,993 14,567 504 15,071 22,548 957 23,505
Appalachian Basin.......... 1,034 -- 1,034 30,194 6,590 36,784 6,067 1,098 7,165
San Juan Basin............. 34 11 45 19,006 1,761 20,767 3,201 305 3,506
Other...................... 1,513 -- 1,513 22,843 -- 22,843 5,320 -- 5,320
------ ----- ------ ------- ----- ------- ------ ----- ------
Total United States........ 22,701 884 23,585 86,610 8,855 95,465 37,136 2,360 39,496
Canada..................... 4,253 150 4,403 23,736 780 24,516 8,209 280 8,489
------ ----- ------ ------- ----- ------- ------ ----- ------
Total Company.............. 26,954 1,034 27,988 110,346 9,635 119,981 45,345 2,640 47,985
====== ===== ====== ======= ===== ======= ====== ===== ======
</TABLE>
The following table summarizes the Company's proved reserves, the estimated
future net revenues from such proved reserves and the Present Value and
Standardized Measure of Discounted Future Net Cash Flows attributable thereto at
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
(000's except weighted average sales prices)
<S> <C> <C> <C>
Proved reserves:
Oil and NGLs (Bbl)................................. 27,988 29,721 31,612
Gas (Mcf).......................................... 119,981 120,094 113,377
BOE............................................... 47,985 49,737 50,508
Estimated future net revenues before income taxes.. $218,969 $359,293 $705,723
Present Value...................................... $123,831 $210,087 $414,314
Standardized Measure(1)............................ $113,232 $174,489 $317,180
Proved developed reserves:
Oil and NGLs (Bbl)................................. 26,954 28,202 28,117
Gas (Mcf).......................................... 110,346 109,459 103,129
BOE............................................... 45,345 46,444 45,305
Estimated future net revenues before income taxes.. $207,884 $335,338 $631,406
Present Value...................................... $122,502 $200,647 $381,169
Weighted average sales prices:
Oil (per Bbl)...................................... $ 10.39 $ 15.92 $ 24.63
Gas (per Mcf)...................................... 1.98 2.35 3.45
NGLs (per Bbl)..................................... 8.44 11.40 19.79
</TABLE>
(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the present value (using an annual discount rate of 10%)
of estimated future net revenues from the production of proved reserves,
after giving effect to income taxes. See the Supplemental Financial
Information attached to the Consolidated Financial Statements of the Company
included elsewhere in this Report for additional information regarding the
disclosure of the Standardized Measure information in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 69,
"Disclosures about Oil and Gas Producing Activities."
All information set forth in this Report relating to the Company's proved
reserves, estimated future net revenues and Present Values is taken from reports
prepared by DeGolyer and MacNaughton (with respect to the Company's
12
<PAGE>
The Wiser Oil Company
United States properties) and Gilbert Lausten Jung Associates Ltd. (with respect
to the Company's Canadian properties), each of which is a firm of independent
petroleum engineers. The estimates of these engineers were based upon review of
production histories and other geological, economic, ownership and engineering
data provided by the Company. No reports on the Company's reserves have been
filed with any federal agency. In accordance with guidelines of the Securities
and Exchange Commission ("SEC"), the Company's estimates of proved reserves and
the future net revenues from which Present Values are derived are made using
year end oil and gas sales prices held constant throughout the life of the
properties (except to the extent a contract specifically provides otherwise). A
decline in prices relative to year end 1998 could cause a significant decline in
the Present Value attributable to the Company's proved reserves at December 31,
1998. Operating costs, development costs and certain production-related taxes
were deducted in arriving at estimated future net revenues, but such costs do
not include debt service, general and administrative expenses and income taxes.
There are numerous uncertainties inherent in estimating oil and gas reserves and
their values, including many factors beyond the Company's control. The reserve
data set forth in this Report represents estimates only. Reservoir engineering
is a subjective process of estimating the sizes of underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data, engineering and
geological interpretation, and judgment. As a result, estimates of different
engineers, including those used by the Company, may vary. In addition, estimates
of reserves are subject to revision based upon actual production, results of
future development, exploitation and exploration activities, prevailing oil and
gas prices, operating costs and other factors, which revisions may be material.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered and are highly dependent upon the accuracy
of the assumptions upon which they are based. There can be no assurance that
these estimates are accurate predictions of the Company's oil and gas reserves
or their values. Estimates with respect to proved reserves that may be developed
and produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.
13
<PAGE>
The Wiser Oil Company
Net Production, Sales Prices and Costs
The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas property interests
owned by the Company for the three-year period ended December 31, 1998.
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
Production volumes:
Oil (MBbl)
United States............................ 1,577 1,769 1,732
Canada................................... 816 672 693
------- ------- -------
Total Company.......................... 2,393 2,441 2,425
Gas (MMcf)
United States (1)........................ 11,143 10,095 9,479
Canada................................... 3,221 2,734 2,809
------- ------- -------
Total Company (1)...................... 14,364 12,829 12,288
NGLs (MBbl)
United States............................ 260 267 301
Canada................................... 62 52 50
------- ------- -------
Total Company.......................... 322 319 351
Weighted average sales prices (2):
Oil (per Bbl)
United States............................ $ 12.68 $ 18.30 $ 18.91
Canada................................... 12.04 17.28 18.55
Total Company.......................... 12.46 18.02 18.81
Gas (per Mcf)
United States (1)........................ $ 2.05 $ 2.46 $ 1.95
Canada................................... 1.12 1.26 1.16
Total Company.......................... 1.84 2.21 1.77
NGLs (per Bbl)
United States............................ $ 9.41 $ 13.34 $ 12.88
Canada................................... 8.56 16.64 16.21
Total Company.......................... 9.25 13.87 13.36
Selected expenses per BOE (3):
Lease operating
United States............................ $ 5.01 $ 5.03 $ 4.53
Canada................................... 3.05 3.50 3.04
Total Company.......................... 4.45 4.65 4.14
Production taxes (4)
United States............................ $ 0.84 $ 1.02 $ 0.93
Depreciation, depletion and amortization
United States............................ $ 4.48 $ 3.88 $ 3.36
Canada................................... 6.54 7.58 6.49
Total Company.......................... 5.15 4.79 4.16
General and administrative
United States............................ $ 2.11 $ 2.17 $ 2.11
Canada................................... 1.41 1.54 1.61
Total Company.......................... 1.96 2.02 1.98
- --------------------
(1) Calculated by including volumes of natural gas purchased for resale as
follows: 1998 - 608 MMcf, 1997-629 MMcf and 1996-605 MMcf.
(2) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Other Matters."
(3) Calculated without including volumes of natural gas purchased for resale.
14
<PAGE>
The Wiser Oil Company
(4) Canada does not assess production taxes on revenue derived from oil and gas
production from Crown lands. However, in Canada, royalties are payable to
the provincial governments on production from Crown lands, subject to
certain programs that provide for royalty rate reductions, royalty holidays
and tax credits for the purpose of encouraging oil and gas exploration and
development. See "-Governmental Regulation-Canada."
Productive Wells and Acreage
Productive Wells
The following table sets forth the Company's domestic and Canadian productive
wells at December 31, 1998:
Productive Wells
----------------------------------------------
Oil Gas Total
------------- ------------- -------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
United States.. 739 644 2,881 (1) 523 3,620 1,167
Canada......... 234 71 78 32 312 103
--- --- ----- --- ----- -----
Total........ 973 715 2,959 555 3,932 1,270
=== === ===== === ===== =====
(1) 2,300 of the Company's gross natural gas wells are located in the San Juan
Basin. The Company has non-operated working interests in these wells ranging
from 0.21% to 4.2%.
Acreage
The following table sets forth the Company's undeveloped and developed gross and
net leasehold acreage at December 31, 1998. Undeveloped acreage includes leased
acres on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and gas, regardless of
whether or not such acreage contains proved reserves.
Undeveloped Developed Total
---------------- ---------------- ----------------
Gross Net Gross Net Gross Net
------- ------- ------- ------- ------- -------
Permian Basin
Maljamar............... -- -- 13,013 13,001 13,013 13,001
Wellman................ -- -- 2,280 1,952 2,280 1,952
Dimmitt/Slash Ranch.... 3,389 3,178 6,035 5,229 9,423 8,408
------- ------- ------- ------- ------- -------
Total................ 3,389 3,178 21,328 20,183 24,716 23,361
Appalachian Basin...... 10,379 7,222 114,376 96,377 124,755 103,599
San Juan Basin......... -- -- 11,160 5,831 11,160 5,831
Other.................. 95,096 42,834 46,118 15,349 141,213 58,183
------- ------- ------- ------- ------- -------
Total United States.. 108,864 53,235 192,981 137,739 301,844 190,973
Canada................. 141,436 75,237 56,795 25,359 198,231 100,596
------- ------- ------- ------- ------- -------
Total.................. 250,299 128,471 249,776 163,098 500,075 291,569
======= ======= ======= ======= ======= =======
(1) Excluded is acreage in which the Company's interest is limited to a mineral
or royalty interest. At December 31, 1998, the Company held mineral or
royalty interests in 212,228 gross (18,480 net) developed acres and
1,520,897 gross (216,836 net) undeveloped acres.
All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. The following table sets forth the minimum
remaining lease terms for the gross and net undeveloped acreage:
15
<PAGE>
The Wiser Oil Company
Acres Expiring
----------------
Gross Net
------- -------
Twelve Months Ending:
December 31, 1999.......................... 42,631 22,278
December 31, 2000.......................... 24,772 14,320
Thereafter................................. 182,896 91,873
------- -------
Total.................................... 250,299 128,471
======= =======
As is customary in the industry, the Company generally acquires oil and gas
acreage without any warranty of title except as to claims made by, through or
under the transferor. Although the Company has title to developed acreage
examined prior to acquisition in those cases in which the economic significance
of the acreage justifies the cost, there can be no assurance that losses will
not result from title defects or from defects in the assignment of leasehold
rights. In many instances, title opinions may not be obtained if in the
Company's judgment it would be uneconomical or impractical to do so.
Drilling Activity
The following table sets forth for the three-year period ended December 31, 1998
the number of exploratory and development wells drilled by or on behalf of the
Company.
1998 1997 1996
---------- ---------- ----------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Exploratory Wells:
- ------------------
United States
Producing....... 16 11 10 6 1 1
Dry............. 14 7 8 4 2 1
Canada
Producing....... 3 2 3 2 1 1
Dry............. 3 1 1 1 6 4
Development Wells:
- ------------------
United States
Producing....... 58 44 80 71 93 85
Dry............. 2 1 2 1 2 1
Canada
Producing....... 19 12 39 18 21 15
Dry............. 7 4 6 4 5 3
Total Wells:
- ------------
Producing....... 96 69 132 97 116 102
Dry............. 26 13 17 10 15 9
--- --- --- --- --- ---
Total......... 122 82 149 107 131 111
=== === === === === ===
Operations
The Company generally seeks to be named as operator for wells in which it has
acquired a significant interest, although, as is common in the industry, this
typically occurs only when the Company owns the major portion of the working
interest in a particular well or field. At December 31, 1998, the Company
operated 100% of its properties in the Permian Basin, comprising approximately
49% of the Company's total proved reserves, including Maljamar (230 gross
wells), Wellman (16 gross wells) and Dimmitt/Slash Ranch (81 gross wells). At
December 31, 1998, the Company owned 368 gross wells on its Kentucky and
Tennessee properties, of which approximately 98% were operated by the Company.
At that same date, the Company also operated 106 (out of a total of 312) gross
wells on its Canadian properties.
16
<PAGE>
The Wiser Oil Company
As operator, the Company is able to exercise substantial influence over the
development and enhancement of a well and to supervise operation and maintenance
activities on a daily basis. The Company does not conduct the actual drilling
of wells on properties for which it acts as operator, but engages independent
contractors who are supervised by the Company. The Company employs petroleum
engineers, geologists and other operations and production specialists who strive
to improve production rates, increase reserves and/or lower the cost of
operating its oil and gas properties.
Oil and gas properties are customarily operated under the terms of a joint
operating agreement, which provides for reimbursement of the operator's direct
expenses and monthly per-well supervision fees. Per-well supervision fees vary
widely depending on the geographic location and producing formation of the well,
whether the well produces oil or gas and other factors. Such fees received by
the Company in 1998 ranged from $95 to $870 per well per month.
Competition
The oil and gas industry is highly competitive. The Company encounters
competition from other oil and gas companies in all areas of its operations,
including the acquisition of producing properties. The Company's competitors
include major integrated oil and gas companies and numerous independent oil and
gas companies, individuals and drilling and income programs. Many of its
competitors are large, well established companies with substantially larger
operating staffs and greater capital resources than the Company. Such companies
may be able to pay more for productive oil and gas properties and exploratory
prospects and to define, evaluate, bid for and purchase a greater number of
properties and prospects than the Company's financial or human resources permit.
The Company's ability to acquire additional properties and to discover reserves
in the future will depend upon its ability to evaluate and select suitable
properties and to consummate transactions in a highly competitive environment.
Drilling and Operating Risks
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. There can be
no assurance that new wells drilled by the Company will be productive or that
the Company will recover all or any portion of its investment. Drilling for oil
and gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, many of which are beyond its control, including economic conditions,
mechanical problems, pressure or irregularities in formations, title problems,
weather conditions, compliance with governmental requirements and shortages in
or delays in the delivery of equipment and services. Such equipment shortages
and delays sometimes involve drilling rigs, especially in Canada, where weather
conditions result in a short drilling season, causing a high demand for rigs by
a large number of companies during a relatively short period of time. The
Company's future drilling activities may not be successful. Lack of drilling
success could have a material adverse effect on the Company's financial
condition and results of operations.
In addition, the Company's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although the Company believes
that its use of 3-D seismic will increase the probability of success of its
exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis of
2-D seismic and other traditional methods, unsuccessful wells are likely to
occur.
The Company's operations are subject to all the hazards and risks normally
incident to the development, exploitation, production and transportation of, and
the exploration for, oil and gas, including unusual or unexpected geologic
formations, pressures, downhole fires, mechanical failures, blowouts, cratering,
explosions, uncontrollable flows of oil, gas or well fluids and pollution and
other environmental risks. These hazards could result in substantial losses to
the Company due to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. The Company maintains comprehensive
17
<PAGE>
The Wiser Oil Company
insurance coverage, including a $1.0 million general liability insurance policy
and a $30.0 million excess liability policy. The Company believes that its
insurance is adequate and customary for companies of a similar size engaged in
comparable operations, but losses could occur for uninsurable or uninsured risks
or in amounts in excess of existing insurance coverage.
Title to Properties
The Company's land department and contract land professionals have reviewed
title records or other title review materials relating to substantially all of
its producing properties. The title investigation performed by the Company
prior to acquiring undeveloped properties is thorough, but less rigorous than
that conducted prior to drilling, consistent with industry standards. The
Company believes it has satisfactory title to all its producing properties in
accordance with standards generally accepted in the oil and gas industry. The
Company's properties are subject to customary royalty interests, liens incident
to operating agreements, liens for current taxes and other inchoate burdens
which the Company believes do not materially interfere with the use of or affect
the value of such properties. At December 31, 1998, the Company's leaseholds for
approximately 58% of its net acreage were being kept in force by virtue of
production on that acreage in paying quantities. The remaining net acreage was
held by lease rentals and similar provisions and requires production in paying
quantities prior to expiration of various time periods to avoid lease
termination.
The Company expects to make acquisitions of oil and gas properties from time to
time. In making an acquisition, the Company generally focuses most of its title
and valuation efforts on the more significant properties. It is generally not
feasible for the Company to review in-depth every property it purchases and all
records with respect to such properties. However, even an in-depth review of
properties and records may not necessarily reveal existing or potential
problems, nor will it permit the Company to become familiar enough with the
properties to assess fully their deficiencies and capabilities. Evaluation of
future recoverable reserves of oil and gas, which is an integral part of the
property selection process, is a process that depends upon evaluation of
existing geological, engineering and production data, some or all of which may
prove to be unreliable or not indicative of future performance. To the extent
the seller does not operate the properties, obtaining access to properties and
records may be more difficult. Even when problems are identified, the seller may
not be willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.
Governmental Regulation
The Company's operations are affected from time to time in varying degrees by
political developments and federal, state, provincial and local laws and
regulations. In particular, oil and gas production and related operations are or
have been subject to price controls, taxes and other laws and regulations
relating to the oil and gas industry. Failure to comply with such laws and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and affects
its profitability. Although the Company believes it is in substantial compliance
with all applicable laws and regulations, because such laws and regulations are
frequently amended or reinterpreted, the Company is unable to predict the future
cost or impact of complying with such laws and regulations.
United States. Sales of natural gas by the Company are not regulated and are
generally made at market prices. However, the Federal Energy Regulatory
Commission ("FERC") regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
production. Sales of the Company's natural gas currently are made at
uncontrolled market prices, subject to applicable contract provisions and price
fluctuations which normally attend sales of commodity products. The FERC's
jurisdiction over natural gas transportation was unaffected by the Decontrol
Act. While sales by producers of natural gas, and all sales of crude oil,
condensate and NGLs, can currently be made at uncontrolled market prices,
Congress could re-enact prices controls in the future.
Since the mid-1980's, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. Order 636 mandated a
18
<PAGE>
The Wiser Oil Company
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of the FERC's purposes in issuing the
orders was to increase competition within all phases of the natural gas
industry. Order 636 and subsequent FERC orders issued in individual pipeline
restructuring proceedings have been the subject of appeals, and the courts have
largely upheld Order 636. Because further review of certain of these orders is
still possible, and other appeals remain pending, it is difficult to exactly
predict the ultimate impact of the orders on the Company and its natural gas
marketing efforts. Generally, Order 636 has eliminated or substantially reduced
the interstate pipelines' traditional role as wholesalers of natural gas, and
has substantially increased competition and volatility in natural gas markets.
While significant regulatory uncertainty remains, Order 636 may ultimately
enhance the Company's ability to market and transport its natural gas, although
it may also subject the Company to greater competition, more restrictive
pipeline imbalance tolerances and greater associated penalties for violation of
such tolerances.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in which
interstate pipelines release capacity under Order 636 and, more recently, the
price which shippers can charge for their released capacity. In addition, in
1996, the FERC issued a policy statement on how interstate natural gas pipelines
can recover the costs of new pipeline facilities. In January 1998, the FERC
issued a policy statement and a request for comments concerning alternatives to
its traditional cost-of-service ratemaking methodology. A number of pipelines
have obtained FERC authorization to charge negotiated rates as one such
alternative. While any additional FERC action on these matters would affect the
Company only indirectly, these policy statements and proposed rule changes are
intended to further enhance competition in natural gas markets. The Company
cannot predict what action the FERC will take on these matters, nor can it
predict whether the FERC's actions will achieve its stated goal of increasing
competition in natural gas markets. However, the Company does not believe that
it will be treated materially differently than other natural gas producers and
marketers with which it competes.
Commencing in May 1994, the FERC issued a series of orders in individual cases
that delineate its new gathering policy. Among other matters, the FERC slightly
narrowed its statutory tests for establishing gathering status and reaffirmed
that, except in situations in which the gatherer acts in concert with an
interstate pipeline affiliate to frustrate the FERC's transportation policies,
it does not generally have jurisdiction over natural gas gathering facilities
and services, and that such facilities and services located in state
jurisdictions are properly regulated by state authorities. In addition, the FERC
has approved numerous transfers by interstate pipelines of gathering facilities
to unregulated independent or affiliated gathering companies, subject to the
transferee providing service for two years from the date of transfer to the
pipeline's existing customers pursuant to a default contract or pursuant to
mutually agreeable terms. In August 1998, the United States Court of Appeals for
the District of Columbia largely upheld the FERC's new gathering policy, but
remanded the FERC's default contract condition. The FERC has not yet issued an
order on remand. This new gathering policy may tend to increase competition
among gatherers, like the Company. This policy may also result in increased
state regulation of the Company's gathering facilities. However, the Company
does not believe that it will be affected materially differently by this policy
than other producers, gatherers and marketers with which it competes.
The Company's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement and management of facilities. Pipeline safety issues have
recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. The Company believes
its operations, to the extent they may be subject to current gas pipeline safety
requirements, comply in all material respects with such requirements. The
Company cannot predict what effect, if any, the adoption of this or other
additional pipeline safety legislation might have on its operations, but the
industry could be required to incur additional capital expenditures and
increased costs depending upon future legislative and regulatory changes.
The price the Company receives from the sale of oil and NGLs is affected by the
cost of transporting such products to market. Effective January 1, 1996, the
FERC implemented regulations establishing an indexing system for transportation
rates for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. These regulations could increase
the cost of transporting oil and NGLs by interstate
19
<PAGE>
The Wiser Oil Company
pipelines, although the most recent adjustment generally decreased rates. These
regulations have generally been approved on judicial review. The Company is not
able to predict with certainty the effect, if any, of these regulations on its
operations. However, the regulations may increase transportation costs or reduce
wellhead prices for oil and NGLs.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration for and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells and the regulation
of spacing, plugging and abandonment of such wells. The statutes and regulations
of certain states limit the rate at which oil and gas can be produced from the
Company's properties. However, the Company does not believe it will be affected
materially differently by these statutes and regulations than any other
similarly situated oil and gas company.
Canada. In Canada producers of oil negotiate sales contracts directly with oil
purchasers, with the result that sales of oil are generally made at market
prices. The price of oil received by the Company depends in part on oil quality,
prices of competing fuels, distance to market, the value of refined products and
the supply/demand balance. Oil exports may be made pursuant to export contracts
with terms not exceeding one year in the case of light crude, and not exceeding
two years in the case of heavy crude, provided that an order approving any such
export has been obtained from the National Energy Board ("NEB"). Any oil export
to be made pursuant to a contract of a longer duration requires an exporter to
obtain an export license from the NEB and the issue of such license requires the
approval of the Governor General in Council.
In Canada the price of natural gas sold is determined by negotiation between
buyers and sellers. Natural gas exported from Canada is subject to regulation by
the NEB and the government of Canada. Exporters are free to negotiate prices and
other terms with purchasers, provided that export contracts in excess of two
years must continue to meet certain criteria prescribed by the NEB and the
government of Canada. As is the case with oil, natural gas exports for a term of
less than two years must be made pursuant to an NEB order, or, in the case of
exports for a longer duration, pursuant to an NEB license and Governor General
in Council approval. The government of Alberta also regulates the volume of
natural gas that may be removed from Alberta for consumption elsewhere based on
such factors as reserve availability, transportation arrangements and marketing
considerations.
In addition to Canadian federal regulation, Alberta and certain other provinces
have legislation and regulations that govern royalties payable on production
from Crown lands. The royalty regime that is in place at a particular time or
location is a significant factor in the profitability of oil and gas production.
Royalties payable on production from lands other than Crown lands are determined
by negotiations between the mineral owner and the lessee. Crown royalties are
determined by governmental regulation and are generally calculated as a
percentage of the value of the gross production. The rate of royalties payable
generally depends in part on prescribed reference prices, well productivity,
geographical location, field discovery date and the type and quality of the
petroleum product produced.
From time to time the government of Alberta has established incentive programs
that have included royalty rate reductions, royalty holidays and tax credits for
the purpose of encouraging oil and gas exploration or enhanced production
projects. For example, a producer of oil or gas is entitled to a credit against
the royalties payable to the Crown by virtue of the Alberta Royalty Tax Credit
("ARTC") program. The ARTC program provides a rebate on Crown royalties paid in
respect of eligible producing properties. The ARTC program is based on a price-
sensitive formula, and the ARTC rate currently varies between 25% and 75% of the
royalty otherwise payable on production. The ARTC rate is currently applied to a
maximum of $2.0 million of Alberta Crown royalties otherwise payable by each
producer or associated group of producers in each tax year. The rate is
established quarterly based on average "par price," as determined by the Alberta
Department of Energy for the previous quarterly period. Producing properties
acquired from corporations claiming maximum entitlement to ARTC will generally
not be eligible for ARTC.
20
<PAGE>
The Wiser Oil Company
Environmental Matters
The Company's operations and properties are subject to extensive and changing
federal, state, provincial and local laws and regulations relating to
environmental protection, including the generation, storage, handling and
transportation of oil and gas and the discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may require the
acquisition of a permit or other authorization before construction or drilling
commences and for certain other activities; limit or prohibit construction,
drilling and other activities on certain lands lying within wilderness and other
protected areas; and impose substantial liabilities for pollution resulting from
the Company's operations. The permits required for various of the Company's
operations are subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce compliance with
their regulations, and violations are subject to fines, penalties or
injunctions. In the opinion of management, the Company is in substantial
compliance with current applicable environmental laws and regulations, and the
Company has no material commitments for capital expenditures to comply with
existing environmental requirements. Nevertheless, changes in existing
environmental laws and regulations or in interpretations thereof could have a
significant impact on the Company. The impact of such changes, however, would
not likely be any more burdensome to the Company than to any other similarly
situated oil and gas company.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. Furthermore,
neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
The Company generates typical oil and gas field wastes, including hazardous
wastes, that are subject to the federal Resources Conservation and Recovery Act
and comparable state statutes. The United States Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for
certain hazardous and nonhazardous wastes. Furthermore, certain wastes generated
by the Company's oil and gas operations that are currently exempt from
regulation as "hazardous wastes" may in the future be designated as "hazardous
wastes," and therefore be subject to more rigorous and costly operating and
disposal requirements.
The Oil Pollution Act ("OPA") imposes a variety of requirements on responsible
parties for onshore and offshore oil and gas facilities and vessels related to
the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. The "responsible party" includes the
owner or operator of an onshore facility or vessel or the lessee or permittee
of, or the holder of a right of use and easement for, the area where an onshore
facility is located. OPA assigns liability to each responsible party for oil
spill removal costs and a variety of public and private damages from oil spills.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes financial responsibility requirements. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions.
The Company's Canadian operations are also subject to environmental regulation
pursuant to local, provincial and federal legislation. Canadian environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced in association with certain oil and gas industry
operations and can affect the location of wells and facilities and the extent to
which exploration and development is permitted. In addition, legislation
requires that well and facilities sites be abandoned and reclaimed to the
satisfaction of provincial authorities. In most cases, an environmental
assessment and review is required prior to initiating exploration or development
projects or undertaking significant changes to existing projects. A breach of
such legislation may result in the imposition of fines and issuance of clean-up
orders. Environmental legislation in Alberta has recently undergone a major
revision and has been consolidated in the Environmental Protection and
Enhancement Act.
21
<PAGE>
The Wiser Oil Company
Under the new Act, environmental standards and compliance for releases, clean-up
and reporting are stricter. Also, the range of enforcement actions available and
the severity of penalties have been significantly increased. These changes will
have an incremental effect on the cost of conducting operations in Alberta.
The Company owns, leases or operates numerous properties that for many years
have produced or processed oil and gas. The Company also owns and operates
natural gas gathering, transportation and processing systems. It is not uncommon
for such properties to be contaminated with hydrocarbons or polychlorinated
biphenyls. Although the Company or previous owners of these interests may have
used operating and disposal practices that were standard in the industry at the
time, hydrocarbons, polychlorinated biphenyls or other wastes may have been
disposed of or released on or under the properties or on or under other
locations where such wastes have been taken for disposal. These properties may
be subject to federal or state requirements that could require the Company to
remove any such wastes or to remediate the resulting contamination. In addition,
some of the Company's properties are operated by third parties over whom the
Company has no control. Notwithstanding the Company's lack of control over
properties operated by others, the failure of the previous owners or operators
to comply with applicable environmental regulations may, in certain
circumstances, adversely impact the Company.
Abandonment Costs
The Company is responsible for payment of plugging and abandonment costs on its
oil and gas properties pro rata to its working interest. Based on its
experience, the Company anticipates that the ultimate aggregate salvage value of
lease and well equipment located on its properties will exceed the costs of
abandoning such properties. There can be no assurance, however, that the Company
will be successful in avoiding additional expenses in connection with the
abandonment of any of its properties. In addition, abandonment costs and their
timing may change due to many factors, including actual production results,
inflation rates and changes in environmental laws and regulations.
Employees
At February 26, 1999, the Company employed 100 full-time employees, of whom five
were executive officers, 19 were technical personnel, 51 were field personnel
and 25 were administrative personnel. Of the total employees, 86 were located in
the United States and 14 were located in Canada. At February 26, 1999, none of
the Company's employees were represented by a labor union. The Company considers
its relations with its employees to be good.
Facilities
The Company's principal executive and administrative offices are located at 8115
Preston Road, Suite 400, Dallas, Texas. The offices contain approximately 21,000
square feet of space and are leased through December 31, 2001. Rental payments
are approximately $37,000 per month. The Company also maintains a regional
office in Corbin, Kentucky consisting of a one-story building containing
approximately 7,400 square feet of office space. The Company owns this building.
The office of the Company's Canadian subsidiary, The Wiser Oil Company of
Canada, is located at 645 7th Avenue, S.W., Suite 2550, Calgary, Alberta. This
office contains approximately 14,000 square feet of space and is leased through
June 30, 1999. Rental payments are approximately $12,500 per month.
Glossary of Oil and Gas Terms
The following are abbreviations and definitions of terms commonly used in the
oil and gas industry that are used in this Report.
"Bbl" means a barrel of 42 U.S. gallons.
"Bcf" means billion cubic feet.
"BOE" means barrels of oil equivalent, converting volumes of natural gas to oil
equivalent volumes using a ratio of six Mcf of natural gas to one Bbl of oil.
22
<PAGE>
The Wiser Oil Company
"completion" means the installation of permanent equipment for the production of
oil or gas.
"development well" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
"dry hole" or "dry well" means a well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
"exploratory well" means a well drilled to find and produce oil or gas reserves
not classified as proved, to find a new production reservoir in a field
previously found to be productive of oil or gas in another reservoir or to
extend a known reservoir.
"farm-in" means an agreement pursuant to which the owner of a working interest
in an oil and gas lease assigns the working interest or a portion thereof to
another party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to earn its interest in
the acreage. The assignor usually retains a royalty or reversionary interest in
the lease. The interest received by an assignee is a "farm-in."
"gas" means natural gas.
"gross" when used with respect to acres or wells, refers to the total acres or
wells in which the Company has a working interest.
"infill drilling" means drilling of an additional well or wells provided for by
an existing spacing order to more adequately drain a reservoir.
"MBbl" means thousand Bbls.
"MBOE" means thousand BOE.
"Mcf" means thousand cubic feet.
"MMBOE" means million BOE.
"MMBtu" means one million British Thermal Units. British Thermal Unit means the
quantity of heat required to raise the temperature of one pound of water by one
degree Fahrenheit.
"MMcf" means million cubic feet.
"net" when used with respect to acres or wells, refers to gross acres or wells
multiplied, in each case, by the percentage working interest owned by the
Company.
"net production" means production that is owned by the Company less royalties
and production due others.
"NGL" means natural gas liquid.
"operator" means the individual or company responsible for the exploration,
development and production of an oil or gas well or lease.
"Present Value" when used with respect to oil and gas reserves, means the
estimated future gross revenues to be generated from the production of proved
reserves calculated in accordance with the guidelines of the SEC, net of
estimated production and future development costs, using prices and costs as of
the date of estimation without future escalation (except to the extent a
contract specifically provides otherwise), without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense and depreciation, depletion and amortization, and
discounted using an annual discount rate of 10%.
23
<PAGE>
The Wiser Oil Company
"productive wells" or "producing wells" consist of producing wells and wells
capable of production, including wells waiting on pipeline connections.
"proved developed reserves" means reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery will be included as "proved developed reserves"
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
"proved reserves" means the estimated quantities of crude oil, natural gas and
NGLs which upon analysis of geological and engineering data appear with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is supported
by either actual production or conclusive formation tests. The area of a
reservoir considered proved includes (A) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project,
or the operation of an installed program in the reservoir, provides
support for the engineering analysis on which the project or program was
based.
(iii) Estimates of proved reserves do not include the following: (A) oil that
may become available from known reservoirs but is classified separately
as "indicated additional reserves"; (B) crude oil, natural gas and NGLs,
the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics or economic
factors; (C) crude oil, natural gas, and NGLs, that may occur in
undrilled prospects; and (D) crude oil, natural gas and NGLs that may be
recovered from oil shales, coal, gilsonite and other such resources.
"proved undeveloped reserves" means reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for completion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
"recompletion" means the completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
"reserves" means proved reserves.
"reservoir" means a porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
24
<PAGE>
The Wiser Oil Company
"royalty" means an interest in an oil and gas lease that gives the owner of the
interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"2-D seismic" means an advanced technology method by which a cross-section of
the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.
"3-D seismic" means an advanced technology method by which a three dimensional
image of the earth's subsurface is created through the interpretation of
reflection seismic data collected over surface grid. 3-D seismic surveys allow
for a more detailed understanding of the subsurface than do conventional surveys
and contribute significantly to field appraisal, development and production.
"working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties.
"workover" means operations on a producing well to restore or increase
production.
Item 2. Properties
The information required by this Item is contained in Item 1. Business, and is
incorporated herein by reference.
Item 3. Legal Proceedings
The Company and its subsidiaries and affiliates are named defendants in lawsuits
and are involved in governmental proceedings from time to time, all arising in
the ordinary course of business. Although the outcome of these lawsuits and
proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders during the fourth quarter of the
year ended December 31, 1998.
25
<PAGE>
The Wiser Oil Company
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock is traded on the New York Stock Exchange under the symbol WZR.
The quarterly high and low sales prices and dividends per share of Common Stock
during the three years ended December 31, 1998, were as follows:
High Low Dividends
------ ------ ---------
1998
First Quarter........................... $14.25 $11.75 $.03
Second Quarter.......................... 13.25 8.75 .03
Third Quarter........................... 12.50 5.00 .03
Fourth Quarter.......................... 5.75 1.63 .03
1997
First Quarter........................... $22.38 $17.63 $.03
Second Quarter.......................... 18.88 15.13 .03
Third Quarter........................... 18.75 14.06 .03
Fourth Quarter.......................... 18.75 13.06 .03
1996
First Quarter........................... $13.38 $11.00 $.03
Second Quarter.......................... 14.00 12.25 .03
Third Quarter........................... 15.50 12.88 .03
Fourth Quarter.......................... 21.13 14.38 .03
At February 26, 1999, there were 8,951,965 shares of Common Stock outstanding
held by approximately 850 shareholders of record and approximately 3,450
beneficial owners.
Each share of Common Stock also represents one preferred stock purchase right
which entitles the holder thereof to purchase from the Company one-one
thousandth of a share (a "Unit") of Series B Preferred Stock of the Company at
an exercise price of $72.00 per Unit.
Although the Company does not have a written dividend policy, it has paid cash
dividends on the Common Stock for the previous 109 quarters. Dividends on the
Common Stock are reviewed by the Board of Directors of the Company each quarter,
and no assurances can be given that such cash dividends will continue in the
future or, if such dividends are paid, as to the amount of such dividends. On
December 10, 1999, the Board of Directors approved a cost reduction plan which
included suspending payments of cash dividends on the Company's common stock. In
addition, under the terms of the Credit Agreement (see Note 4 to the Company's
Consolidated Financial Statements) the payment of dividends in any year is
limited to the greater of (i) 80% of the Company's adjusted consolidated net
income (as defined in the Credit Agreement) for such year (which excludes gains
from sales of marketable securities) and (ii) $4.5 million.
26
<PAGE>
The Wiser Oil Company
Item 6. Selected Financial Data
The following selected consolidated financial data of the Company are derived
from information contained in the Company's consolidated financial statements.
The selected consolidated financial and operating data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data (000's except per share amounts):
Revenues:
Oil and gas sales...................................... $ 59,197 $ 76,729 $ 72,012 $ 54,400 $ 53,559
Dividends and interest................................. 269 1,113 683 1,241 1,641
Marketable security sales gains........................ -- 7,495 12,977 13,101 7,475
Other.................................................. 1,164 2,478 1,017 2,939 2,681
-------- -------- -------- -------- --------
Total revenues....................................... 60,630 87,815 86,689 71,681 65,356
-------- -------- -------- -------- --------
Costs and expenses:
Production and operating............................... 26,529 27,183 23,970 20,690 22,313
Purchased natural gas.................................. 1,440 1,622 1,462 727 759
Depreciation, depletion and amortization ("DD&A")...... 25,811 22,977 19,653 19,778 18,313
Property impairments................................... 3,838 3,289 12,112 4,893 --
Exploration............................................ 15,328 9,655 4,176 5,801 4,130
General and administrative............................. 9,793 9,661 9,364 8,193 6,502
Interest expense....................................... 13,097 9,845 5,452 5,618 3,907
-------- -------- -------- -------- --------
Total costs and expenses............................. 95,836 84,232 76,189 65,700 55,924
-------- -------- -------- -------- --------
Earnings (loss) before income taxes...................... (35,206) 3,583 10,500 5,981 9,432
Income tax expense (benefit)............................. (10,740) 264 4,072 3,788 444
-------- -------- -------- -------- --------
Net income (loss)........................................ $(24,466) $ 3,319 $ 6,428 $ 2,193 $ 8,988
======== ======== ======== ======== ========
Average outstanding shares (000's) (1)................... 8,952 8,949 8,939 8,939 8,941
Basic earnings (loss) per share.......................... $ (2.73) $ 0.37 $ 0.72 $ 0.25 $ 1.01
Cash dividends per share................................. $ 0.12 $ 0.12 $ 0.12 $ 0.40 $ 0.40
Other Financial Data (000's):
EBITDA (2)............................................... $ 23,020 $ 40,741 $ 38,233 $ 27,729 $ 26,666
Operating cash flow...................................... 7,106 34,486 34,287 20,541 24,334
Capital and exploration expenditures..................... 40,402 78,323 47,115 30,153 74,610
Balance Sheet Data end of period (000's):
Cash and cash equivalents................................ $ 2,779 $ 13,255 $ 5,870 $ 1,397 $ 2,714
Working capital (3)...................................... 1,652 7,809 3,493 1,034 2,313
Marketable securities.................................... -- -- 7,176 19,592 27,337
Net property, plant and equipment........................ 213,295 220,708 179,718 169,089 167,371
Total assets............................................. 231,810 254,556 208,617 203,407 210,791
Long-term debt........................................... 145,452 124,304 78,654 74,171 78,013
Stockholders' equity..................................... 72,091 97,424 99,262 101,132 105,427
</TABLE>
27
<PAGE>
The Wiser Oil Company
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Reserve and Operating Data:
Production and volumes:
Oil and NGLs (MBbl)........................................ 2,715 2,760 2,776 2,332 2,277
Gas (MMcf) (4)............................................. 14,364 12,829 12,288 12,171 11,076
BOE (000's) (4).......................................... 5,109 4,898 4,824 4,361 4,123
Weighted average sales prices (5):
Oil (per Bbl).............................................. $ 12.46 $ 18.02 $ 18.81 $ 16.91 $ 15.60
Gas (per Mcf).............................................. 1.84 2.21 1.77 1.37 1.73
NGLs (per Bbl)............................................. 9.25 13.87 13.36 10.11 9.00
BOE (per Bbl)............................................ 11.59 15.66 14.93 12.47 12.99
Selected expenses per BOE (6):
Lease operating............................................ $ 4.45 $ 4.65 $ 4.14 $ 4.06 $ 4.54
Production taxes........................................... 0.84 1.02 0.93 0.78 0.97
DD&A....................................................... 5.15 4.79 4.16 4.62 4.53
General and administrative................................. 1.96 2.02 1.98 1.92 1.61
Proved reserves (end of year) (7):
Oil and NGLs (MBbls)....................................... 27,988 29,721 31,612 32,208 23,430
Gas (MMcf)................................................. 119,981 120,094 113,377 109,915 107,920
BOE (MBbls).............................................. 47,985 49,737 50,508 50,527 41,417
Estimated future net revenues before income taxes (000's).. $218,969 $359,293 $705,723 $401,037 $272,776
Present Value.............................................. 123,831 210,087 414,314 235,416 160,804
Standardized Measure (000's) (8)........................... 113,232 174,489 317,180 194,602 142,032
Weighted average sales prices (end of year) (7)(9):
Oil (per Bbl).............................................. $ 10.39 $ 15.92 $ 24.63 $ 18.19 $ 16.11
Gas (per Mcf).............................................. 1.98 2.35 3.45 1.84 1.57
NGLs (per Bbl)............................................. 8.44 11.40 19.79 12.87 9.80
</TABLE>
(1) Basic earnings per share is calculated without including dilutive effect of
common stock equivalents consisting of stock options. See Note 12 to the
Company's Consolidated Financial Statements.
(2) EBITDA is not a generally accepted accounting measure, but is presented as a
supplemental financial indicator of the Company's ability to service or
incur debt. EBITDA is calculated by adding interest expense, income tax
expense, depreciation, depletion and amortization, property impairment costs
and exploration costs to net income (excluding marketable security sales
gains and dividends and interest). EBITDA should not be considered in
isolation or as a substitute for net income, operating cash flows or any
other measure of financial performance prepared in accordance with generally
accepted accounting principles or as a measure of the Company's
profitability or liquidity.
(3) Working capital represents the difference between current assets and current
liabilities.
(4) Calculated by including volumes of natural gas purchased for resale as
follows: 1998-608 MMcf, 1997-629 MMcf, 1996-605 MMcf, 1995-500 MMcf and
1994-469 MMcf.
(5) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Other Matters."
(6) Calculated without including volumes of natural gas purchased for resale.
(7) Estimates of proved reserves and future net revenues from which Present
Values are derived are based on year end prices of oil and gas held constant
(except to the extent a contract specifically provides otherwise) in
accordance with SEC regulations.
(8) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the present value (using an annual discount rate of 10%)
of estimated future net revenues from the production of proved reserves,
after giving effect to income taxes. See the Supplemental Financial
Information attached to the Company's Consolidated Financial Statements
included elsewhere in this Report for additional information regarding the
disclosure of the Standardized Measure of Discounted Future Net Cash Flows.
(9) Year end prices used to estimate proved reserves and future net revenues
from which Present Values are derived. See footnotes 7 and 8 above.
28
<PAGE>
The Wiser Oil Company
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each year
in the three-year period ended December 31, 1998. The Company's Consolidated
Financial Statements and notes thereto included elsewhere in this Report contain
detailed information that should be referred to in conjunction with the
following discussion.
General
The Company's future results of operations and growth are substantially
dependent upon (i) its ability to acquire or find and successfully develop
additional oil and gas reserves and (ii) the prevailing prices for oil and gas.
At December 31, 1998, the Company's proved reserves were comprised of
approximately 95% proved developed reserves, and the Company does not have a
large inventory of development drilling locations or enhanced recovery projects
to pursue after 1998. If the Company is unable to economically acquire or find
significant new reserves for development and exploitation, the Company's oil and
gas production, and thus its revenues, would likely decline gradually as its
reserves are produced. In addition, oil and gas prices are dependent upon
numerous factors beyond the Company's control, such as economic, political and
regulatory developments and competition from other sources of energy. The oil
and gas markets have historically been very volatile. In particular, oil prices
during 1998 were at their lowest levels since 1986. As a result, the Company's
results of operations were adversely affected. Any significant and extended
decline in the price of oil or gas would have a material adverse effect on the
Company's financial condition and results of operations, and could result in a
reduction in the carrying value of the Company's proved reserves and adversely
affect its access to capital.
The Company liquidated portions of its marketable securities portfolio in order
to fund a portion of the Company's capital and exploration expenditures in 1997
and 1996. The Company recognized pretax gains from the sale of marketable
securities of $7.5 million and $13.0 million in 1997 and 1996, respectively. In
the absence of such gains, the Company would have reported net losses in 1997
and 1996. The Company completed the liquidation of its marketable securities
portfolio in 1997.
During 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
the Company to assess the need for an impairment of capitalized costs of oil and
gas properties on a property-by-property (rather than a company-wide) basis.
Applying SFAS No. 121, the Company recognized non-cash property impairment
charges of $3.8 million in 1998, $3.3 million in 1997 and $12.1 million in 1996.
29
<PAGE>
The Wiser Oil Company
Results of Operations
Production information presented below includes volumes of natural gas purchased
for resale; however, per unit of production information with respect to
production and operating expenses, depreciation, depletion and amortization and
general and administrative costs is calculated without including such volumes.
Such volumes were 608 MMcf in 1998, 629 MMcf in 1997 and 605 MMcf in 1996.
Comparison of 1998 to 1997
Revenues
Oil and gas sales decreased 23% to $59.2 million in 1998 from $76.7 million in
1997, primarily because of lower oil and gas prices received during 1998. The
average oil price received in 1998 decreased 31% to $12.46 per Bbl from $18.02
per Bbl in 1997 and the average gas price received in 1998 decreased 17% to
$1.84 per Mcf from $2.21 per Mcf in 1997. Gas production during 1998 increased
12% to 14.4 Bcf from 12.8 Bcf in 1997. The increase in gas production was
primarily attributable to the Welder Ranch field in South Texas which produced
2.3 Bcf of gas during 1998 compared to 0.8 Bcf of gas in 1997. The Welder Ranch
field was acquired in June 1997. Oil production in 1998 decreased 2% to 2,393
MBbls from 2,441 MBbls in 1997. As a result of development activity in 1997 and
1998, oil production in 1998 from the Evi and Provost fields in Canada was 88
MBbls and 150 MBbls higher than 1997, respectively. Oil production from the
Maljamar and Wellman fields in 1998 was 102 MBbls and 70 MBbls lower than 1997,
respectively, as development activities at these fields was substantially
complete in 1997. As a result of hedging activities, oil and gas sales were
increased by $0.2 million in 1998 and reduced by $2.4 million during 1997. On an
equivalent unit basis, total production increased 4% to 5,109 MBOE in 1998 from
4,898 MBOE in 1997.
Dividends and interest decreased 76% to $0.3 million in 1998 compared to $1.1
million in 1997 as the Company completed the liquidation of its remaining
marketable securities in 1997.
Marketable security sales gains were $7.5 million in 1997 as the Company
completed the liquidation of its remaining marketable securities in 1997.
Other revenues decreased 53% to $1.2 million in 1998 from $2.5 million in 1997
primarily as a result of lower sales of non-strategic oil and gas properties in
1998.
Costs and Expenses
Production and operating expense decreased 2% to $26.5 million in 1998 from
$27.2 million in 1997 primarily due to lower production taxes associated with
lower oil and gas sales in 1998. On a BOE basis, production and operating
expense decreased 7% to $5.29 per BOE in 1998 from $5.67 per BOE in 1997 as a
result of higher BOE production and lower production taxes in 1998.
DD&A increased 12% to $25.8 million in 1998 from $23.0 million in 1997 and
increased 8% to $5.15 per BOE in 1998 from $4.79 per BOE in 1997. The increases
were primarily attributable to additional wells drilled at the Maljamar field
combined with increased depletion from the Welder field in South Texas.
Impairment expense increased 17% to $3.8 million in 1998 from $3.3 million in
1997. Impairment expense in 1998 and 1997 was due primarily to low oil prices
used to value reserves at year-end 1998 and year-end 1997.
Exploration expense increased 59% to $15.3 million in 1998 from $9.7 million in
1997 as the Company increased its exploration activities during 1998. Dry hole
expense increased 49% to $6.1 million in 1998 from $4.1 million in 1997 and
included dry hole expense of $1.6 million in Peru and $2.0 million in South
Texas during 1998. Surrendered and abandoned lease expense in 1998 increased
227% to $4.9 million from $1.5 million in 1997
30
<PAGE>
The Wiser Oil Company
primarily as a result of increased lease abandonment expense associated with
unsuccessful exploration drilling in 1998 and the curtailment of exploration
activities due to low oil prices.
General and administrative expense ("G&A") increased slightly to $9.8 million
in 1998 from $9.7 million in 1997 and decreased 3% to $1.96 per BOE in 1998 from
$2.02 per BOE in 1997. The decrease in G&A per BOE was attributable primarily
to higher BOE production in 1998 compared to 1997.
Interest expense increased 33% to $13.1 million in 1998 from $9.8 million in
1997 due primarily to incurring a full year of interest expense in 1998 under
the 9 1/2% Senior Subordinated Notes ("2007 Notes"), which were issued in May
1997, and increased long-term debt in 1998 compared to 1997.
Income tax expense decreased $11.0 million to a benefit of $10.7 million in 1998
from tax expense of $0.3 million in 1997 primarily as a result of a decrease in
earnings before income taxes of $38.8 million.
Net income decreased $27.8 million to a net loss of $24.5 million in 1998 from
net income of $3.3 million in 1997 primarily as a result of lower oil and gas
prices and higher DD&A, exploration and interest expense in 1998.
Comparison of 1997 to 1996
Revenues
Oil and gas sales increased 7% to $76.7 million in 1997 from $72.0 million in
1996, primarily because of higher gas production and higher gas prices received
during 1997. Gas production during 1997 increased 4% to 12.8 Bcf from 12.3 Bcf
in 1996. The increase in gas production was primarily attributable to the
acquisition of the Welder Ranch field in South Texas which added 0.8 Bcf of gas
production during 1997. The average gas price received in 1997 increased 25% to
$2.21 per Mcf from $1.77 per Mcf in 1996. Oil production in 1997 increased less
than 1% to 2,441 MBbls from 2,425 MBbls in 1996. The Company completed 50 wells
in the Maljamar field during 1997 which increased 1997 production by 246 MBbls
over 1996 and offset declining oil production in other fields during 1997. The
average oil price received in 1997 decreased 4% to $18.02 per Bbl from $18.81
per Bbl in 1996. As a result of hedging activities, oil and gas sales were
reduced by $2.4 million and $6.9 million during 1997 and 1996, respectively. On
an equivalent unit basis, total production increased 2% to 4,898 MBOE in 1997
from 4,824 MBOE in 1996.
Marketable security sales gains decreased 42% to $7.5 million in 1997 from $13.0
million in 1996 as the Company completed the liquidation of its remaining
marketable securities in 1997.
Other revenues increased 144% to $2.5 million in 1997 from $1.0 million in 1996
primarily as a result of the sale of non-strategic oil and gas properties in
Michigan during 1997.
Costs and Expenses
Production and operating expense increased 13% to $27.2 million in 1997 from
$24.0 million in 1996 and also increased 12% to $5.67 per BOE in 1997 from $5.07
per BOE in 1996. The increases were primarily attributable to additional wells
drilled at the Maljamar and Provost fields and increased production taxes
associated with the 7% increase in oil and gas sales during 1997.
DD&A increased 17% to $23.0 million in 1997 from $19.7 million in 1996 and
increased 15% to $4.79 per BOE in 1997 from $4.16 per BOE in 1996. The
increases were primarily attributable to additional wells drilled at the
Maljamar field to develop proved undeveloped reserves combined with increased
depletion from the Shouldice and other Canadian properties which have a higher
than average cost basis and shorter than average reserve life.
Impairment expense decreased 73% to $3.3 million in 1997 from $12.1 million in
1996. Impairment expense in 1997 was due primarily to low oil prices used to
value reserves at year-end 1997 while impairment expense in 1996 was due
primarily to downward revisions in reserve estimates for certain properties in
Michigan and Canada.
31
<PAGE>
The Wiser Oil Company
Exploration expense increased 131% to $9.7 million in 1997 from $4.2 million in
1996 as the Company increased its exploration activities in the U.S. during
1997. Dry hole expense increased 141% to $4.1 million in 1997 from $1.7 million
in 1996. Dry hole expense in 1997 included $1.2 million at the South Lakeside
prospect in Louisiana, $1.0 million at the Tecumseh prospect in Louisiana and
$0.7 million at the Bronson prospect in Canada. Seismic expense also increased
to $3.4 million in 1997 from $0.3 million in 1996.
G&A increased 3% to $9.7 million in 1997 from $9.4 million in 1996 and also
increased 2% to $2.02 per BOE in 1997 from $1.98 per BOE in 1996. The increase
in G&A was attributable primarily to the addition of exploration personnel and
higher compensation costs.
Interest expense increased 81% to $9.8 million in 1997 from $5.5 million in 1996
as a result of the increase in long-term debt and the higher interest rate
associated with the sale of the 2007 Notes on May 21, 1997.
Income tax expense decreased $3.8 million to $0.3 million in 1997 from $4.1
million in 1996 as a result of a decrease in earnings before income taxes of
$6.9 million combined with a lower effective tax rate of 7% in 1997 compared to
39% in 1996. The lower effective tax rate in 1997 was attributable primarily to
the inclusion of Canadian operations in the Company's consolidated tax return
beginning in 1997.
Net Income
Net income decreased 48% to $3.3 million in 1997 from $6.4 million in 1996
primarily as a result of higher production and operating expense, DD&A,
exploration and interest expense in 1997.
Liquidity and Capital Resources
Cash flows
Cash flows from operating activities were $7.1 million in 1998 compared to $34.5
million in 1997. Cash flows from operating activities in 1998 were $27.4
million lower than 1997 due primarily to lower oil and gas sales, higher
interest expense and a $7.9 million reduction in accounts payable. Cash flows
from financing activities of $19.9 million in 1998 were provided primarily by
$21 million in borrowings under the Credit Agreement. In 1997, the sale of the
2007 Notes provided $120.9 million of net cash proceeds to the Company, and
$78.7 million of borrowings under the Credit Agreement and the Company's
Maljamar Credit Facility were repaid during 1997. The Maljamar Credit Facility
was terminated in 1997 in connection with such repayment of borrowings. Cash
flows used in investing activities in 1998 were $37.5 million compared to $66.9
million in 1997. Capital and exploration expenditures were $40.4 million in
1998, a decrease of $37.9 million from 1997. The major components of capital
and exploration expenditures for 1998 were $21.6 million for development
activities, $14.3 million for exploration activities and $4.1 million for
property acquisitions. Proceeds from the sale of marketable securities and oil
and gas properties were $2.9 million in 1998, down $8.5 million from 1997,
primarily as a result of reduced oil and gas property sales and the absence of
marketable securities sales in 1998.
Financial Position
Cash and cash equivalents were utilized to fund capital and exploration
expenditures in 1998 resulting in a decrease in cash and cash equivalents of
$10.5 million during 1998 to $2.8 million at December 31, 1998. Working capital
of $1.7 million at December 31, 1998 was $6.1 million lower than working capital
at December 31, 1997 due primarily to reduced cash and cash equivalents offset
by lower accounts payable. Total assets decreased $22.7 million during 1998 to
$231.8 million at December 31, 1998, and stockholders' equity decreased $25.3
million during 1998 to $72.1 million at December 31, 1998.
At December 31, 1998, capitalization totaled $217.5 million and consisted of
$145.5 million of long-term debt (67%) and $72.1 million of stockholders' equity
(33%).
32
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The Wiser Oil Company
Capital Sources
Funding for the Company's business activities has been provided by cash flow
from operations, borrowings and sales of marketable securities. The Company
completed the liquidation of its marketable securities in 1997 and, accordingly,
this source of funds is no longer available.
While the Company regularly engages in discussions relating to potential
acquisitions of oil and gas properties, the Company has no current agreement or
commitment with respect to any such acquisitions which would be material to the
Company. Any future acquisitions may require additional financing and will be
dependent upon financing arrangements available at the time.
The Company has entered into a Credit Agreement with a group of banks which
provides for the issuance of letters of credit and for revolving credit loans to
the Company (the "Credit Agreement"). The Credit Agreement's borrowing base is
currently $25 million. Outstanding borrowings under the Credit Agreement at
December 31, 1998 were $21 million. The borrowing base is redetermined annually
by the lenders based on the most recent valuation of the Company's oil and gas
reserves. Accordingly, the current borrowing base of $25 million could be
reduced in 1999.
On March 23, 1999, A Financial Institution ("New Lender") purchased all of the
rights and obligations of the Credit Agreement from NationsBank of Texas, N.A.
and the Bank of Montreal and became the new Agent under the Credit Agreement.
The outstanding borrowings by the Company under the Credit Agreement at March
23,1999 and through April 15, 1999 are $21 million.
Subsequently, the Company notified the New Lender that the Company was not able
to maintain one of the ratios required under the Financial Covenants of the
Credit Agreement as of December 31, 1998, and through the date of notification.
On April 15, 1999, the Company and the New Lender entered into an agreement
whereby the Company will repay the outstanding balance under the Credit
Agreement of $21 million plus interest and fees from the anticipated cash
proceeds available from the sale of oil and gas properties as discussed further
below. The Company began negotiating various purchase and sale agreements to
sell a portion of its oil and gas properties prior to March 1999, and plans to
use the sales proceeds to reduce existing debt, fund capital expenditures and
for general corporate purposes.
The New Lender has agreed to waive any default or possible event of default
through December 31, 1998, and has agreed to stand still and not to enforce any
remedies under the Credit Agreement relating to any default or event of default
that has occurred or may occur through May 14, 1999. The New Lender also agreed
to deliver releases of its liens on any properties to be sold by the Company
until the outstanding balance of $21 million is repaid in full. The Company is
not in default of any covenants under the 9 1/2% Senior Subordinated Notes due
in May 2007.
The Company is pursuing several alternatives that would allow it to repay the
outstanding balance under the Credit Agreement through the sale of oil and gas
properties and/or refinancing. The Company believes the Credit Agreement will be
repaid in full on or before May 14, 1999 from the proceeds of property sales
and/or refinancing as discussed below.
On April 13, 1999, the Company entered into a Purchase and Sale Agreement with
Prince Minerals, Ltd. to sell certain producing and non-producing mineral
interests ("Mineral Properties") for $10 million effective April 1, 1999. The
sale is expected to close by April 23, 1999. The producing portion of the oil
and gas properties comprising the Mineral Properties represent approximately 2%
of the Company's total proved oil and gas reserves at December 31, 1998. The
sales proceeds will be used to reduce the outstanding balance under the Credit
Agreement to approximately $11 million. The Purchase and Sale Agreement with
Prince Minerals, Ltd. is subject to the buyer successfully completing a due
diligence review, which was substantially complete as of April 15, 1999. The
Company is not aware of and does not anticipate any conditions that would delay
or terminate the closing of this sale.
On April 12, 1999, the Company entered into a Purchase and Sale Agreement with
Columbia Natural Resources to sell all of the Company's oil and gas properties
in Kentucky, Tennessee and West Virginia ("Appalachia Properties") for $28
million effective April 1, 1999. The sale is expected to close on or before May
12, 1999. The oil and gas properties comprising the Appalachia Properties
represent approximately 15% of the Company's total proved oil and gas reserves
at December 31, 1998. The sales proceeds will be used to repay in full the
outstanding balance under the Credit Agreement, and for general corporate
purposes. The Purchase and Sale Agreement with Columbia Natural Resources is
also subject to the buyer successfully completing a due diligence review, which
was in progress as of April 15, 1999. The Company is not aware of and does not
anticipate any conditions that would delay or terminate the closing of this
sale.
In addition, the Company is negotiating several other purchase and sale
agreements involving a number of smaller, non-strategic oil and gas properties
in Texas and New Mexico that the Company plans to sell for an aggregate sales
price in the range of $7 million to $8 million. These sales are expected to
close in the second quarter of 1999. The sales proceeds will be used for general
corporate purposes.
The Company is currently negotiating with a bank to obtain a new credit
facility. The Company expects to complete the negotiations and obtain a new
credit facility in the second quarter of 1999, however successful completion of
these negotiations cannot be assured. The Company plans to use any funds
The Wiser Oil Company
provided by a new credit facility to fund capital expenditures and for general
corporate purposes. If a new credit facility is available prior to the closing
date of the Appalachia Properties sale, the Company may use funds provided by a
new credit facility to reduce any existing indebtedness under the Credit
Agreement with the New Lender.
Management of the Company is highly confident that the purchase and sale
agreements for the Mineral and Appalachia Properties discussed above will be
closed as planned and that the funds provided by the property sales will enable
the Company to reduce indebtedness and continue to meet all of its financial
obligations while maintaining a smaller level of capital expenditures during
1999. See Notes 2 and 4 to the Company's Consolidated Financial Statements.
The Company believes that cash flows from operations and borrowings under the
Credit Agreement will be sufficient to meet anticipated capital and exploration
expenditure requirements (excluding any material property acquisitions) in 1999.
If the Company's cash flows from operations and borrowings under the Credit
Agreement are not sufficient to satisfy its capital and exploration expenditure
requirements, there is no assurance that additional equity or debt financing
will be available to meet such requirements.
Capital and Exploration Expenditures
The Company requires capital primarily for the acquisition, development and
exploitation of, and the exploration for, oil and gas properties, the repayment
of indebtedness and general working capital needs. During 1999, subject to
market conditions and drilling and operating results, the Company expects to
spend approximately $2.7 million on acquisition, development, exploitation and
exploration activities.
Other Matters
Environmental and Other Regulatory Matters
The Company's business is subject to certain federal, state, provincial and
local laws and regulations relating to the development, exploitation, production
and gathering of, and the exploration for, oil and gas, including those relating
to the protection of the environment. Many of these laws and regulations have
become more stringent in recent years, often imposing greater liability on a
larger number of potentially responsible parties. Although the Company believes
it is in substantial compliance with all applicable laws and regulations, the
requirements imposed by laws and regulations are frequently changed and subject
to interpretation, and the Company is unable to predict the
33
<PAGE>
The Wiser Oil Company
ultimate cost of compliance with these requirements or their effect on its
operations. Although significant expenditures may be required to comply with
governmental laws and regulations applicable to the Company, compliance has not
had a material adverse effect on the earnings or competitive position of the
Company.
Year 2000 Issue
The Company has assessed and continues to assess the impact of the "year 2000"
("Y2K") issue on its reporting systems and operations. The Y2K issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. As the century date occurs, two-digit date systems
will recognize the year 2000 as 1900 or not at all. This inability to recognize
or properly treat the year 2000 may cause systems to process critical financial
and operational information incorrectly.
In 1998 and the first quarter of 1999, the Company's U.S. and Canadian
computerized accounting systems were upgraded to versions which are Y2K
compliant. These upgrades were completed at a nominal cost to the Company. In
addition, the Company's personal computer systems were analyzed for Y2K
compliance during 1998 and certain components were upgraded at a nominal cost to
the Company. Virtually all of the Company's personal computer systems are
currently Y2K compliant. Wiser is currently reviewing computer-controlled oil
field equipment for Y2K compliance and expects the suppliers of such equipment
to provide upgrades or modifications, if necessary, before the end of 1999 at a
nominal cost to the Company. Wiser is also in the process of surveying its
primary business partners to seek assurances that they will be Y2K compliant
during 1999. Despite these efforts to seek assurances, the Company cannot
provide assurance that all significant business partners will achieve Y2K
compliance in a timely manner. If there is a high risk that a business partner
will not be Y2K compliant in a timely manner, a contingency plan will be
developed or an alternate business partner will be used to minimize the Y2K
risk.
New Accounting Standards
The Company adopted the following pronouncements in 1998:
SFAS No. 130, "Reporting Comprehensive Income" requires that all items that
are to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements, and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires reporting of financial and descriptive information
about a company's reportable operating segments. The Company has identified
only one operating segment, which is the exploration for and production of
oil and gas.
The Company will be required to comply with the provisions of SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which must be
adopted for fiscal years beginning after June 15, 1999. SFAS No. 133 requires
that derivatives be reported on the balance sheet at fair value and, if the
derivative is not designated as a hedging instrument, changes in fair value must
be recognized in earnings in the period of change. If the derivative is
designated as a hedge and to the extent such hedge is determined to be
effective, changes in fair value are either offset by the change in fair value
of the hedged asset or liability (if applicable) or reported as a component of
other comprehensive income in the period of change, and subsequently recognized
in earnings when the offsetting hedged transaction occurs. The definition of
derivatives has also been expanded to include contracts that require physical
delivery of oil and gas if the contract allows for net cash settlement. The
Company currently uses derivatives to hedge oil and gas price risk and gains or
losses on such derivatives are recorded as adjustments to oil and gas sales.
Accordingly, adoption of SFAS No. 133 should not have a significant impact on
reported earnings, but could have a material impact on comprehensive income and
the reported financial position of the Company.
Disclosure Regarding Forward-Looking Statements
34
<PAGE>
The Wiser Oil Company
This Report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements other than statements of historical facts included in
this Report, including without limitation statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
under "Business" and "Properties" regarding proved reserves, estimated future
net revenues, Present Values, planned capital expenditures (including the amount
and nature thereof), increases in oil and gas production, the number of wells
anticipated to be drilled in 1998 and thereafter and the Company's financial
position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
there can be no assurance that the actual results or developments anticipated by
the Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on its business or operations.
Among the factors that could cause actual results to differ materially from the
Company's expectations are the volatility of oil and gas prices, the ability to
acquire or find and successfully develop additional oil and gas reserves, the
uncertainty of estimates of reserves and future net revenues, risks relating to
acquisitions of producing properties, drilling and operating risks, general
economic conditions, competition, domestic and foreign government regulations
and other factors which are beyond the Company's control. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by such factors.
The Company assumes no obligation to update any such forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company only uses derivative financial instruments such as commodity futures
agreements to hedge against fluctuations in oil and gas prices. Gains and losses
on these derivative instruments are recorded as adjustments to oil and gas
sales. The Board of Directors of the Company have adopted a policy governing the
use of derivative instruments which requires that all derivatives used by the
Company relate to an anticipated transaction and prohibits the use of
speculative or leveraged derivatives.
Interest Rate Risk
Total debt at December 31, 1998 included $124.5 million of fixed-rate debt and
$21.0 million of floating-rate debt attributed to borrowings under the Credit
Agreement. As a result, the Company's annual interest cost will fluctuate based
on changes in short-term interest rates. The impact on annual cash flow of a 10%
change in the short-term interest rate (approximately 60 basis points) would be
approximately $0.13 million.
At December 31, 1998, it was not practicable to estimate the fair value of the
Company's fixed-rate debt of $124.5 million because the trading volume was too
small to establish a reasonable basis of fair value. The fixed-rate debt will
mature in May 2007 and the floating-rate debt will mature in March 2002.
Commodity Price Risk
The Company has in the past entered into and may in the future enter into
hedging arrangements with respect to portions of its oil, natural gas and NGL
production to reduce its sensitivity to volatile commodity prices. The Company
believes that hedging, although not free of risk, allows the Company to achieve
a more predictable cash flow and to reduce exposure to price fluctuations.
However, hedging arrangements limit the benefit to the Company of increases in
the prices of the hedged commodity. Moreover, the Company's hedging arrangements
apply only to a portion of its production and provide only partial price
protection against declines in prices. Such arrangements may expose the Company
to risk of financial loss in certain circumstances. The Company expects that the
amount of production it hedges will vary from time to time. During 1998, the
Company entered into various natural gas forward sale agreements and during 1997
and 1996, the Company entered into natural gas price swap and oil price collar
agreements to hedge against price fluctuations. Oil and gas sales are adjusted
for the effects of hedging transactions as the underlying hedged production is
sold. Adjustments to oil and gas sales from the Company's hedging activities
resulted in an increase in revenues of $0.2 million in 1998 and reductions in
revenues of $2.4 million and $6.9 million in 1997 and 1996, respectively. During
February, March and April of 1999, the Company entered into forward sale/swap
agreements to hedge a portion of the Company's oil and gas production as
follows:
35
<PAGE>
The Wiser Oil Company
<TABLE>
<CAPTION>
Period Daily Volume - Product Price (Floor/Ceiling)
------ ---------------------- ---------------------
<S> <C> <C>
March 1, 1999 to July 31, 1999 23,832 MMBTU - Natural Gas $1.72 per MMBTU
May 1, 1999 to August 31, 1999 800 Bbls - Crude Oil $13.40 per Bbl
May 1, 1999 to August 31, 1999 455 Bbls - Crude Oil $14.50/16.60 per Bbl
May 1, 1999 to September 30, 1999 500 Bbls - Crude Oil $13.00/17.35 per Bbl
</TABLE>
The 455 Bbls per day crude oil hedge is a "collar" hedge whereby the Company
will receive the actual market price if the actual market price is between the
floor price of $14.50 per Bbl and the ceiling price of $16.60 per Bbl. If the
actual market price is below or above the floor or ceiling prices, the price
received by the Company will be limited to the floor price or ceiling price,
respectively.
The 500 Bbls per day crude oil hedge is also a "collar" hedge whereby the
Company will receive the actual market price if the actual market price is
between $15.00 per Bbl and the ceiling price of $17.35 per Bbl. If the actual
market price is between the floor price of $13.00 per Bbl and $15.00 per Bbl,
the Company will receive $15.00 per Bbl. If the actual market price is less than
the floor price of $13.00 per Bbl, the Company will receive the actual market
price plus $2.00 per Bbl. If the actual market price is above the ceiling price
of $17.35 per Bbl, the price received by the Company will be limited to $17.35
per Bbl. The Company continuously reevaluates its hedging program in light of
market conditions, commodity price forecasts, capital spending and debt service
requirements. Also see Note 1 to the Company's Consolidated Financial Statements
included elsewhere in this Report.
Foreign Currency Exchange Risk
The Company receives a substantial portion of its revenue in Canadian dollars
(24% in 1998). As a result, fluctuations in the exchange rates of the Canadian
dollar with respect to the U.S. dollar could have an adverse effect on the
Company's financial condition and results of operations. Historically however,
exchange rate fluctuations have not been material to the Company.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Accountants, Consolidated Financial Statements and
supplementary financial data required by this Item are set forth on pages F-1
through F-20 of this Report and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item will be contained in the Proxy Statement
under the headings "Election of Directors" and "Executive Officers" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item will be contained in the Proxy Statement
under the heading "Executive Compensation" and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be contained in the Proxy Statement
under the heading "Beneficial Ownership of Common Stock" and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item, if any, will be contained in the Proxy
Statement under the heading "Executive Compensation" and is incorporated herein
by reference.
36
<PAGE>
The Wiser Oil Company
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. Financial Statements
The following documents are filed as part of this Report:
1. Report of Independent Accountants
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
financial statements or notes thereto.
B. Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the last
quarter of 1998.
C. Exhibits
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference as indicated.
Exhibit
Numbers
- -------
(3.1) Certificate of Incorporation of the Company, as amended, incorporated
by reference to Exhibit 4.2 to the Company's report on Form 8-K
(Commission File No. 0-5426), dated November 9, 1993 (Date of Event:
October 25, 1993).
(3.2) Bylaws of the Company, as amended, incorporated by reference to
Exhibit 4.3 to the Company's report on Form 8-K (Commission File No.
0-5426), dated November 9, 1993 (Date of Event: October 25, 1993).
(4) Rights Agreement dated as of October 25, 1993 by and between the
Company and The Chase Manhattan Bank (as successor to Chemical Bank),
as Rights Agent, which includes as Exhibit 2 thereto the Form of
Rights Certificate, incorporated by reference to Exhibit 4.1 to the
Company's report on Form 8-K (Commission File No. 0-5426), dated
November 9, 1993 (Date of Event: October 25, 1993).
(4a) Amendment No. 1 to the Rights Agreement dated as of October 25, 1993
by and between the Company and The Chase Manhattan Bank (as successor
to Chemical Bank), as Rights Agent, which includes as Exhibit 2
thereto the Form of Rights Certificate, incorporated by reference to
the Company's report on Form 8 -K/A filed on September 29,1995.
37
<PAGE>
The Wiser Oil Company
(4.1) Indenture dated May 21, 1997, among the Company, certain subsidiaries
of the Company and Texas Commerce Bank National Association, as
Trustee, incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (Commission File No. 333-29211),
filed on June 13, 1997.
(4.2) Form of 9 1/2% Senior Subordinated Notes due 2007 (included in the
indenture filed as Exhibit 4.1), incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-4 (Commission
File No. 333-29211), filed on June 13, 1997.
(4.3) Registration Agreement dated May 21, 1997, among the Company, certain
subsidiaries of the Company and Salomon Brothers Inc., NationsBanc
Capital Markets, Inc. and Nesbitt Burns Securities Inc., as the
Initial Purchasers, incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
29211), filed on June 13, 1997.
(4.4) Credit Agreement dated June 23, 1994 among The Wiser Oil Company and
The Wiser Oil Company of Canada, as Borrowers, and NationsBank of
Texas, N.A. (NationsBank), as Agent, and Certain Financial
Institutions Listed on the Signature Pages Thereto, as Banks,
incorporated by reference to the Exhibit 10.1 to the Company's report
on Form 8-K dated July 11, 1994 as amended on Form 8-K/A filed on
August 17, 1994.
(4.5) First Amendment to Credit Agreement dated November 29, 1995 among The
Wiser Oil Company and The Wiser Oil Company of Canada, as Borrowers,
and NationsBank, as Agent, and Certain Financial Institutions Listed
on the Signature Pages Thereto, as Banks, incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.6) Second Amendment to Credit Agreement dated May 20, 1997 among The
Wiser Oil Company and The Wiser Oil Company of Canada, Inc., as
Borrowers, and NationsBank, as Agent, and Certain Financial
Institutions Listed on the Signature Pages thereto, as Banks,
incorporated by reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-4 (Commission File No. 333-29211), filed on June
13, 1997.
(4.7) Guaranty Agreement dated May 20, 1997, by Wiser Oil Delaware, Inc., in
favor of NationsBank and PNC Bank, National Association ("PNC"),
incorporated by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-4 (Commission File No. 333-29211), filed on June
13, 1997.
(4.8) Guaranty Agreement dated May 20, 1997, by Wiser Delaware LLC, in favor
of NationsBank and PNC, incorporated by reference to Exhibit 4.5 to
the Company's Registration Statement on Form S-4 (Commission File No.
333-29211), filed on June 13, 1997.
(4.9) Guaranty Agreement dated May 20, 1997, by The Wiser Marketing Company,
in favor of NationsBank and PNC, incorporated by reference to Exhibit
4.9 to the Company's Registration Statement on Form S-4 (Commission
File No. 333-29211), filed on June 13, 1997.
(4.10) Guaranty Agreement dated May 20, 1997, by The Wiser Oil Company of
Canada, in favor of NationsBank and PNC, incorporated by reference to
Exhibit 4.10 to the Company's Registration Statement on Form S-4
(Commission File No. 333-29211), filed on June 13, 1997.
(4.11) Guaranty Agreement dated May 20, 1997, by T.W.O.C., Inc., in favor of
NationsBank and PNC, incorporated by reference to Exhibit 4.11 to the
Company's Registration Statement on Form S-4 (Commission File No. 333-
29211), filed on June 13, 1997.
(4.13) Credit Agreement dated December 23, 1997 among The Wiser Oil Company,
as borrowers, and NationsBank of Texas, N.A., as agent, and The
Financial Institutions Listed on the Signature Pages thereto, as
Banks, incorporated by reference to Exhibit 4.13 to the Company's
Annual Report on Form 10-K filed on March 30, 1998.
38
<PAGE>
The Wiser Oil Company
(4.13a) First Amendment to Credit Agreement dated September 30, 1998 among The
Wiser Oil Company, as borrowers, and NationsBank of Texas, N.A., as
agent, and The Financial Institutions Listed on the Signature Pages
thereto, as Banks, incorporated by reference to Exhibit 4.13a to the
Company's Annual Report on Form 10-Q filed on November 12, 1998.
(4.13b)* Second Amendment to Credit Agreement dated January 11, 1999 among The
Wiser Oil Company, as borrowers, and NationsBank of Texas, N.A., as
agent, and The Financial Institutions Listed on the Signature Pages
thereto, as Banks.
(10.3) Purchase and Sale Agreements made as of May 31, 1994 among Eagle
Resources Ltd., Caneagle Resources Corporation, The Erin Mills
Investment Corporation and The Wiser Oil Company, incorporated by
reference to Exhibit 10 to the Company's report on Form 8-K dated July
11, 1994 as amended by Form 8-K/A filed on August 17, 1994.
(10.3a)* Purchase and Sale Agreement dated April 12, 1999 between Columbia
Natural Resources, Inc. and the Wiser Oil Company.
(10.4)+ Employment Agreement dated August 1, 1994 between the Company and
Allan J. Simus, incorporated by reference to Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(10.4a)+* Amendment to Employment Agreement dated August 1, 1994 between the
Company and Alan J. Simus dated March 22, 1996.
(10.4b)+ Second Amendment to Employment Agreement dated August 1, 1994 between
the Company and Alan J. Simus dated May 20, 1997, incorporated by
reference to Exhibit 10.4a to the Company's Annual Report on Form 10-K
filed on March 30, 1998.
(10.4c)+* Third Amendment to Employment Agreement dated August 1, 1994 between
the Company and Alan J. Simus dated January 1, 1999.
(10.5)+ Employment Agreement dated July 1, 1991 between the Company and Andrew
J. Shoup, Jr., incorporated by reference to Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.5a)+* Amendment to Employment Agreement dated July 1, 1991 between the
Company and Andrew J. Shoup, Jr. dated June 1, 1994.
(10.5b)+ Second Amendment to Employment Agreement dated July 1, 1991 between
the Company and Andrew J. Shoup, Jr. dated May 20, 1997, incorporated
by reference to Exhibit 10.5a to the Company's Annual Report on Form
10-K filed on March 30, 1998.
(10.5c)+* Third Amendment to Employment Agreement dated July 1, 1991 between the
Company and Andrew J. Shoup, Jr. dated January 1, 1999.
(10.6)+ The Wiser Oil Company 1991 Stock Incentive Plan, as amended,
incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 33-62441), filed on
September 8, 1995.
(10.6a)+ Amendment to The Wiser Oil Company 1991 Stock Incentive Plan,
incorporated by reference to the Company's Registration Statement on
Form S-8 (Commission File No. 333-29973), filed on June 25, 1997.
(10.7)+ The Wiser Oil Company 1991 Non-Employee Directors' Stock Option Plan,
as amended, incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (Commission File No. 333-22525),
filed on February 28, 1997.
39
<PAGE>
The Wiser Oil Company
(10.8)+ Employment Agreement dated November 1, 1993 between the Company and
Lawrence J. Finn, incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.8a)+* Amendment to Employment Agreement dated November 1, 1993 between the
Company and Lawrence J. Finn dated March 22, 1996.
(10.8b)+ Second Amendment to Employment Agreement dated November 1, 1993
between the Company and Lawrence J. Finn dated May 20, 1997,
incorporated by reference to Exhibit 10.8a to the Company's Annual
Report on Form 10-K filed on March 30, 1998.
(10.8c)+* Third Amendment to Employment Agreement dated November 1, 1993
between the Company and Lawrence J. Finn dated January 1, 1999.
(10.9)+ Employment Agreement dated January 24, 1994 between the Company and
A. Wayne Ritter, incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
(10.9a)+* Amendment to Employment Agreement dated January 24, 1994 between the
Company and A. Wayne Ritter dated March 22, 1996.
(10.9b)+ Second Amendment to Employment Agreement dated January 24, 1994
between the Company and A. Wayne Ritter dated May 20, 1997,
incorporated by reference to Exhibit 10.8a to the Company's Annual
Report on Form 10-K filed on March 30, 1998.
(10.9c)+* Third Amendment to Employment Agreement dated January 24, 1994
between the Company and A. Wayne Ritter dated January 1, 1999.
(10.10)+ Employment Agreement dated September 30, 1996 between the Company and
Kent E. Johnson, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K (Commission File No. 0-5426),
filed on March 26, 1997.
(10.10a)+ Amendment to Employment Agreement dated September 30, 1996 between
the Company and Kent E. Johnson dated May 20, 1997, incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q filed on August 13, 1997.
(10.10b)+* Second Amendment to Employment Agreement dated September 30, 1996
between the Company and Kent E. Johnson dated January 1, 1999.
(10.11)+ The Wiser Oil Company Equity Compensation Plan For Non-Employee
Directors, incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K (Commission File No. 0-5426),
filed on March 26, 1997.
(10.12) The Wiser Oil Company Savings Restoration Plan dated February 24,
1998, incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K filed on March 30, 1998.
(10.13) Retirement Restoration Plan dated March 23, 1995, incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report on Form
10-Q filed on August 12, 1998.
(21)* Subsidiaries of registrant.
(23.1)* Consent of Independent Public Accountants.
40
<PAGE>
The Wiser Oil Company
(23.2)* Consent of DeGolyer and MacNaugton, Independent Petroleum Engineers.
(23.3)* Consent of Gilbert Lausten Jung Associates Ltd., Independent Petroleum
Engineers.
(27)* Financial Data Schedule.
- --------------------
+ Represent management compensatory plans or agreements.
* Filed herewith.
41
<PAGE>
The Wiser Oil Company
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 15th day of April
1999.
The Wiser Oil Company
By: /s/ Andrew J. Shoup, Jr.
-----------------------------------
Andrew J. Shoup, Jr.
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ ANDREW J. SHOUP, JR. President, Chief Executive April 15, 1999
- ----------------------------- Officer and Director
ANDREW J. SHOUP, JR. (Principal Executive
Officer)
/s/ PAUL D. NEUENSHWANDER Director April 15, 1999
- -----------------------------
PAUL D. NEUENSHWANDER
/s/ C. FRAYER KIMBALL Director April 15, 1999
- -----------------------------
C. FRAYER KIMBALL
/s/ HOWARD G. HAMILTON Director April 15, 1999
- -----------------------------
HOWARD G. HAMILTON
/s/ A. W. SCHENCK, III Director April 15, 1999
- -----------------------------
A. W. SCHENCK, III
/s/ JOHN W. CUSHING, III Director April 15, 1999
- -----------------------------
JOHN W. CUSHING, III
/s/ JON L. MOSLE, JR. Director April 15, 1999
- -----------------------------
JON L. MOSLE, JR.
/s/ LORNE H. LARSON Director April 15, 1999
- -----------------------------
LORNE H. LARSON
/s/ LAWRENCE J. FINN Vice President and Chief April 15, 1999
- ----------------------------- Financial Officer
LAWRENCE J. FINN (Principal Financial and
Accounting Officer)
42
<PAGE>
THE WISER OIL COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Income........................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Changes in Stockholders' Equity.. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
<PAGE>
Report of Independent Public Accountants
To the Shareholders of The Wiser Oil Company:
We have audited the accompanying consolidated balance sheets of The Wiser Oil
Company (a Delaware corporation) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years ended December 31, 1998, 1997
and 1996. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Wiser Oil
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years ended December 31, 1998,
1997 and 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
April 15, 1999
F-2
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
(000's except per share data)
<S> <C> <C> <C>
Revenues:
Oil and gas sales......................... $ 59,197 $76,729 $72,012
Dividends and interest.................... 269 1,113 683
Marketable security sales................. -- 7,495 12,977
Other..................................... 1,164 2,478 1,017
-------- ------- -------
60,630 87,815 86,689
-------- ------- -------
Costs and Expenses:
Production and operating.................. 26,529 27,183 23,970
Purchased natural gas..................... 1,440 1,622 1,462
Depreciation, depletion and amortization.. 25,811 22,977 19,653
Property impairments...................... 3,838 3,289 12,112
Exploration............................... 15,328 9,655 4,176
General and administrative................ 9,793 9,661 9,364
Interest expense.......................... 13,097 9,845 5,452
-------- ------- -------
95,836 84,232 76,189
-------- ------- -------
Earnings (Loss) Before Income Taxes......... (35,206) 3,583 10,500
Income Tax Expense (Benefit)................ (10,740) 264 4,072
-------- ------- -------
NET INCOME (LOSS)........................... $(24,466) $ 3,319 $ 6,428
======== ======= =======
Earnings (Loss) Per Share (Note 12):
Basic..................................... $ (2.73) $ .37 $ .72
======== ======= =======
Diluted................................... $ (2.73) $ .37 $ .72
======== ======= =======
Cash Dividends Per Share.................... $ .12 $ .12 $ .12
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(000's)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................................... $ 2,779 $ 13,255
Accounts receivable.......................................... 9,102 13,765
Inventories.................................................. 669 1,007
Income taxes receivable...................................... 1,270 725
Prepaid expenses............................................. 1,035 438
--------- ---------
Total current assets...................................... 14,855 29,190
--------- ---------
Property, Plant and Equipment, at cost:
Oil and gas properties (successful efforts method)........... 367,974 346,655
Other properties............................................. 5,523 5,399
--------- ---------
373,497 352,054
Accumulated depreciation, depletion and amortization......... (160,202) (131,346)
--------- ---------
Net property, plant and equipment............................ 213,295 220,708
Other Assets.................................................. 3,660 4,658
--------- ---------
$ 231,810 $ 254,556
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable............................................. $ 10,473 $ 18,396
Current portion of long-term debt............................ 21,000 --
Accrued liabilities.......................................... 2,730 2,985
--------- ---------
Total current liabilities.................................. 34,203 21,381
--------- ---------
Long-Term Debt................................................ 124,452 124,304
Deferred Benefit Cost......................................... 378 1,169
Deferred Income Taxes......................................... 686 10,278
Stockholders' Equity:
Common stock - $3 par value; 20,000,000 shares authorized;
9,128,169 shares issued; 8,951,965 shares outstanding..... 27,385 27,385
Paid-in capital.............................................. 3,223 3,223
Retained earnings............................................ 43,090 68,630
Foreign currency translation................................. 1,122 915
Treasury stock; 176,204 shares, at cost...................... (2,729) (2,729)
--------- ---------
Total stockholders' equity................................. 72,091 97,424
--------- ---------
$ 231,810 $ 254,556
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Marketable
Securities Foreign
Common Paid-in Retained Valuation Currency Treasury
Total Stock Capital Earnings Adjustment Translation Stock
---------- --------- ------- --------- ----------- ----------- ---------
(000's)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995............. $101,132 $ 27,347 $3,078 $ 61,030 $11,684 $ 722 $(2,729)
Net income.................. 6,428 -- -- 6,428 -- -- --
Other comprehensive income
(loss), net of tax....... (7,225) -- -- -- (7,356) 131 --
--------
Comprehensive income (loss). (797) --
Dividends paid.............. (1,073) -- -- (1,073) -- -- --
-------- -------- ------- -------- ---------- ----------- --------
December 31, 1996............. 99,262 27,347 3,078 66,385 4,328 853 (2,729)
Net income.................. 3,319 -- -- 3,319 -- -- --
Other comprehensive income
(loss), net of tax....... (4,266) -- -- -- (4,328) 62 --
--------
Comprehensive income (loss). (947) --
Stock options exercised..... 183 38 145 -- -- -- --
Dividends paid.............. (1,074) -- -- (1,074) -- -- --
-------- -------- ------- -------- ---------- ----------- --------
December 31, 1997............. 97,424 27,385 3,223 68,630 -- 915 (2,729)
Net income (loss) (24,466) -- -- (24,466) -- -- --
Other comprehensive income
(loss), net of tax....... 207 -- -- -- -- 207 --
--------
Comprehensive income (loss). (24,259) --
Dividends paid.............. (1,074) -- -- (1,074) -- -- --
-------- -------- ------- -------- ---------- ----------- --------
December 31, 1998............. $ 72,091 $ 27,385 $3,223 $ 43,090 $ -- $1,122 $(2,729)
======== ======== ======= ======== ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
(000's except per share data)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(24,466) $ 3,319 $ 6,428
Adjustments to reconcile to cash flows from
operating activities:
Depreciation, depletion and amortization.......... 25,811 22,977 19,653
Deferred income taxes............................. (9,592) 1,530 2,056
Marketable securities and property sales gains.... (615) (9,370) (13,099)
Exploration expense............................... 15,328 9,655 4,176
Property impairments.............................. 3,838 3,289 12,112
Foreign currency translation...................... 207 62 (2)
Amortization of other assets...................... 556 282 --
Other changes:
Accounts receivable............................. 4,663 326 (3,665)
Inventories..................................... 338 282 228
Income taxes receivable......................... (545) (725) --
Prepaid expenses................................ (597) 35 360
Accounts payable................................ (7,923) 3,400 4,853
Accrued income taxes............................ -- (1,697) 170
Accrued liabilities............................. (255) 1,449 88
Deferred benefit costs.......................... (791) (328) 376
Other........................................... 1,149 -- 553
-------- -------- --------
Operating Cash Flows.......................... 7,106 34,486 34,287
-------- -------- --------
Cash Flows From Investing Activities:
Capital and exploration expenditures.................. (40,402) (78,323) (47,115)
Proceeds from sales of property, plant and equipment.. 2,894 3,288 1,022
Proceeds from sales of marketable securities.......... -- 8,115 14,035
-------- -------- --------
Investing Cash Flows.......................... (37,508) (66,920) (32,058)
-------- -------- --------
Cash Flows From Financing Activities:
Borrowings of long-term debt.......................... 21,000 125,000 25,508
Repayments of long-term debt.......................... -- (78,654) (22,191)
Long-term debt issuance costs and fees................ -- (5,636) --
Common stock issued................................... -- 183 --
Dividends paid........................................ (1,074) (1,074) (1,073)
-------- -------- --------
Financing Cash Flows.......................... 19,926 39,819 2,244
-------- -------- --------
Net Increase (Decrease) in Cash............................ (10,476) 7,385 4,473
Cash and Cash Equivalents, beginning of year............... 13,255 5,870 1,397
-------- -------- --------
Cash and Cash Equivalents, end of year..................... $ 2,779 $ 13,255 $ 5,870
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
a. Principles of Consolidation - The consolidated financial statements
include the accounts of The Wiser Oil Company (Company), a Delaware
corporation, and its wholly owned subsidiaries: T.W.O.C., Inc., The Wiser
Marketing Company, Maljamar Wiser Inc., Maljamar Development Partnership,
L.P., and The Wiser Oil Company of Canada ("Wiser Canada"). T.W.O.C., Inc.
is a Delaware holding company responsible for the management of investment
activities. The Wiser Marketing Company functions as a natural gas marketer
and broker. Maljamar Wiser Inc. was formed in 1995 as a wholly-owned
subsidiary of the Company. It was formed in order for the Company to fund
its $53,000,000 development of the Maljamar area with the use of nonrecourse
debt. The Maljamar Development Partnership, L.P. was formed in 1995 for the
same reason. The Company is the limited partner of the Maljamar Development
Partnership, L.P. and owns 99% of the partnership. Maljamar Wiser Inc. owns
1% of the Maljamar Development Partnership, L.P. as a general partner.
Effective May 14, 1997, Maljamar Wiser Inc. was merged into The Wiser Oil
Company and Maljamar Development Partnership, L.P. was terminated. Wiser
Canada was formed in 1994 to conduct the Company's Canadian activities. Prior
to the formation of Wiser Canada, the Company's oil and gas operations were
conducted primarily in the United States. Intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made
to conform prior years' amounts to current presentation.
b. Risks and Uncertainties - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
c. Oil and Gas Properties - The Company is engaged in the exploration and
development of oil and gas in the United States and Canada. The Company
follows the "successful efforts" method of accounting for its oil and gas
properties. Under this method of accounting, all costs of property
acquisitions and exploratory wells are initially capitalized. If a well is
unsuccessful, the capitalized costs of drilling the well, net of any salvage
value, are charged to expense. The capitalized costs of unproven properties
are periodically assessed to determine whether their value has been impaired
below the capitalized cost, and if such impairment is indicated, a loss is
recognized. Geological and geophysical costs and the costs of retaining
undeveloped properties are expensed as incurred. Expenditures for
maintenance and repairs are charged to expense, and renewals and betterments
are capitalized. Upon disposal, the asset and related accumulated
depreciation, depletion and amortization are removed from the accounts, and
any resulting gain or loss is reflected currently in income.
Prior to 1995, the Company evaluated the carrying value of its oil and gas
properties based on undiscounted future net revenues on a company wide basis.
During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived assets and
for Long-Lived Assets to Be Disposed Of". SFAS 121 requires the Company to
assess the need for an impairment of capitalized costs of oil and gas
properties on a property-by-property basis. If an impairment is indicated
based on undiscounted expected future cash flows, then an impairment is
recognized to the extent that net capitalized costs exceed discounted future
cash flows. For 1998, the impairment test was based on estimates of future
cash flows for each field. Crude oil price estimates were based on NYMEX
future prices,
F-7
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
which were $12.35, $13.63 and $14.57 per barrel for 1999, 2000 and 2001,
respectively, and increased 3% per year thereafter up to a maximum of $20 per
barrel. Gas price estimates were also based on NYMEX future prices, which
where $1.96, $2.25, $2.34 and $2.55 per MMBTU for 1999, 2000, 2001 and 2002,
respectively, and increased 3% per year thereafter up to a maximum of $3.50
per MMBTU. These prices were applied to production profiles developed by the
Company's engineers using proved developed reserves at December 31, 1998.
During 1998, 1997 and 1996, the Company provided impairments of $3,838,000,
$3,289,000 and $12,112,000, respectively. The impairments were determined
based on the difference between the carrying value of the assets and the
present value of future cash flows discounted at 10%. It is reasonably
possible that a change in reserve or price estimates could occur in the near
term and adversely impact management's estimate of future cash flows and
consequently the carrying value of properties.
d. Depreciation, Depletion and Amortization ("DD&A") DD&A of the
capitalized costs of producing oil and gas properties are computed for
individual properties using the units-of-production method based on total
proved reserves. Depreciation of transportation, office and other properties
is computed generally using the straight-line method over the estimated
useful lives of these assets.
e. Cash and Cash Equivalents - Cash equivalents generally consist of short-
term investments maturing in three months or less from the date of
acquisition. These investments of $2,675,000 at December 31, 1998 and
$15,083,000 at December 31, 1997 are recorded at cost plus accrued interest,
which approximates market.
f. Inventories - Oil and gas product inventories are recorded at the average
cost of production. Materials and supplies are recorded at the lower of
average cost or market.
g. Accrued Liabilities - Accrued liabilities include accrued vacation and
payroll of $323,000 at December 31, 1998 and $334,000 at December 31, 1997.
h. Postretirement Benefits - SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", has no significant impact on
the Company. The Company has no significant liabilities for postretirement
benefits, other than pensions, and has historically recognized such
liabilities as they are incurred.
i. Gas Imbalances - Gas imbalances are accounted for using the sales method.
The Company's net imbalance position is not material at December 31, 1998 and
1997.
j. Financial Instruments - The following table sets forth the book value and
estimated fair values of financial instruments at December 31, 1998 and 1997,
respectively (000's):
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Cash and equivalents $ 2,779 $ 2,779 $ 13,255 $13,255
Floating-rate debt 21,000 21,000 -- --
Fixed-rate debt 124,452 (A) 124,304 (A)
</TABLE>
(A) It was not practicable to estimate the fair value of the Company's
fixed-rate debt because the trading volume was too small to establish a
reasonable basis of fair value.
F-8
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
During 1998, the Company entered into various natural gas forward sale
agreements and during 1997 and 1996, the Company entered into natural gas
price swap and oil price collar agreements to hedge against price
fluctuations. Oil and gas sales in the accompanying Consolidated Statements
of Income are adjusted for the effects of hedging transactions as the
underlying hedged production is sold. Adjustments to oil and gas sales from
the Company's hedging activities resulted in an increase in revenues of
$210,000 in 1998 and reductions in revenues of $2,372,000 and $6,923,000 in
1997 and 1996, respectively. As of December 31, 1998 and December 31, 1997,
the Company had no deferred net gains or net losses. In February, March and
April of 1999, the Company entered into forward sale agreements to hedge a
portion of the Company's oil and gas production as follows:
<TABLE>
<CAPTION>
Period Daily Volume - Product Price (Floor / Ceiling)
-------------------------------- -------------------------- -----------------------
<S> <C> <C>
March 1, 1999 to July 31, 1999 23,832 MMBTU - Natural Gas $1.72 per MMBTU
May 1, 1999 to August 31, 1999 800 Bbls - Crude Oil $13.40 per Bbl
May 1, 1999 to August 31, 1999 455 Bbls - Crude Oil $14.50/16.60 per Bbl
May 1, 1999 to September 30, 1999 500 Bbls - Crude Oil $13.00/17.35 per Bbl
</TABLE>
The 455 Bbls per day crude oil hedge is a "collar" hedge whereby the Company
will receive the actual market price if the actual market price is between
the floor price of $14.50 per Bbl and the ceiling price of $16.60 per Bbl. If
the actual market price is below or above the floor or ceiling prices, the
price received by the Company will be limited to the floor price or ceiling
price, respectively.
The 500 Bbls per day crude oil hedge is also a "collar" hedge whereby the
Company will receive the actual market price if the actual market price is
between $15.00 per Bbl and the ceiling price of $17.35 per Bbl. If the actual
market price is between the floor price of $13.00 per Bbl and $15.00 per Bbl,
the Company will receive $15.00 per Bbl. If the actual market price is less
than the floor price of $13.00 per Bbl, the Company will receive the actual
market price plus $2.00 per Bbl. If the actual market price is above the
ceiling price of $17.35 per Bbl, the price received by the Company will be
limited to $17.35 per Bbl.
k. Foreign Currency Translation - The functional currency of Wiser Canada is
the Canadian dollar. In accordance with SFAS No. 52, "Foreign Currency
Translation", Wiser Canada's financial statements have been translated from
Canadian dollars to U.S. dollars with the cumulative translation adjustment
gain of $1,122,000 for 1998 and $915,000 for 1997 classified in Stockholders'
Equity.
l. Comprehensive Income - In 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"("SFAS
130") which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Comprehensive income includes net income and other comprehensive
income, which includes, but is not limited to, unrealized gains for
marketable securities and future contracts, foreign currency translation
adjustments and minimum pension liability adjustments. The impact of
adopting SFAS No. 130 for the three years ended December 31, 1998 was not
material.
2. Liquidity
On March 23, 1999, a financial institution ("New Lender") purchased all of
the rights and obligations of the Credit Agreement from NationsBank of Texas,
N.A. and the Bank of Montreal and became the new Agent under the Credit
Agreement. The outstanding borrowings by the Company under the Credit
Agreement at March 23,1999 and through April 15, 1999 are $21 million.
Subsequently, the Company notified the New Lender that the Company was not
able to maintain one of the ratios required under the Financial Covenants of
the Credit Agreement as of December 31, 1998, and through the date of
notification. On April 15, 1999, the Company and the New Lender entered into
an agreement whereby the Company will repay the outstanding balance under the
Credit Agreement of $21 million plus interest and fees from the anticipated
cash proceeds available from the sale of oil and gas properties as discussed
further below. The Company began negotiating various purchase and sale
agreements to sell a portion of its oil and gas properties prior to March
1999, and plans to use the sales proceeds to reduce existing debt, fund
capital expenditures and for general corporate purposes.
The New Lender has agreed to waive any default or possible event of default
through December 31, 1998, and has agreed to stand still and not to enforce
any remedies under the Credit Agreement relating to any default or event of
default that has occurred or may occur through May 14, 1999. The New Lender
also agreed to deliver releases of its liens on any properties to be sold by
the Company until the outstanding balance of $21 million is repaid in full.
The Company is not in default of any covenants under the 9 1/2% Senior
Subordinated Notes due in May 2007.
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
The Company is pursuing several alternatives that would allow it to repay the
outstanding balance under the Credit Agreement through the sale of oil and
gas properties and/or refinancing. The Company believes the Credit Agreement
will be repaid in full on or before May 14, 1999 from the proceeds of
property sales and/or refinancing as discussed below.
On April 13, 1999, the Company entered into a Purchase and Sale Agreement
with Prince Minerals, Ltd. to sell certain producing and non-producing
mineral interests ("Mineral Properties") for $10 million effective April 1,
1999. The sale is expected to close by April 23, 1999. The producing portion
of the oil and gas properties comprising the Mineral Properties represent
approximately 2% of the Company's total proved oil and gas reserves at
December 31, 1998. The sales proceeds will be used to reduce the outstanding
balance under the Credit Agreement to approximately $11 million. The Purchase
and Sale Agreement with Prince Minerals, Ltd. is subject to the buyer
successfully completing a due diligence review, which was substantially
complete as of April 15, 1999. The Company is not aware of and does not
anticipate any conditions that would delay or terminate the closing of this
sale.
On April 12, 1999, the Company entered into a Purchase and Sale Agreement
with Columbia Natural Resources to sell all of the Company's oil and gas
properties in Kentucky, Tennessee and West Virginia ("Appalachia Properties")
for $28 million effective April 1, 1999. The sale is expected to close on or
before May 12, 1999. The oil and gas properties comprising the Appalachia
Properties represent approximately 15% of the Company's total proved oil and
gas reserves at December 31, 1998. The sales proceeds will be used to repay
in full the outstanding balance under the Credit Agreement, and for general
corporate purposes. The Purchase and Sale Agreement with Columbia Natural
Resources is also subject to the buyer successfully completing a due
diligence review, which was in progress as of April 15, 1999. The Company is
not aware of and does not anticipate any conditions that would delay or
terminate the closing of this sale.
In addition, the Company is negotiating several other purchase and sale
agreements involving a number of smaller, non-strategic oil and gas
properties in Texas and New Mexico that the Company plans to sell for an
aggregate sales price in the range of $7 million to $8 million. These sales
are expected to close in the second quarter of 1999. The sales proceeds will
be used for general corporate purposes.
The Company is currently negotiating with a bank to obtain a new credit
facility. The Company expects to complete the negotiations and obtain a new
credit facility in the second quarter of 1999, however successful completion
of these negotiations cannot be assured. The Company plans to use any funds
provided by a new credit facility to fund capital expenditures and for
general corporate purposes. If a new credit facility is available prior to
the closing date of the Appalachia Properties sale, the Company may use funds
provided by a new credit facility to reduce any existing indebtedness under
the Credit Agreement with the New Lender.
Management of the Company is highly confident that the purchase and sale
agreements for the Mineral and Appalachia Properties discussed above will be
closed as planned and that the funds provided by the property sales will
enable the Company to reduce indebtedness and continue to meet all of its
financial obligations while maintaining a smaller level of capital
expenditures during 1999.
3. Marketable Securities
The Company follows the accounting procedures as established by SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under
SFAS No. 115 marketable securities, such as those owned by the Company, are
classified as available-for-sale securities and are to be reported at market
value, with unrealized gains and losses, net of income taxes, excluded from
earnings and reported as a separate component of stockholders' equity. All of
these securities were liquidated during 1997.
The Company recognized a pretax gain of $7,495,000 and $12,977,000 for 1997
and 1996, respectively, from the sale of its marketable securities.
F-9
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
4. Long-Term Debt
a. On May 21, 1997, the Company sold $125 million in principal amount of 9
1/2% Senior Subordinated Notes ("2007 Notes") due May 15, 2007, providing
net proceeds to the Company of $120,898,000. The original issue price was
99.718%. The Company used the net proceeds from the sale of the 2007 Notes
to repay all outstanding indebtedness under the Credit Agreement and the
Maljamar Credit Facility and for general corporate purposes.
The 2007 Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after May 15, 2002 at a redemption price of
104.75%, plus accrued interest to the date of redemption, and declining at
the rate of 1.583% per year to May 15, 2005 and 100% thereafter. Prior to
May 15, 2000, the Company may, at its option, redeem up to 33 1/3% of the
original principal amount at a redemption price of 109.5%, plus accrued
interest to the date of redemption, with the net proceeds from any future
public offering of Company stock.
Under the terms of the 2007 Notes, the Company must meet certain tests
before it is able to pay cash dividends or make other restricted payments,
incur additional indebtedness, engage in transactions with its affiliates,
incur liens and engage in certain sale and leaseback arrangements. The
terms of the 2007 Notes also limit the Company's ability to undertake a
consolidation, merger or transfer of all or substantially all of its
assets. In addition, the Company is, subject to certain conditions,
obligated to offer to repurchase the 2007 Notes at par value plus accrued
interest to the date of repurchase with the net cash proceeds of certain
sales or dispositions of assets. Upon a change of control, as defined, the
Company will be required to make an offer to purchase the 2007 Notes at
101% of the principal amount thereof, plus accrued interest to the date of
purchase.
b. On June 23, 1994, the Company entered into a Credit Agreement with
NationsBank of Texas, N. A. as agent, which provided for a term loan to
Wiser Canada and a revolving credit facility to the Company. On December
23, 1997, the Credit Agreement was renewed under the same basic terms. The
Credit Agreement provides the Company with up to a $150 million line of
credit through March 31, 2002. The amounts available for borrowing are
determined under formulas related to oil and gas reserves and the Company's
borrowing base at December 31, 1998 was $25 million. The indebtedness
outstanding under the Credit Agreement is secured by a guaranty from Wiser
Canada. Available loan and interest options are (i) Base Rate Advances, at
the bank's prime interest rate plus the Applicable Margin and (ii)
Eurodollar Advances, at LIBOR plus the Applicable Margin. Based on the
amount of outstanding advances, the Applicable Margin ranges between 0% and
1.25% and the commitment fee on the unused borrowing base ranges from 0.25%
to 0.375%. The average interest rate during 1998 under the Credit
Agreement was 6.15%. The Credit Agreement requires the Company to, among
other things, maintain certain financial ratios and imposes certain
restrictions on sales of assets, payment of dividends and incurrence of
indebtedness. At December 31, 1998 and through March 31, 1999, the Company
was not able to maintain one of the financial ratios required by the Credit
Agreement. After March 31, 1999 and through April 15, 1999, the Company was
not able to maintain two of the financial ratios required by the Credit
Agreement. The Company intends to repay the indebtedness under the Credit
Agreement in full in 1999. Accordingly, the outstanding balance of $21
million has been classified as a current liability at December 31, 1998 in
the accompanying Consolidated Balance Sheets. See Note 2 for further
discussion.
F-10
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
c. On November 29, 1995, the Company entered into a credit agreement with
NationsBank of Texas, NA as agent (the "Maljamar Credit Facility"). The
Maljamar Credit Facility provided the Company with up to a $50 million
nonrecourse facility to develop the expanded Maljamar project area. The
average interest rate during 1997 under the Maljamar Credit Facility was
7.49%. The Maljamar Credit Facility was repaid and canceled in May 1997.
The Company paid $12,375,000 in interest during 1998, $8,120,000 during 1997,
and $4,971,000 during 1996.
Long-term debt consists of the following (000's):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
2007 Notes 9.5% interest rate at December 31, 1998......... $124,452 $124,304
Credit Agreement - 6.2% interest rate at December 31, 1998.. 21,000 --
-------- ---------
145,452 124,304
Less current maturities..................................... 21,000 --
-------- ---------
$124,452 $124,304
======== =========
</TABLE>
The annual requirements for reduction of principal of long-term debt
outstanding as of December 31, 1998 are estimated as follows (000's):
1999.................................................... $ --
2000.................................................... --
2001.................................................... --
2002.................................................... --
Thereafter.............................................. 124,452
----------
$ 124,452
==========
F-11
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
5. Income Taxes
The Company provides deferred income taxes for differences between the tax
reporting basis and the financial reporting basis of assets and liabilities.
The Company follows the accounting procedures established by SFAS No. 109,
"Accounting for Income Taxes". The Company paid income taxes of $566,000 in
1997 and $900,000 in 1996.
Income tax expense (benefit) for the three years ended December 31, 1998 were
as follows (000's):
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................................................ $ (1,248) $ 375 $1,911
State.................................................................................. 100 200 105
-------- ------- ------
(1,148) 575 2,016
-------- ------- ------
Deferred:
Federal................................................................................ (9,592) (311) 1,919
State.................................................................................. -- -- 137
-------- ------- ------
(9,592) (311) 2,056
-------- ------- ------
Total income tax expense (benefit)......................................................... $(10,740) $ 264 $4,072
======== ======= ======
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
Statutory federal income tax rate.......................................................... 34.0% 34.0% 34.0%
Statutory depletion in excess of cost basis................................................ -- (5.4) (2.0)
Non-deductible Canadian operating loss..................................................... -- -- 22.6
State taxes, net of federal income taxes................................................... -- 5.8 1.5
Dividends received credit.................................................................. -- (1.3) (1.2)
Non-conventional fuels credit.............................................................. -- (7.3) (14.6)
Other...................................................................................... (3.5) (18.4) (1.5)
-------- ------- ------
Effective tax rate......................................................................... 30.5% 7.4% 38.8%
======== ======= ======
</TABLE>
The deferred tax liabilities and assets at December 31, 1998 and 1997 were
as follows (000's):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities (assets):
Intangible drilling and development cost................................................. $ 13,041 $14,966
Deferred pensions and compensation....................................................... (296) (468)
Alternative minimum tax credit carryforwards............................................. (3,040) (3,040)
Property impairment reserve.............................................................. (2,424) (1,118)
Net operating loss carryforward.......................................................... (6,013) --
Wiser Canada excess property basis....................................................... (3,866) (3,866)
Valuation allowance...................................................................... 3,866 3,866
Other.................................................................................... (582) (62)
-------- -------
$ 686 $10,278
======== =======
</TABLE>
F-12
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
The Company will only realize the benefits of alternative minimum tax credit
carryforwards by generating future regular tax liability in excess of
alternative minimum tax liability. In addition, the Company will only realize
the benefit of the net operating loss carryforward by generating future
taxable income. The Company believes it is more likely than not that both the
net operating loss carryforward and the alternative minimum tax credits will
be fully realized. As of December 31, 1998, Wiser had Canadian net deferred
tax assets of $3,866,000 and a valuation allowance has been provided against
the Canadian net deferred tax assets at December 31, 1998. Beginning in 1997,
Wiser Canada's operating results are included in the Company's consolidated
federal income tax return.
6. Oil and Gas Producing Activities
Set forth below is certain information regarding the aggregate capitalized
costs of oil and gas properties and costs incurred in oil and gas property
acquisitions, exploration and development activities (000's):
<TABLE>
<CAPTION>
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
December 31, 1998:
------------------
Capitalized Costs:
Proved properties................................. $ 261,361 $ 83,668 $ 345,029
Unproved properties............................... 18,007 4,938 22,945
--------- -------- ---------
Total........................................... 279,368 88,606 367,974
Accumulated DD&A.................................. (114,769) (41,825) (156,594)
--------- -------- ---------
Net capitalized cost.............................. $ 164,599 $ 46,781 $ 211,380
========= ======== =========
Costs Incurred during 1998:
Property acquisition.............................. $ 2,946 $ 1,181 $ 4,127
Exploration (A)................................... 12,162 2,147 14,309
Development....................................... 10,226 11,397 21,623
(A) U.S. includes $1,615 for exploration in Peru.
December 31, 1997:
------------------
Capitalized Costs:
Proved properties................................. $ 247,809 $ 76,325 $ 324,134
Unproved properties............................... 17,315 5,206 22,521
--------- -------- ---------
Total........................................... 265,124 81,531 346,655
Accumulated DD&A.................................. (95,038) (34,589) (129,627)
--------- -------- ---------
Net capitalized cost.............................. $ 170,086 $ 46,942 $ 217,028
========= ======== =========
Costs Incurred during 1997:
Property acquisition.............................. $ 22,399 $ 5,377 $ 27,776
Exploration....................................... 8,906 3,461 12,367
Development....................................... 27,380 9,593 36,973
</TABLE>
F-13
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
December 31, 1996:
------------------
Capitalized Costs:
Proved properties......... $ 226,411 $ 62,937 $ 289,348
Unproved properties....... 9,659 7,709 17,368
--------- -------- ---------
Total................... 236,070 70,646 306,716
Accumulated DD&A.......... (100,016) (29,094) (129,110)
--------- -------- ---------
Net capitalized cost...... $ 136,054 $ 41,552 $ 177,606
========= ======== =========
Costs Incurred during 1996:
Property acquisition...... $ 1,782 $ 1,054 $ 2,836
Exploration............... 875 1,888 2,763
Development............... 33,994 6,230 40,224
Gas plants................ 408 -- 408
</TABLE>
7. Employee Pension Plan
The Company has a noncontributory defined benefit pension plan, which covers
substantially all full-time employees. Plan participants become fully vested
after five years of continuous service. The retirement benefit formula is
based on the employee's earnings, length of service and age at retirement.
Contributions required to fund plan benefits are determined according to the
Projected Unit Credit Method. The assets of the plan are primarily invested
in equity and debt securities. An amendment to the pension plan, effective
January 1, 1993, reduced the normal retirement age from 65 years to 62 years.
Effective December 11, 1998, the pension plan was further amended to curtail
certain pension benefits.
The net periodic pension costs (000's) and principal assumptions utilized in
computing pension expense were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
Current service cost........................... $ 375 $ 345 $ 381
Interest cost on projected benefit obligation.. 729 682 824
Actual return on assets........................ (711) (930) 1,890
Curtailment adjustment......................... (778) -- --
Net amortization and deferral.................. 126 384 (2,652)
----- ----- -------
Net periodic pension cost (credit)............. $(259) $ 481 $ 443
===== ===== =======
Discount rate.................................. 7.0% 8.0% 8.0%
Rate of return on plan assets.................. 8.5% 8.5% 8.5%
Rate of increase in compensation levels........ 5.0% 5.0% 5.0%
</TABLE>
F-14
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
The following table presents the actuarial valuation of the plan's funded
status, as of December 31 (000's):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Actuarial present value of pension benefits obligations:
Vested................................................... $9,666 $8,212 $8,155
Nonvested................................................ -- 289 415
------ ------ ------
Accumulated.............................................. 9,666 8,501 8,570
Projected salary increases............................... -- 768 751
------ ------ ------
Projected benefits obligations........................... 9,666 9,269 9,321
Plan assets at fair value................................ 9,477 8,547 8,010
------ ------ ------
Plan assets less than projected benefits obligations..... $ 189 $ 722 $1,311
====== ====== ======
Items not yet recognized:
Unrecognized net gain.................................... $ 16 $1,032 $ 473
Unamortized transition amount............................ 65 87 121
Unamortized prior service cost........................... -- (812) (957)
------ ------ ------
Net pension liability.................................... $ 270 $1,029 $ 948
====== ====== ======
</TABLE>
As a result of the curtailment of certain pension benefits in 1998, the
Company's net pension liability was reduced by $778,000.
8. Employee Savings Plan
The Company has a qualified Savings Plan available to all employees. An
employee may elect to have up to 15% of the employee's base monthly
compensation, exclusive of other forms of special or extra compensation,
withheld and placed in the Savings Plan account. On a monthly basis, the
Company contributes to this account an amount equal to 50% of the employee's
contribution, limited to 3% of the employee's base compensation. Company
contributions to the Savings Plan were $156,000, $142,000 and $126,000, in
1998, 1997 and 1996, respectively.
F-15
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
9. Business Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires reporting of financial and
descriptive information about a company's reportable operating segments. The
Company has identified only one operating segment, which is the exploration
for and production of oil and gas with sales made to domestic and Canadian
energy customers. Sales to major customers for the year ended December 31,
1998 were $20,684,000 to Highland Energy Company and $7,656,000 to Koch Oil
Co. Ltd. which represented 34% and 13%, respectively, of the Company's total
oil and gas revenues. The sales to Koch Oil Co. Ltd. accounted for
approximately 55% of the Company's revenues from sales of its Canadian
production in 1998. However, due to the nature of the oil and gas industry,
the Company is not dependent upon any of these customers. The loss of any
major customer would not have a material adverse impact on the Company's
business.
The following table summarizes the oil and gas activity of the Company by
geographic area for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
1998:
-----
Total revenues....................... $ 46,328 $14,302 $ 60,630
Costs and expenses:
Production and operating........... 22,217 4,312 26,529
Purchased natural gas.............. 1,440 -- 1,440
DD&A............................... 16,548 9,263 25,811
Property impairments............... 1,766 2,072 3,838
Exploration........................ 13,046 2,282 15,328
Other operating.................... 20,891 1,999 22,890
-------- ------- --------
Total costs and expenses........ 75,908 19,928 95,836
-------- ------- --------
Earnings (loss) before income taxes.. (29,580) (5,626) (35,206)
Income tax expense (benefit)......... (10,740) -- (10,740)
-------- ------- --------
Net income (loss).................... $(18,840) $(5,626) $(24,466)
======== ======= ========
Identifiable assets (end of year)......... $181,013 $50,797 $231,810
======== ======= ========
</TABLE>
F-16
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
U.S. Canada Total
--------- --------- ---------
<S> <C> <C> <C>
1997:
-----
Total revenues..................... $ 71,706 $16,109 $ 87,815
Costs and expenses:
Production and operating......... 23,058 4,125 27,183
Purchased natural gas............ 1,622 -- 1,622
DD&A............................. 14,032 8,945 22,977
Property impairments............. 1,786 1,503 3,289
Exploration...................... 6,956 2,699 9,655
Other operating.................. 16,407 3,099 19,506
-------- ------- --------
Total costs and expenses...... 63,861 20,371 84,232
-------- ------- --------
Earnings before income taxes....... 7,845 (4,262) 3,583
Income tax expense................. 264 -- 264
-------- ------- --------
Net income......................... $ 7,581 $(4,262) $ 3,319
======== ======= ========
Identifiable assets (end of year).. $202,474 $52,082 $254,556
======== ======= ========
1996:
-----
Total revenues..................... $ 69,595 $17,094 $ 86,689
Costs and expenses:
Production and operating......... 20,288 3,682 22,970
Purchased natural gas............ 1,462 -- 1,462
DD&A............................. 11,783 7,870 19,653
Property impairments............. 7,276 4,836 12,112
Exploration...................... 1,837 2,339 4,176
Other operating.................. 9,475 5,341 14,816
-------- ------- --------
Total costs and expenses...... 52,121 24,068 76,189
-------- ------- --------
Earnings before income taxes....... 17,474 (6,974) 10,500
Income tax expense................. 4,072 -- 4,072
-------- ------- --------
Net income......................... $ 13,402 $(6,974) $ 6,428
======== ======= ========
Identifiable assets (end of year).. $161,687 $46,930 $208,617
======== ======= ========
</TABLE>
10. Stock Compensation Plans
Stock Options
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. During 1996, the Company adopted the
disclosure provisions of SFAS No. 123. The Company continues to apply the
accounting provisions of APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations to account for stock-based
compensation. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at
the date of the grant over the amount an employee must pay to acquire the
stock.
F-17
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
The Company has two stock option plans, the 1991 Stock Incentive Plan
("Incentive Plan") and the 1991 Non-Employee Directors' Stock Option Plan
("Directors' Plan"). The Incentive Plan provides for the issuance of ten-
year options with a variable vesting period and a grant price equal to the
fair market value at the issue date. The Directors' Plan, as amended,
provides for the issuance of ten-year options with a six month vesting period
and a grant price equal to the fair market value at the issue date.
A summary of the status of the Company's two stock option plans at December
31, 1998, 1997 and 1996 and changes during the years then ended follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------------ -----------------------
Exercise Exercise Exercise
Shares Price(1) Shares Price(1) Shares Price(1)
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.. 1,022,475 $15.62 879,500 $15.02 254,500 $16.88
Granted........................... 10,500 11.94 164,500 18.87 647,250 14.35
Exercised......................... -- -- (15,025) 15.68 -- --
Expired and cancelled............. (5,625) 11.25 (6,500) 15.76 (22,250) 16.88
---------- ------ ---------- ------ -------- ------
Outstanding at end of year........ 1,027,350 $15.61 1,022,475 $15.62 879,500 $15.02
========== ====== ========== ====== ======== ======
Exercisable at end of year........ 868,850 $15.40 773,975 $15.23 145,650 $16.47
========== ====== ========== ====== ======== ======
Fair value of options granted(1).. $3.66 $6.07 $4.30
========== ========== ========
</TABLE>
(1) Weighted average per option granted.
667,750 of the 1,027,350 options outstanding at December 31, 1998 have
exercise prices between $11 and $15, with a weighted average exercise price
of $14.35 and a weighted average remaining contractual life of 7.7 years.
609,750 of these options are currently exercisable with a weighted average
exercise price of $14.60. The remaining 359,600 options have exercise
prices between $15 and $20, with a weighted average exercise price of
$17.94 and a weighted average contractual life of 6.3 years. 259,100 of
these options are currently exercisable with a weighted average exercise
price of $17.30.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants for both the Incentive Plan and the Directors'
Plan:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Risk free interest rate... 5.58% 6.29% 6.36%
Expected dividend yields.. 1.01% .64% .84%
Expected lives, in years.. 5.00 5.06 4.85
Expected volatility....... 25.99% 23.66% 22.22%
</TABLE>
F-18
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997 and 1996
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income and basic earnings per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Net income (loss) - as reported (in thousands).. $(24,466) $3,319 $6,428
Net income (loss) - pro forma (in thousands).... (24,685) 2,256 5,576
Earnings (loss) per share - as reported......... $ (2.73) $ .37 $ .72
Earnings (loss) per share - pro forma........... (2.76) .25 .62
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of compensation cost to be expected in future
years.
Share Appreciation Rights Plan
The Company has a share appreciation rights ("SARs") plan which authorizes
the granting of SARs to employees of the Company. Upon exercise, SARs allow
the holder to receive the difference between the SARs exercise price and the
fair market value of the Company's common stock covered by the SARs on the
exercise date. The holders of the SARs vest at 25% per year and the SARs
expire at the earlier of 5 years or termination of employment. At December
31, 1998, 85,000 SARs were outstanding with an exercise price of $14.63 per
share.
11. Preferred Stock
In addition to Common Stock, the Company is authorized to issue 300,000 shares
of Preferred Stock with a par value of $10 per share, none of which has been
issued.
12. Earnings Per Share
The Company accounts for earnings per share ("EPS") in accordance with SFAS
No. 128, "Earnings Per Share". Under SFAS No. 128, basic EPS is computed by
dividing net income by the weighted average common shares outstanding without
including any potentially dilutive securities. Diluted EPS is computed by
dividing net income by the weighted average common shares outstanding plus,
when their effect is dilutive, common stock equivalents consisting of stock
options. Previously reported EPS were equivalent to the diluted EPS calculated
under SFAS No. 128. Following are the weighted average common shares
outstanding used in the computation of basic EPS and diluted EPS for the years
ended December 31, 1998, 1997 and 1996 (000's):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Basic EPS shares.... 8,952 8,949 8,939
===== ===== =====
Diluted EPS shares.. 8,952 8,982 8,954
===== ===== =====
</TABLE>
F-19
<PAGE>
THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
The following pages include unaudited supplemental financial information as
currently required by the Securities and Exchange Commission (SEC) and the
Financial Accounting Standards Board.
13. Estimated Quantities of Oil and Gas Reserves (Unaudited)
Proved reserves are the estimated quantities of crude oil, natural gas and
natural gas liquids, which upon analysis of geological and engineering data
appear with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserves which can be expected to be recovered through
existing wells with existing equipment and under existing operating
conditions.
The estimation of reserves requires substantial judgment on the part of
petroleum engineers and may result in imprecise determinations, particularly
with respect to new discoveries. Accordingly, it is expected that the
estimates of reserves will change as future production and development
information becomes available and that revisions in these estimates could be
significant.
F-20
<PAGE>
THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
Following is a reconciliation of the Company's estimated net quantities of
proved oil and gas reserves, as estimated by independent petroleum consultants.
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------------------------- ------------------------------
U.S. Canada Total U.S. Canada Total
------- ----------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995...................... 28,440 3,768 32,208 84,950 24,965 109,915
Revisions of previous estimates.............. (301) (25) (326) 2,738 (535) 2,203
Properties sold and abandoned................ (78) -- (78) (72) -- (72)
Reserves purchased in place.................. 12 -- 12 17 505 522
Extensions, discoveries and other additions.. 2,040 533 2,573 10,787 1,705 12,492
Production................................... (2,033) (744) (2,777) (8,874) (2,809) (11,683)
------ ----- ------ ------- ------ -------
Balance December 31, 1996...................... 28,080 3,532 31,612 89,546 23,831 113,377
Revisions of previous estimates.............. (2,614) 274 (2,340) 1,208 1,988 3,196
Properties sold and abandoned................ (810) (344) (1,154) (902) (2,606) (3,508)
Reserves purchased in place.................. 1,493 1,013 2,506 8,961 -- 8,961
Extensions, discoveries and other additions.. 1,205 653 1,858 7,601 2,667 10,268
Production................................... (2,037) (724) (2,761) (9,466) (2,734) (12,200)
------ ----- ------ ------- ------ -------
Balance December 31, 1997...................... 25,317 4,404 29,721 96,948 23,146 120,094
Revisions of previous estimates.............. (2,773) 689 (2,084) (4,001) 1,362 (2,639)
Properties sold and abandoned................ (215) (118) (333) (237) (882) (1,119)
Reserves purchased in place.................. 2,686 -- 2,686 319 -- 319
Extensions, discoveries and other additions.. 407 306 713 12,971 4,111 17,082
Production................................... (1,837) (878) (2,715) (10,535) (3,221) (13,756)
------ ----- ------ ------- ------ -------
Balance December 31, 1998...................... 23,585 4,403 27,988 95,465 24,516 119,981
====== ===== ====== ======= ====== =======
Proved Developed Reserves at December 31, (1):
1995......................................... 17,939 3,617 21,556 77,915 24,111 102,026
1996......................................... 24,892 3,225 28,117 80,652 22,477 103,129
1997......................................... 23,798 4,404 28,202 87,688 21,771 109,459
1998......................................... 22,701 4,253 26,954 86,610 23,736 110,346
</TABLE>
(1) Reserve volumes as assigned by third party engineers have been increased
to reflect the effect of the Alberta Royalty Tax Credit refund. Total
proved and proved developed reserves were increased by 186 MBBL and 1,258
MMCF for 1996, 364 MBBL and 1,914 MMCF for 1997 and 389 MBBL and 2,088 MMCF
for 1998.
Standardized Measure of Discounted Future
Net Cash Flows of Proved Oil and Gas Reserves (Unaudited)
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting
Standards Board through its Statement No. 69. The estimates of future cash
inflows and future production and development cost are based on current year
end sales prices for oil and gas. Estimated future production of proved
reserves and estimated future production and development costs of proved
reserves are based on current costs and economic conditions.
F-21
<PAGE>
THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
This standardized measure of discounted future net cash flows is an attempt
by the Financial Accounting Standards Board to provide the users of financial
statements with information regarding future net cash flows from proved
reserves. However, the users of these financial statements should use
extreme caution in evaluating this information. The assumptions required to
be used in these computations are subjective and arbitrary. Had other
equally valid assumptions been used, significantly different results of
discounted future net cash flows would result. Therefore, these estimates do
not necessarily reflect the current value of the Company's proved reserves or
the current value of discounted future net cash flows for the proved
reserves.
The following are the Company's estimated standardized measure of discounted
future net cash flows from proved reserves (000's):
<TABLE>
<CAPTION>
U.S. Canada Total
------------ ---------- ------------
<S> <C> <C> <C>
December 31, 1998:
------------------
Future cash flows....................................... $ 440,715 $ 87,869 $ 528,584
Future production and development costs................. (278,468) (31,147) (309,615)
Future income tax expense............................... (15,091) (5,063) (20,154)
---------- -------- ----------
Future net cash flows................................... 147,156 51,659 198,815
10% Annual discount for estimated timing of cash flows.. (67,065) (18,518) (85,583)
---------- -------- ----------
Standardized measure of discounted cash flows.......... $ 80,091 $ 33,141 $ 113,232
========== ======== ==========
December 31, 1997:
------------------
Future cash flows....................................... $ 650,810 $ 98,143 $ 748,953
Future production and development costs................. (357,598) (32,062) (389,660)
Future income tax expense............................... (60,477) (6,512) (66,989)
---------- -------- ----------
Future net cash flows................................... 232,735 59,569 292,304
10% Annual discount for estimated timing of cash flows.. (97,116) (20,699) (117,815)
---------- -------- ----------
Standardized measure of discounted cash flows.......... $ 135,619 $ 38,870 $ 174,489
========== ======== ==========
December 31, 1996:
------------------
Future cash flows....................................... $1,029,971 $116,203 $1,146,174
Future production and development costs................. (415,276) (25,175) (440,451)
Future income tax expense............................... (172,024) -- (172,024)
---------- -------- ----------
Future net cash flows................................... 442,671 91,028 533,699
10% Annual discount for estimated timing of cash flows.. (187,332) (29,187) (216,519)
---------- -------- ----------
Standardized measure of discounted cash flows........... $ 255,339 $ 61,841 $ 317,180
========== ======== ==========
</TABLE>
F-22
<PAGE>
THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
The following are the sources of changes in the standardized measure of
discounted net cash flows (000's):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Standardized measure, beginning of year................. $174,489 $ 317,180 $194,602
Sales, net of production costs.......................... (31,445) (47,959) (46,580)
Net change in price and production costs................ (78,321) (204,859) 142,806
Reserves purchased in place............................. 1,817 30,570 581
Extensions, discoveries and improved recoveries......... 11,259 11,751 42,582
Change in future development costs...................... 9,316 16,339 27,080
Revisions of previous quantity estimates and disposals.. (4,846) (6,992) 314
Sales of reserves in place.............................. (1,698) (10,756) (987)
Accretion of discount................................... 21,007 41,431 23,542
Changes in timing and other............................. (13,327) (33,752) (10,440)
Net change in income taxes.............................. 24,981 61,536 (56,320)
-------- --------- --------
Standardized measure, end of year....................... $113,232 $ 174,489 $317,180
======== ========= ========
</TABLE>
14. Quarterly Financial Data
The supplementary financial data in the table below for each quarterly period
within the years ended December 31, 1998 and 1997 are derived from the
unaudited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Net Earnings
Income (Loss)
Revenues (Loss) Per Share
--------- --------- ----------
(000's) (000's)
<S> <C> <C> <C>
1998:
First quarter... $17,415 $(3,556) $(.40)
Second quarter.. 16,019 (4,675) (.52)
Third quarter... 13,833 (8,153) (.91)
Fourth quarter.. 13,363 (8,082) (.90)
1997:
First quarter... $25,575 $ 6,141 $ .69
Second quarter.. 17,826 (1,944) (.22)
Third quarter... 17,027 (1,878) (.21)
Fourth quarter.. 27,387 1,000 .11
</TABLE>
F-23
<PAGE>
THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
15. Summary of Guaranties of 9 1/2% Senior Subordinated Notes
In May 1997, the Company issued $125 million aggregate principal amount of
its 9 1/2% senior Subordinated Notes due 2007 pursuant to an offering exempt
from registration under the Securities Act of 1933. The notes are unsecured
obligations of the Company, subordinated in right of payment to all existing
and any future senior indebtedness of the Company. The notes rank pari passu
with any future senior subordinated indebtedness and senior to any future
junior subordinated indebtedness of the Company. The notes are fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by certain wholly owned subsidiaries of the Company (the
"Subsidiary Guarantors"). At the time of the initial issuance of the notes,
Wiser Oil Delaware, Inc., The Wiser Marketing Company, Wiser Delaware LLC,
T.W.O.C., Inc. and The Wiser Oil Company of Canada were the Subsidiary
Guarantors (the "Initial Subsidiary Guarantors"). Except for two wholly
owned subsidiaries that are inconsequential to the Company on a consolidated
basis, the Initial Subsidiary Guarantors comprise all of the Company's direct
and indirect subsidiaries.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following unaudited summarized financial information of
the Subsidiary Guarantors. The Company has not presented separate financial
statements and other disclosures concerning each Subsidiary Guarantor because
such information is not material to investors. There are no significant
contractual restrictions on distributions from each of the Subsidiary
Guarantors to the Company.
F-24
<PAGE>
THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
Subsidiary Guarantors
-------------------------------------------
The Wiser
Wiser T.W.O.C. Marketing Combined
Canada(1) Inc. Company Total
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
For the Year Ended December 31, 1998.. $ 14,303 $ 1 $2,141 $ 16,445
For the Year Ended December 31, 1997.. 16,109 7,687 2,304 26,100
For the Year Ended December 31, 1996.. 17,094 16,304 2,237 35,635
Earnings (Loss) Before Income Taxes:
For the Year Ended December 31, 1998.. $ (5,626) $ (14) $ 243 $ (5,397)
For the Year Ended December 31, 1997.. (4,262) 7,671 231 3,640
For the Year Ended December 31, 1996.. (6,974) 16,287 338 9,651
Net Income (Loss):
For the Year Ended December 31, 1998.. $ (3,882) $ (10) $ 168 $ (3,724)
For the Year Ended December 31, 1997.. (3,947) 7,103 214 3,370
For the Year Ended December 31, 1996.. (6,974) 12,492 259 5,777
Current Assets:
December 31, 1998..................... $ 3,782 $ 3 $ 213 $ 3,998
December 31, 1997..................... 4,808 44 165 5,017
December 31, 1996..................... 4,958 53 170 5,181
Total Assets:
December 31, 1998..................... $ 50,797 $ 3 $ 526 $ 51,326
December 31, 1997..................... 52,083 44 492 52,619
December 31, 1996..................... 39,132 7,229 718 47,079
Current Liabilities:
December 31, 1998..................... $ 4,806 $ -- $ 361 $ 5,167
December 31, 1997..................... 6,646 -- 250 6,896
December 31, 1996..................... 4,931 -- 508 5,439
Noncurrent Liabilities:
December 31, 1998..................... $ 17,846 $ -- $ -- $ 17,846
December 31, 1997..................... 9,474 -- -- 9,474
December 31, 1996..................... 52,439 2,227 -- 54,666
Stockholders' Equity (Deficit):
December 31, 1998..................... $ 28,145 $ 3 $ 165 $ 28,313
December 31, 1997..................... 35,963 44 242 36,249
December 31, 1996..................... (18,238) 5,002 210 (13,026)
</TABLE>
(1) Includes the accounts of Wiser Oil Delaware, Inc., Wiser Delaware LLC and
The Wiser Oil Company of Canada.
F-25
<PAGE>
EXHIBIT 4.13b
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
This Second Amendment to Credit Agreement (this "Second Amendment") is
----------------
entered into as of the 11 day of January, 1999, by and among The Wiser Oil
Company, a Delaware corporation ("Borrower"), NationsBank, N.A. (successor by
--------
merger to NationsBank of Texas, N.A.), as Agent ("Agent"), and NationsBank, N.A.
-----
(successor by merger to NationsBank of Texas, N.A.) and Bank of Montreal, as
Banks ("Banks").
-----
W I T N E S S E T H
-------------------
WHEREAS, Borrower, Agent and Banks are parties to that certain Credit
Agreement dated as of December 23, 1997 as amended by that certain First
Amendment to Credit Agreement dated as of September 30, 1998 (as amended, the
"Credit Agreement") (unless otherwise defined herein, all terms used herein with
- -----------------
their initial letter capitalized shall have the meaning given such terms in the
Credit Agreement); and
WHEREAS, pursuant to the Credit Agreement, Banks have made a certain Loan
to Borrower and provided certain other credit accommodations to Borrower; and
WHEREAS, the Borrower has requested that certain of the Banks or their
Affiliates enter into Hedge Transactions with the Borrower and its Subsidiaries;
and
WHEREAS, Banks and their Affiliates have required, as a condition to
entering into certain Hedge Transactions with Borrower and its Subsidiaries,
that the Credit Agreement be amended to provide that all property standing as
security for the Obligations will secure the Borrower's and its Subsidiaries"
obligations under certain Hedge Transactions on ratable basis with the Notes.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrower, Agent and Banks hereby agree as follows:
Section 1. Amendments. In reliance on the representations, warranties,
--------- ----------
covenants and agreements contained in this Second Amendment, the Credit
Agreement shall be amended effective January 11, 1999 (the "Effective Date") in
--------------
the manner provided in this Section 1.
---------
1.1 Additional Definitions. Section 1.1 of the Credit Agreement shall be
----------------------
amended to add the definitions of "Collateral," "Estimated Contingent Hedge
---------- --------------------------
Liability Percentage," "Estimated Contingent Hedge Transaction Amount," "Fixed
- -------------------- --------------------------------------------- -----
Hedge Liability Percentage," "Fixed Hedge Transaction Amount," "Hedge
- -------------------------- ------------------------------ -----
Transaction Amount," "Hedge Transaction Percentage," "Loan Obligations," "Loan
- ------------------ ---------------------------- ---------------- ----
Percentage," "Second Amendment," "Secured Affiliate," "Secured Hedge
- ---------- ---------------- ----------------- -------------
Transaction," and "Secured Hedge Transaction Obligations,"and which shall read
-------------------------------------
in full as follows:
"Collateral" means any and all Property of Borrower or a Subsidiary of
----------
Borrower subject to any Lien securing payment or performance of the
Obligations.
"Estimated Contingent Hedge Liability Percentage" means, on any date,
-----------------------------------------------
the decimal, expressed as a percentage, determined by dividing (i) the
Estimated Contingent Hedge Transaction Amount on such date by (ii) the
Hedge Transaction Amount on such date.
<PAGE>
"Estimated Contingent Hedge Transaction Amount" means, on any date,
---------------------------------------------
with respect to Secured Hedge Transaction Obligations that are not
absolute, fixed, liquidated liabilities of Borrower or a Subsidiary of
Borrower on such date, the amount estimated by Agent in good faith in
accordance with the Hedge Transaction Documents (as defined in Section
-------
3A.3) and its customary policies and procedures to be the amount which
would be the Fixed Hedge Transaction Amount under the Secured Hedge
Transactions pursuant to which such Secured Hedge Transaction Obligations
arose if such Secured Hedge Transactions were terminated on such date.
"Fixed Hedge Liability Percentage" means, on any date, the decimal,
--------------------------------
expressed as a percentage, determined by dividing (i) the Fixed Hedge
Transaction Amount on such date by (ii) the Hedge Transaction Amount on
such date.
"Fixed Hedge Transaction Amount" means, on any date, the amount of
------------------------------
Secured Hedge Transaction Obligations outstanding on such date which
constitute absolute, fixed, liquidated liabilities of Borrower or a
Subsidiary of Borrower and which are due and payable on such date in
accordance with the Hedge Transaction Documents as reflected in written
notices from the Banks or Secured Affiliates which are parties to such
Secured Hedge Transactions addressed to Agent specifying (a) that each such
Secured Hedge Transaction Obligation have become an absolute, fixed,
liquidated liability of Borrower or a Subsidiary of Borrower, (b) the
amount thereof, and (c) the calculation of such amount in detail reasonably
acceptable to Agent.
"Hedge Transaction Amount" means, on any date, the sum of (a) the
------------------------
Fixed Hedge Transaction Amount on such date, plus (b) the Estimated
Contingent Hedge Transaction Amount on such day.
"Hedge Transaction Percentage" means, on any date, the decimal,
----------------------------
expressed as a percentage, determined by dividing (a) the Hedge Transaction
Amount on such date, by (b) the sum of (i) the aggregate outstanding
principal balance of the Loan and all accrued but unpaid interest thereon
on such date, plus (ii) the Hedge Transaction Amount on such date.
"Loan Obligations" means all present and future indebtedness,
----------------
obligations and liabilities, and all renewals and extensions thereof, or
any part thereof, of Borrower or any of its Subsidiaries to any Bank
arising pursuant to this Agreement, the Notes, the Letters of Credit, or
the other Loan Papers, and all interest accrued thereon and costs, expenses
and attorneys fees incurred in the enforcement or collection thereof,
regardless of whether such indebtedness obligations and liabilities are
direct, indirect, fixed, contingent, liquidated, unliquidated, joint,
several or joint and several.
"Loan Percentage" means, on any day, the decimal, expressed as a
---------------
percentage, determined by dividing (a) the aggregate outstanding principal
balance of the Loan and all accrued but unpaid interest thereon as of such
date, by (b) the sum of (i) the aggregate outstanding principal balance of
the Loan and all accrued but unpaid interest thereon on such date, plus
(ii) the Hedge Transaction Amount on such date.
"Second Amendment" means that certain Second Amendment to Credit
----------------
Agreement dated as of January 11, 1999 among Borrower, Agent and Banks.
2
<PAGE>
"Secured Affiliate" means any Affiliate of any Bank that has entered
-----------------
into a Secured Hedge Transaction with Borrower or any Subsidiary of
Borrower.
"Secured Hedge Transaction" means any Hedge Transaction entered into
-------------------------
between Borrower or any of its Subsidiaries, on the one hand, and any Bank
or any Affiliate of any Bank, on the other hand, which has been designated
in writing as a "Secured Hedge Transaction" by Banks holding seventy-five
percent (75%) or more of the Total Commitment.
"Secured Hedge Transaction Obligations" means all present and future
-------------------------------------
indebtedness, obligations and liabilities, and all renewals and extensions
thereof, or any part thereof, of Borrower or any of its Subsidiaries, to
any Bank or any Secured Affiliate arising under or pursuant to any Secured
Hedge Transaction, including all costs, expenses, and attorneys" fees
incurred in the enforcement or collection thereof, regardless of whether
such indebtedness, obligations or liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several.
1.2 Amendment to Definitions. The definitions of "Loan Papers," and
------------------------ -----------
"Obligations" contained in Section 1.1 of the Credit Agreement shall be amended
- ------------
to read in full as follows:
"Loan Papers" means this Agreement, the First Amendment, the Second
-----------
Amendment, the Notes, each Subsidiary Guaranty, all Security Documents now
or at any time hereafter delivered pursuant to Article IIIA, and all other
------------
certificates, documents or instruments delivered in connection with this
Agreement, as the foregoing may be amended from time to time.
"Obligations" means, collectively (a) the Loan Obligations, and (b)
-----------
all Secured Hedge Transaction Obligations.
1.3 Amendment to Certain Provisions Regarding Payments. Section 4.2 shall
--------------------------------------------------
be amended to read in full as follows:
SECTION 4.2. General Provisions as to Payments. (a) Each payment of
---------------------------------
principal of, and interest on, the Loan and all fees payable hereunder
shall be paid not later than 12:00 noon (Dallas, Texas time) on the date
when due, in Federal or other immediately available funds to Agent at its
address referred to in Section 13.1.
------------
(b) All principal payments received by Banks in respect of the Loan
shall be applied, first, to Advances with Interest Periods ending on the
date of such payment, then to Base Rate Advances, then to Eurodollar
Advances (as Borrower shall elect but in the absence of such election, in
such order as Agent shall elect), next maturing until such principal
payment is fully applied, with such adjustments in such order of payment as
Agent shall specify in order that each Bank receives its ratable share of
each such payment.
(c) From and after the occurrence of any Event of Default, all amounts
collected or received by any Bank in respect of the Loan Obligations, shall
be delivered to Agent and shall be disbursed by Agent (together with all
other amounts collected or received by Agent in respect of the Loan
Obligations) first to the payment of all proper costs incurred by Agent in
connection with the collection thereof (including, reasonable expenses and
3
<PAGE>
disbursements of Agent), second to the payment of all proper costs incurred
by Banks in connection with the collection thereof (including reasonable
expenses and disbursements of Banks, but only to the extent Borrower is
obligated therefor under the Loan Papers), third to the reimbursement of
any advances made by Banks to effect performance by Banks of any
unperformed covenants of Borrower under any of the Loan Papers, fourth to
any unpaid agency fees required pursuant to Section 2.10, fifth to satisfy
------------
indemnity obligations of the Borrower and its Subsidiaries arising
hereunder and under the other Loan Papers, and sixth, to each Bank in
accordance with its Commitment Percentage (and any amount disbursed to any
Bank pursuant to this clause "sixth" shall be applied by such Bank to pay
the following items in the following order: (i) accrued but unpaid fees
owing to such Bank pursuant to Section 2.9, (ii) accrued but unpaid
-----------
interest owing to such Bank, and (iii) to the principal of the Loan owing
to such Bank).
(d) Notwithstanding anything contained herein to the contrary, all
amounts received by Agent which constitute proceeds ("Proceeds") of
--------
Collateral and which either (i) are received by Agent after the
acceleration of the maturity of the Loan Obligations or any failure by
Borrower to pay such Loan Obligations in full at the Termination Date, or
(ii) result from any sale, lease, transfer or other disposition of
Collateral which is not permitted pursuant to Section 9.5 hereof, shall be
-----------
disbursed by Agent first to the payment of all proper costs incurred by
Agent in connection with the collection thereof (including reasonable
expenses and disbursements of Agent), and any Proceeds remaining after the
payment of such proper costs incurred by Agent (any "Remaining Proceeds")
------------------
shall be disbursed on the effective date of receipt in accordance with
clauses (i) and (ii) below based on the Loan Percentage and the Hedge
Transaction Percentage in effect on such date:
(i) an amount equal to the Loan Percentage of all Remaining
Proceeds received on such date will be disbursed to satisfy Loan
Obligations and applied in the manner required by clause (c) preceding; and
(ii) an amount equal to the Hedge Transaction Percentage of such
Remaining Proceeds (the "Hedge Allocated Amount") will be disbursed to
----------------------
satisfy or secure Secured Hedge Transaction Obligations in the following
manner:
(A) the Fixed Hedge Liability Percentage of the Hedge
Allocated Amount shall be disbursed to each Bank or Secured Affiliate based
on the percentage of the Fixed Hedge Transaction Amount held by each Bank
or Secured Affiliate on such day; and
(B) the Estimated Contingent Hedge Liability Percentage of
the Hedge Allocated Amount shall be held by Agent for the ratable benefits
of all Banks and Secured Affiliates which hold Secured Hedge Transaction
Obligations to secure the Obligations (the "Cash Hedging Collateral").
-----------------------
Borrower will execute or deliver and cause its Subsidiaries to execute and
deliver such security agreements in form and substance satisfactory to
Agent which Agent may, in its discretion, require to fully evidence and
perfect the Liens held by it in such Cash Hedging Collateral (however, the
failure of Borrower to execute and deliver any such security agreement
shall not limit or impair the Liens of Agent in and to such Cash Hedging
Collateral). Thereafter, in the event Estimated Contingent Hedge
Transaction Amounts become Fixed Hedge Transaction Amounts, Agent shall
disburse Cash Hedging Collateral to pay such Fixed Hedge Transaction
Amounts. At such intervals as Agent shall determine, but not less
frequently than monthly, Agent shall
4
<PAGE>
redetermine the Estimated Contingent Hedge Transaction Amount. To the
extent the Cash Hedging Collateral exceeds the Estimated Contingent Hedge
Transaction Amount as then redetermined, such excess shall be disbursed by
Agent and applied to satisfy the Loan Obligations in the manner set forth
in Section 4.2(c) above.
--------------
1.4 Amendment to Certain Collateral Provisions. Sections 3A.1(a) and (b)
------------------------------------------
shall be amended to read in full as follows:
SECTION 3A.1. Security. (a) In addition to the Collateral required
--------
by Section 2.1(b) and Section 4.2(d), the Obligations shall be secured by
-------------- --------------
first and prior Liens (subject only to Permitted Encumbrances) covering and
encumbering the Initial Mortgaged Properties, the Secondary Mortgaged
Properties and such other Mineral Interests owned by Borrower and its
Subsidiaries which are specified by Required Banks from time to time.
Promptly following the Effective Date of the Second Amendment, and in all
events not later than October 16, 1998 (in the case of the Initial
Mortgaged Properties) and October 23, 1998 (in the case of the Secondary
Mortgaged Properties), Borrower shall execute and deliver and shall cause
each of the Subsidiary Guarantors to execute and deliver, to Agent for the
ratable benefit of each Bank and the Secured Affiliates, mortgages, deeds
of trust, security agreements, assignments of production and financing
statements and such other documents, instruments, agreements, assignments,
conveyances, amendments and other writings, including, without limitation,
UCC-1 financing statements (each duly authorized and executed) (the
"Security Documents") as Agent shall deem necessary or appropriate all in
-------------------
form and substance acceptable to Agent to grant, evidence and perfect first
and prior Liens in all Initial Mortgaged Properties and Secondary Mortgaged
Properties.
(b) In addition to the Security Documents required by Section 3A.2(a),
---------------
Borrower shall execute and deliver to Agent, for the ratable benefit of
each Bank and the Secured Affiliates, such additional Security Documents
granting, evidencing and perfecting the Liens required by Section 6.1(a)
--------------
preceding with respect to such other Mineral Interests as Agent or Required
Banks shall specify from time to time.
1.5 Secured Hedge Transactions. Article IIIA of the Agreement shall be
--------------------------
amended to add a new Section 3A.3 thereto which shall read in full as follows:
SECTION 3A.3. Secured Hedge Transactions. In the event any Bank or
--------------------------
any Affiliate of any Bank proposes to enter into any Hedge Transaction with
any Borrower or any Subsidiary of Borrower and such Bank or such Affiliate
intends that such Hedge Transaction be classified as a "Secured Hedge
Transaction" for purposes of this Credit Agreement, the Security
Instruments and the other Loan Papers, such Bank or Affiliate shall deliver
notice of such intent to Agent and each other Bank which notice shall be
accompanied by copies (in draft form) of all documentation (including all
exhibits, schedules and confirmations) to be entered into, in final form
and completed to the extent practical at such time, but including, in all
events, the term of such Hedge Transaction and the notional volume of
Hydrocarbons which will be the subject of such Hedge Transaction (the
"Hedge Transaction Documents"). The Banks may, but shall have no
----------------------------
obligation to, designate such Hedge Transaction as a Secured Hedge
Transaction for purposes of this Agreement and the other Loan Papers. Any
such designation shall be evidenced by a written instrument executed by
Banks holding seventy five percent (75%) or more of the Total Commitment,
and in the absence of such written designation, such Hedge Transaction
shall not be considered a "Secured Hedge Transaction" for purposes of this
Agreement or any of the
5
<PAGE>
other Loan Papers. In the event any Hedge Transaction is designated a
Secured Hedge Transaction, the Hedge Transaction Documents related thereto
shall be executed substantially in the form provided to Agent and the other
Banks, and appropriately completed (but in all events, providing for the
same term and notional volume of Hydrocarbons set forth in the drafts of
such documents provided to the Banks), and Agent shall be provided with
true and correct copies of such Hedge Transaction Documents promptly upon
execution thereof. BORROWER ACKNOWLEDGES AND AGREES THAT NO BANK NOR ANY
AFFILIATE OF ANY BANK HAS ANY OBLIGATION UNDER THIS AGREEMENT OR ANY OTHER
LOAN PAPER TO ENTER INTO ANY HEDGE TRANSACTION OF ANY TYPE WITH BORROWER,
REGARDLESS OF WHETHER OR NOT SUCH HEDGE TRANSACTION WOULD CONSTITUTE A
SECURED HEDGE TRANSACTION FOR PURPOSES OF THIS AGREEMENT OR ANY OTHER LOAN
PAPER.
1.6 Third Party Beneficiaries. Section 13.14 of the Agreement shall be
-------------------------
amended to read in full as follows:
SECTION 13.14 No Third Party Beneficiaries. It is expressly intended
----------------------------
that there shall be no third party beneficiaries of the covenants,
agreements, representations or warranties herein contained other than (a)
Secured Affiliates, (b) transferees of all or any part of any Bank"s
interests hereunder permitted pursuant to Section 13.10, and (c)
-------------
participants of all or any part of any Bank"s interests hereunder solely to
the extent permitted by Section 13.10.
-------------
Section 2. Representations and Warranties of Borrower. To induce Banks
--------- ------------------------------------------
and Agent to enter into this Second Amendment, Borrower hereby represents and
warrants to Banks and Agent as follows:
2.1 Representations and Warranties in Credit Agreement. Each
--------------------------------------------------
representation and warranty of Borrower contained in the Credit Agreement and
the other Loan Papers is true and correct on the date hereof and will be true
and correct after giving effect to the amendments set forth in Section 1 hereof.
---------
2.2 Absence of Defaults. No Default or Event of Default has
-------------------
occurred which is continuing.
2.3 Due Authorization; No Conflicts. The execution, delivery and
-------------------------------
performance by Borrower of this Second Amendment and each Security Document to
be executed pursuant hereto are within Borrower"s corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
violate or constitute a default under any provision of applicable law or any
Material Agreement binding upon Borrower or the Subsidiaries of Borrower or
result in the creation or imposition of any Lien upon any of the assets of
Borrower or the Subsidiaries of Borrower except Permitted Encumbrances.
2.4 Validity, Enforceability, Binding Effect. This Second
----------------------------------------
Amendment constitutes the valid and binding obligation of Borrower enforceable
in accordance with its terms and, when executed and delivered pursuant hereto,
each Security Document delivered hereunder will constitute the valid and binding
obligation of Borrower enforceable in accordance with its terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditor"s rights generally, and (ii) the availability of
equitable remedies may be limited by equitable principles of general
application.
Section 3. Miscellaneous.
--------- -------------
6
<PAGE>
3.1 Reaffirmation of Loan Papers. Any and all of the terms and provisions
----------------------------
of the Credit Agreement and the Loan Papers shall, except as amended and
modified hereby, remain in full force and effect.
3.2 Parties in Interest. All of the terms and provisions of this Second
-------------------
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
3.3 Legal Expenses. Borrower hereby agrees to pay on demand all
--------------
reasonable fees and expenses of counsel to Agent incurred by Agent in connection
with the preparation, negotiation and execution of this Second Amendment and all
related documents.
3.4 Counterparts. This Second Amendment may be executed in counterparts,
------------
and all parties need not execute the same counterpart; however, no party shall
be bound by this Second Amendment until all parties have executed a counterpart.
Facsimiles shall be effective as originals.
3.5 Complete Agreement. THIS SECOND AMENDMENT, THE CREDIT AGREEMENT AND
------------------
THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
3.6 Headings. The headings, captions and arrangements used in this Second
--------
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Second Amendment, nor
affect the meaning thereof.
[signature pages to follow]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed by their respective authorized officers on the date and year
first above written.
BORROWER:
--------
THE WISER OIL COMPANY,
a Delaware corporation
By:
---------------------------------------
Lawrence Finn
Vice President - Finance
Chief Financial Officer
AGENT:
-----
NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as Agent
By:
---------------------------------------
William E. Livingstone, IV
Senior Vice President
BANKS:
-----
BANK OF MONTREAL
By:
---------------------------------------
Its:
---------------------------------------
NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as Agent
By:
---------------------------------------
William E. Livingstone, IV
Senior Vice President
8
<PAGE>
Exhibit 10.3a
AGREEMENT OF SALE AND PURCHASE
by and between
THE WISER OIL COMPANY
("Seller")
and
COLUMBIA NATURAL RESOURCES, INC.
("Buyer")
Date
----
April 12, 1999
<PAGE>
TABLE OF CONTENTS
1.0 Sale and Transfer of Assets........................................... 1
1.1. Property to be Sold and Purchased............................... 1
1.2 Exceptions, and Definition of Oil and Gas Properties
and Properties.................................................. 2
1.3. Purchase Price.................................................. 2
1.4. Deposit......................................................... 2
2.0 Representations....................................................... 3
2.1. Representations of Seller....................................... 3
2.2 Representations of Buyer........................................ 5
3.0 Covenants............................................................. 6
3.1 Certain Covenants Pending Closing............................... 6
4.0 Diligence and Adjustments............................................. 9
4.1 Due Diligence Reviews........................................... 9
4.2 Certain Price Adjustments for Uncured Asserted Defects.......... 11
5.0 Conditions to Closing................................................. 12
5.1 Conditions Precedent to the Obligations of Buyer................ 12
5.2 Conditions Precedent to the Obligations of Seller............... 13
6.0 Closing............................................................... 14
6.1 Actions At Closing.............................................. 14
6.2 Post Closing Actions............................................ 15
7.0 Accounting Adjustment................................................. 15
7.1 Certain Accounting Adjustments.................................. 15
8.0 Assumption and Indemnification........................................ 17
8.1 Assumption and Indemnification.................................. 17
8.2 No Commissions Owed............................................. 18
8.3 Plugging Operations............................................. 18
9.0 Pre-Closing Losses.................................................... 19
9.1 Casualty Loss................................................... 19
10.0 Notices............................................................... 19
10.1 Notices......................................................... 19
11.0 Survival.............................................................. 20
11.1 Survival of Provisions and Limitation of Liability.............. 20
12.0 Miscellaneous Matters................................................. 20
12.1 Further Assurances.............................................. 20
12.2 Imbalances, Makeup Obligations.................................. 20
12.3 Deceptive Trade Practices Waiver................................ 21
12.4 Parties Bear Own Expenses/No Special Damages.................... 21
-i-
<PAGE>
12.5 No Sales Taxes................................................. 21
12.6 Entire Agreement............................................... 21
12.7 Amendments, Waivers............................................ 21
12.8 Choice of Law.................................................. 22
12.9 Headings, Time of Essence, etc................................. 22
12.10 No Assignment.................................................. 22
12.11 Successors and Assigns......................................... 22
12.12 No Press Releases.............................................. 22
12.13 Counterpart Execution.......................................... 22
12.14 Employees...................................................... 22
13.0 Termination........................................................... 23
13.1 Termination Rights............................................. 23
13.2 Effect of Termination.......................................... 23
-ii-
<PAGE>
AGREEMENT OF SALE AND PURCHASE
This Agreement dated April 12, 1999, by and between The Wiser Oil Company
(herein called "Seller") and Columbia Natural Resources, Inc. (herein called
"Buyer");
W I T N E S S E T H:
1.0 Sale and Transfer of Assets
1.1. Property to be Sold and Purchased. Seller agrees to sell and Buyer
agrees to purchase, for the consideration hereinafter set forth, and subject to
the terms, conditions, and covenants contained herein, (including without
limitation Section 1.2 below) the following described properties, rights and
interests:
(a) Oil and Gas Leases. All right, title and interest of Seller in
and to the oil, gas and/or mineral leases described on Exhibit 1.1(a)
hereto (and any ratifications and/or amendments to such leases, whether or
not such ratifications or amendments are described on such Exhibit 1.1(a))
insofar as such leases (and such ratifications and amendments) cover the
lands and depths described on such Exhibit 1.1(a); and
(b) Fee Mineral Interest. All right, title and interest of Seller
in and to the fee mineral interests in oil, gas and other minerals and the
fee surface interests described on Exhibit 1.1(b) hereto; and
(c) Related Pooling Agreements. All rights, titles and interests of
Seller in and to, or otherwise derived from, all presently existing and
valid oil, gas and/or mineral unitization, pooling, and/or communitization
agreements, declarations and/or orders (including, without limitation, all
units formed under orders, rules, regulations, or other official acts of
any federal, state, or other authority having jurisdiction, and voluntary
unitization agreements, designations and/or declarations) relating to the
properties described in subsection (a) or (b) above, to the extent and only
to the extent such rights, titles and interests are attributable to the
properties described in subsection (a) or (b) above (all of such contracts
and agreements are herein referred to as the "Related Pooling Agreements");
and
(d) Subject Contracts. All rights, titles and interests of Seller
in and to (i) all presently existing and valid operating agreements and
other agreements, to the extent and only to the extent such agreements are
attributable to any of the properties described in subsections (a), (b) and
(c) above, and (ii) the gas sales agreements, production sales agreements,
gas purchase agreements, gas transportation agreements, capacity lease
agreements and other agreements listed on Exhibit 1.1(d) (all of such
contracts and agreements referred to in this subsection (d), including
without limitation those listed on Exhibit 1.1(d), are herein referred to
as the "Subject Contracts"); and
(e) Pipeline and Subject Equipment. All rights, titles and
interests of Seller in and to (i) all materials, supplies, machinery,
equipment, improvements and other personal property and fixtures
(including, but not by way of limitation, all wells, wellhead equipment,
pumping units, flowlines, gathering pipelines located in Kentucky,
Tennessee and West Virginia (said pipelines located in Kentucky and
Tennessee shown on the plat attached as a part of Exhibit 1.1(e)),
(including any related right of way agreements) tanks, buildings, injection
facilities, saltwater disposal facilities, compression facilities, and
other equipment) to the extent and only to the extent such personal
property is located on the properties described in subsections (a), (b) and
(c) above or used in connection with the exploration, development,
operation or maintenance thereof and (ii) the plants, equipment, facilities
1
<PAGE>
and other tangible personal property listed on Exhibit 1.1(e) and the
pipelines shown on the plat attached as a part of said Exhibit 1.1(e) and
the interest in real property (including easements, rights-of-way, and
surface leases) related to, and necessary for the operation of, the above
described personal property; and
(f) Books and Records. All of Seller's books and records directly
relating to the Properties (defined below) including without limitation (i)
existing engineering, operating, accounting, tax (including production,
severance and ad valorem), business, marketing, title and division order
files, (ii) existing ledgers, journals, property records, title policies,
maps, charts, surveys, customer lists and supplier lists, (iii) existing
environmental reports, assessments, studies, and plans and (iv) geological
and similar data, or any interpretations thereof (the "Records").
(g) Certain Other Real and Personal Property. All right, title, and
interest of Seller in and to that certain land together with that certain
building structure commonly referred to as the Wiser Corbin building
located at U.S.25 E. at Gray Street, Corbin, Kentucky, 40701, as more
particularly described on part one of Exhibit 1.1(g) and all related
personal property to such building, including without limitation furniture
and equipment and the vehicles listed on part two of Exhibit 1.1(g) but
excluding any computer software (other than operating system software on
individual computers).
1.2 Exceptions, and Definition of Oil and Gas Properties and Properties.
The properties, rights and interests specified in the subsections (a), (b) and
(c) of Section 1.1, exclusive of the properties, rights and interests excluded
below, are herein sometimes collectively called the "Oil and Gas Properties,"
and the properties, rights and interests specified in the foregoing subsections
(a), (b), (c), (d), (e), (f) and (g) exclusive of the properties, rights and
interests excluded below, are herein sometimes collectively called the
"Properties". The Properties include all of the assets of the type defined as
Properties above owned by Seller or its affiliates in Kentucky, Tennessee or
West Virginia whether owned by Seller or its affiliates (and includes the
contracts owned by Wiser Marketing Company which relate to Properties in such
states) but the Properties do not include, and there is hereby expressly
excepted and excluded therefrom and reserved to Seller, (a) all hedging or
derivative agreements, and (b) all gas imbalances which are covered in Section
12.2 hereof.
1.3. Purchase Price. The purchase price for the Properties shall be
Twenty-Eight Million Dollars ($28 million) (such amount, unadjusted by any
adjustments provided for in this Agreement or agreed to by the parties, being
herein called the "Base Purchase Price"). Such Base Purchase Price shall be
adjusted as provided in Sections 3.1(c) and 4.2 hereof (the Base Purchase Price,
as so adjusted, and as the same may otherwise be adjusted by mutual agreement of
the parties, being herein called the "Purchase Price"). The Purchase Price
shall be paid in cash at the Closing as hereinafter provided.
1.4. Deposit. (a) Contemporaneously with the execution of this Agreement,
Buyer shall deposit in escrow with Chase Bank (the "Escrow Agent") an amount
equal to five percent (5%) of the Base Purchase Price (such amount being herein
called the "Deposit"). In the event the transaction contemplated hereby is
consummated in accordance with the terms hereof, the Deposit including any
interest earned thereon shall be withdrawn by the Escrow Agent in accordance
with the terms of the Escrow Agreement and applied to the Purchase Price to be
paid by Buyer at the Closing. The Deposit shall be applied in accordance with
the terms of the Escrow Agreement executed by Buyer and Seller dated of even
date herewith (the "Escrow Agreement"). In the event this Agreement is
terminated by Buyer or Seller in accordance with Section 13 below, the Deposit
shall be returned to Buyer or retained by Seller as provided in such section.
The Deposit shall be deposited in an interest-bearing account.
2
<PAGE>
(b) THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO
SELLER OCCASIONED BY THE FAILURE OF THIS TRANSACTION TO BE CONSUMMATED
WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT
OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE
CIRCUMSTANCES AS PROVIDED IN SECTION 13 AND DOES NOT CONSTITUTE A PENALTY.
2.0 Representations
2.1. Representations of Seller.
(a) Representations. Seller represents to Buyer that:
(i) Organization and Qualification. Seller is a corporation
duly organized and legally existing and in good standing under the
laws of the state of its incorporation. Seller is qualified to do
business and in good standing in each of the states in which Oil and
Gas Properties are located where the laws of such state would require
a corporation owning the Oil and Gas Properties located in such state
to so qualify, unless the failure to so qualify would not reasonably
be expected to have a material adverse effect on the operation of the
Oil and Gas Properties or create an encumbrance on any of the Oil &
Gas Properties.
(ii) Due Authorization. Seller has full power to enter into
and perform its obligations under this Agreement and has taken all
proper action to authorize entering into this Agreement and
performance of its obligations hereunder.
(iii) Approvals. Other than requirements (if any) that there
be obtained consents to assignment (or waivers of preferential rights
to purchase) from third parties as disclosed subsequently herein, and
except for approvals ("Routine Governmental Approvals") required to
be obtained from governmental entities who granted real property
interests forming a part of the Properties (or who administer such
properties on behalf of grantors) which are customarily obtained
post-closing, and except for the requirements of any maintenance of
uniform interest provisions contained in any operating or other
agreements, to Seller's knowledge (which term or similar terms when
used in this Agreement, shall mean to the actual knowledge of
Seller's personnel listed in Exhibit 2.1(a)(iii)) neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the compliance with the terms
hereof, will result in any default under any agreement or instrument
to which Seller is a party or by which the Properties are bound, or
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller.
(iv) Valid, Binding and Enforceable. This Agreement
constitutes (and the Conveyance provided for herein to be delivered
at Closing will, when executed and delivered, constitute) the legal,
valid and binding obligation of Seller, enforceable in accordance
with its terms, except as limited by bankruptcy or other laws
applicable generally to creditor's rights and as limited by general
equitable principles.
(v) Litigation. Except as disclosed on the Disclosure
Exhibit (herein called the "Disclosure Exhibit") attached hereto as
Exhibit 2.1(a)(v) there are no pending suits, actions, or other
proceedings in which Seller is a party which affect the Properties in
any material respect (including, without limitation, any actions
challenging or pertaining to Seller's title to any of the
3
<PAGE>
Properties) or affecting the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
(vi) Material Related Pooling Agreements and Subject
Contracts. All of the material Subject Contracts are listed on
Exhibit 1.1(d), and, to Seller's knowledge, no party is in material
breach thereof. To Seller's knowledge, no party is in material breach
of a material Related Pooling Agreement.
(vii) Operation of Properties. Except for matters in (A), (B)
and (C) of this Section 2.1(a)(vii) which would not cause a material
expenditure, to Seller's knowledge, Seller, or if operated by an
affiliate, its affiliate, has (A) complied in regard to the operation
of the Properties in all material respects with all applicable
environmental regulations, permits and orders so that the operation
of the properties is not likely to give rise to a non-compliance with
any environmental regulations, permits or orders which non-compliance
could reasonably be expected to have a material adverse effect on the
Properties, (B) has obtained all environmental permits required on
the date hereof to operate the Properties, except to the extent such
failure would not have a material adverse effect on the Properties,
and (C) has not received written notice of noncompliance under any
environmental regulation, permit or order and has no knowledge that
it is in violation of any regulation, permit or order which would
have an adverse effect on the Properties.
(viii) Ownership of Pipeline and Subject Equipment. Seller or
its affiliate has sufficient title to all pipelines, easements,
rights-of-way, compressors (and any leases related thereto) and
related facilities comprising the Pipeline and Subject Equipment to
enable Buyer to operate the Pipeline and Subject Equipment
substantially in the manner and to the extent such Pipeline was
operated historically in regard to any and all material easements and
rights-of-way. To Seller's knowledge there has not been any exercise
of jurisdiction as to rates over the Pipeline and Subject Equipment
by the Kentucky Public Service Commission.
(ix) Contracts. In addition to Exhibit 1.1(d), Subject
Contracts, attached hereto as Exhibit 2.1(a)(ix) which relates to
matters directly related to the Properties: (A) known contracts or
agreements which call for payments in excess of Twenty-five Thousand
Dollars ($25,000) annually, (B) outstanding AFE's under operating
agreements described in 1.1(d), (C) a listing of known pipeline and
oil and gas property imbalances as of February 28, 1999, and (D) a
listing of all current employees and any related employment
agreements.
(x) Liens. Except for Matters which are exceptions to the
term Defects in 4.1.b(ii) and (iv), and except as disclosed on
Exhibit 2.1(a)(x), there are no mortgages, liens or security
interests in the Oil and Gas Properties.
(b) Disclaimers. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF
SELLER CONTAINED IN SECTION 2.1(a) ABOVE AND THE SPECIAL TITLE WARRANTY
CONTAINED IN THE CONVEYANCE (AS DEFINED IN SECTION 6.1) (ARE EXCLUSIVE AND
ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH
OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING,
AND EXCEPT FOR THE SPECIAL TITLE WARRANTY CONTAINED IN THE CONVEYANCE, THE
PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY
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WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, RELATING TO TITLE TO THE PROPERTIES OR RELATING TO THE
CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT
OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE
FIRST SENTENCE OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE
INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS
RIGHT TO INSPECT, THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS
TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE,
INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE
PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES,
ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE
MATERIALS ("NORM"). EXCEPT FOR THE REPRESENTATIONS CONTAINED HEREIN IN
SECTION 2.1(a) AND THE SPECIAL WARRANTY CONTAINED IN THE CONVEYANCE, BUYER
IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND SUBJECT TO
SELLER'S LIMITED INDEMNITY CONTAINED IN SECTION 8.1(b) BUYER SHALL ACCEPT
ALL OF THE SAME IN THEIR "AS IS", "WHERE IS" CONDITION. ALSO WITHOUT
LIMITATION OF THE FOREGOING, EXCEPT AS PROVIDED IN SECTION 2.1(a) AND THE
SPECIAL WARRANTY CONTAINED IN THE CONVEYANCE, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY
OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL
CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS
FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER'S AGENTS OR
REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR
OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S
SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
2.2 Representations of Buyer. Buyer represents to Seller that:
(a) Organization and Qualification. Buyer is a corporation duly
organized and legally existing and in good standing under the laws of the
State of Texas, and is qualified to do business and in good standing in
each of the states in which Oil and Gas Properties are located where the
laws of such state would require a corporation owning the Oil and Gas
Properties located in such state to so qualify. Buyer is also qualified to
own and operate the Properties and assets of Seller with all applicable
governmental agencies having jurisdiction over the Properties or the assets
of Seller, to the extent such qualification is necessary or appropriate or
will be necessary or appropriate upon
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consummation of the transactions contemplated hereby (including, without
limitation, Buyer has met, or will have met at or before Closing, all
bonding requirements of such agencies).
(b) Due Authorization. Buyer has full power to enter into and
perform its obligations under this Agreement and has taken all proper
action to authorize entering into this Agreement and performance of its
obligations hereunder.
(c) Approvals. Other than requirements (if any) that there be
obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for Routine Governmental
Approvals, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which Buyer is a party, or violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer.
(d) Valid, Binding and Enforceable. This Agreement constitutes
(and the Conveyance provided for herein to be delivered at Closing will,
when executed and delivered, constitute) the legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor's
rights and as limited by general equitable principles.
(e) No Litigation. There are no pending suits, actions, or other
proceedings in which Buyer is a party (or, to Buyer's knowledge, which have
been threatened to be instituted against Buyer) which affect the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(f) Knowledgeable Buyer, No Distribution. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to
make a distribution in violation of the Securities Act of 1933 as amended
(and the rules and regulations pertaining thereto) or in violation of any
other applicable securities laws, rules or regulations.
3.0 Covenants
3.1 Certain Covenants Pending Closing. Between the date of this
Agreement and the Closing Date:
(a) Access by Buyer.
(i) Records. Except as disclosed on Schedule 3.1a(i) or the
other Schedules attached hereto relating to confidentiality
obligations known to Seller, Seller will give Buyer, or Buyer's
authorized representatives, at Seller's office and at all reasonable
times before the Closing Date, access to Seller's and the records
pertaining to the ownership and/or operation of the Properties
(including, without limitation, title files, division order files,
and production, severance and ad valorem tax records), for the
purpose of conducting due diligence reviews contemplated by Section
4.1 below. Buyer may make copies of such records, at its expense, but
shall, if Seller so requests, return all copies so made if the
Closing does not occur; all costs of copying such items shall be
borne by Buyer. Seller shall not be obligated to provide Buyer with
access to any records or data which Seller on advice of counsel
considers to be proprietary or confidential to it or which Seller
cannot provide to Buyer without, in its opinion based on the advice
of
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counsel, breaching, or risking a breach of, agreements with other
parties, or waiving, or risking waiving, legal privilege. BUYER
RECOGNIZES AND AGREES THAT ALL MATERIALS MADE AVAILABLE TO IT IN
CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY, WHETHER MADE
AVAILABLE PURSUANT TO THIS SECTION OR OTHERWISE, ARE MADE AVAILABLE
TO IT AS AN ACCOMMODATION, AND WITHOUT REPRESENTATION OR WARRANTY OF
ANY KIND AS TO THE ACCURACY AND COMPLETENESS OF SUCH MATERIALS.
EXCEPT AS OTHERWISE PROVIDED IN SECTION 2.1.(a) AND THE CONVEYANCE,
NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE INFORMATION
SUPPLIED TO BUYER OR WITH RESPECT TO PROPERTIES OR ASSETS TO WHICH
THE INFORMATION RELATES, AND BUYER EXPRESSLY AGREES THAT ANY
CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN
INDEPENDENT REVIEW AND JUDGMENT.
(ii) Physical Inspection. Seller shall make a good faith
effort to give Buyer, or Buyer's authorized representatives, at all
reasonable times before the Closing Date and upon adequate notice to
Seller, physical access to the Properties and the employees
associated with the Properties, for the purpose of inspecting same.
Buyer recognizes that some or all of the Properties may be operated
by parties other than Seller and that Seller's ability to obtain
access to such properties, and the manner and extent of such access,
is subject to such third parties. Buyer agrees to comply fully with
the rules, regulations and instructions issued by Seller (and, where
Properties are operated by other parties, such other parties)
regarding the actions of Buyer while upon, entering or leaving the
Properties.
(iii) Exculpation and Indemnification. If Buyer exercises
rights of access under this Section or otherwise, or conducts
examinations or inspections under this Section or otherwise, then (a)
such access, examination and inspection shall be at Buyer's sole
risk, cost and expense and Buyer waives and releases all claims
against Seller (and its affiliates, and the respective directors,
officers, employees, attorneys, contractors and agents of such
parties) arising in any way therefrom or in any way connected
therewith or arising in connection with the conduct of its directors,
officers, employees, attorneys, contractors and agents in connection
therewith and (b) except as to the negligent acts of Seller or its
employees, Buyer shall indemnify, defend and hold harmless Seller
(and its affiliates) from any and all claims, actions, causes of
action liabilities, damages, losses, costs or expenses (including,
without limitation, court costs and attorneys fees), or liens or
encumbrances for labor or materials, arising out of or in any way
connected with such matters.
(b) Interim Operation. Seller will continue the operation of the
Properties in the ordinary course of its business (or, where Seller is not
the operator of a Property, will continue its actions as a non-operator in
the ordinary course of its business), and will not sell or otherwise
dispose of any portion of the Properties, except for sales or other
dispositions of (i) oil, gas and other minerals in the ordinary course of
business after production, or (ii) equipment and other personal property or
fixtures in the ordinary course of business where the same has become
obsolete, is otherwise no longer necessary for the operation of the
Properties, or is replaced by an item or items of at least equal
suitability. Seller shall not sell any portion of the Properties valued in
the aggregate of $500,000 or more without Buyer's written approval. Should
Seller receive (or desire to make) any proposals to drill additional wells
on the Oil and Gas Properties, or to conduct other operations which require
consent of non-operators under the applicable operating agreement, it will
notify Buyer of, and consult with Buyer concerning, such proposals. Any
decisions with respect to such proposals shall be made mutually by Seller
and Buyer after consultation. Seller shall not permit new production
imbalances
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other than those scheduled on Exhibit 2.1(a)(ix) greater in value than
$15,000 for the Oil and Gas Properties located in Kentucky and Tennessee or
$6,000 for those Oil and Gas Properties located in West Virginia. Without
expanding any obligations which Seller may have to Buyer, it is expressly
agreed that Seller shall never have any liability to Buyer with respect to
operation of a Property greater than that which it might have as the
operator to a non-operator under the applicable operating agreement (or, in
the absence of such an agreement, under the AAPL 610 (1989 Revision) form
Operating Agreement), IT BEING RECOGNIZED THAT, UNDER CERTAIN OF SUCH
AGREEMENTS AND SUCH FORMS, THE OPERATOR MAY NOT BE RESPONSIBLE FOR ITS OWN
NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR
WILFUL MISCONDUCT.
(c) Preferential Rights and Consents. Attached hereto on Exhibit
3.1(c) with respect to all material Oil and Gas Properties are: (i) all
preferential rights to purchase ("Preferential Rights") and requirements
that consents to assignment ("Consents") be obtained which would be
applicable to the transactions contemplated hereby and (ii) the names and
addresses of parties holding such rights; in attempting to identify such
Preferential Rights and Consents, and the names and addresses of such
parties holding the same, Seller shall in no event be obligated to go
beyond its own records. Seller will request, from the parties so identified
(and in accordance with the documents creating such rights), execution of
Consents and/or waivers of Preferential Rights so identified. Seller shall
have no obligation other than to so attempt to identify such Preferential
Rights or Consents and to so request such execution of Consents and/or
waivers of Preferential Rights (including, without limitation, Seller shall
have no obligation to assure that such Consents or waivers of Preferential
Rights are obtained). If a party from whom a waiver of a Preferential Right
is requested refuses to give such waiver, Seller will tender to such party
the required interest in the Property (at a price equal to the amount
specified in Exhibit 4.1 hereto for such Property, reduced appropriately,
as determined by mutual agreement of Buyer and Seller, if less than the
entire Property must be tendered), and to the extent that such Preferential
Right is exercised by such party, and such interest in such Property is
actually sold to such party so exercising such right, such interest in such
Property will be excluded from the transaction contemplated hereby and the
Purchase Price will be adjusted downward by the allocated value set forth
in Exhibit 4.1. As concerns consents, except for any oil and gas leases
which relate to the Oil and Gas Properties, Seller and Buyer shall enter
into contractual arrangements for Seller to continue to remain a party to
such Contracts where consents were not obtained and to provide Buyer the
economic benefits of such Contracts as provided in the Agreement attached
as Exhibit 3.1(c) - part 2.
(d) Descriptions. Seller and Buyer shall make good faith efforts
to create twenty (20) days (but shall provide not less than ten days (10))
prior to Closing a schedule ("Right-of-Way Schedule") that contains
descriptions which are adequate to convey title to Seller's interest
sufficient to enable Buyer to operate the Pipeline and Subject Equipment
substantially in the manner and to the extent such pipelines were operated
historically in the material easements, rights-of-way, licenses and other
interests in land shown on the plat attached as a part of Exhibit 1.1(e).
Seller shall make good faith efforts to provide to Buyer twenty (20) days
(but shall provide not less than ten (10) days) prior to Closing a schedule
("Property Schedule") that contains descriptions which are adequate to
convey title to all of Sellers right, title and interest in the Oil and Gas
Leases. The Right-of-Way and Property Schedules shall be attached to the
Conveyances delivered at Closing.
(e) Insurance Coverage on Properties. Seller shall maintain in
force and effect all third party insurance coverage presently maintained
with regard to the Properties from the time this Agreement is executed
until Closing.
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(f) Notice of Board Approval. Each party hereto shall promptly
notify the other of the result of seeking the Board approval contemplated
in connection with this transaction.
(g) Affiliate Properties. The Parties acknowledge and agree that
some of the Properties may be in the name of the affiliated companies and
that such Properties shall be conveyed pursuant to the terms of this
Agreement to Buyer at Closing.
4.0 Diligence and Adjustments
4.1 Due Diligence Reviews.
(a) Review By Buyer. For the period beginning on the date this
Agreement is executed by Seller and Buyer until Closing, Buyer may conduct,
at its sole cost, such title examination or investigation, and other
examinations and investigations, as it may in its sole discretion choose to
conduct with respect to the Properties in order to determine whether any
Defect (as below defined) exists. If in the course of due diligence
additional Properties are discovered by Buyer or Seller such Properties
shall be added to the Exhibits hereto. Should, as a result of such
examinations and investigations, or otherwise, one or more matters come to
Buyer's attention which would constitute a Defect (as below defined), and
should there be one or more of such Defects which Buyer is unwilling to
waive and close the transaction contemplated hereby notwithstanding the
fact that such Defects exist, Buyer shall notify Seller in writing of such
Defects as soon as the same are identified by Buyer, but no later than
three (3) business days before the Closing Date (such Defects of which
Buyer so provides notice are herein called "Asserted Defects"). Such
notification shall include, for each Asserted Defect, (i) a description of
the Asserted Defect and the wells and/or units listed on Exhibit 4.1 to
which it relates and all supporting documentation reasonably necessary to
fully describe the basis for the Defect, (ii) for each applicable well or
unit, the size of any variance from "Net Revenue Interest" or "Working
Interest" which does or could result from such Asserted Defect and (iii)
the amount by which Buyer would propose to adjust the Purchase Price.
Exhibit 4.1 shall consist of a well and/or unit list prepared by Seller to
which on a well and/or unit basis Buyer has proposed values to which Seller
has consented. All Defects with respect to which Buyer fails to so give
Seller notice will be deemed waived for all purposes. All access to Sellers
records and the Properties in connection with such due diligence shall be
subject and pursuant to Section 3.1 (including, without limitation, the
exculpation and indemnification provisions contained in Section
3.1(a)(iii)).
(b) Nature of Defects. The term "Defect" as used in this Section
shall mean the following:
(i) NRI or WI Variances. Seller's ownership of the
Properties is such that, with respect to a well or unit listed on
Exhibit 4.1 hereto, it clearly (A) entitles Seller to receive a
decimal share of the oil, gas and other hydrocarbons produced from
such unit, or from currently producing completions in such well,
which is less than the decimal share set forth on Exhibit 4.1 in
connection with such well or unit in the column headed "Net Revenue
Interest" or (B) causes Seller to be obligated to bear a decimal
share of the cost of operation of such well (as to such completions)
or unit greater than the decimal share set forth on Exhibit 4.1 in
connection with such well or unit in the column headed "Working
Interest" (without at least a proportionate increase in the share of
production to which Seller is entitled to receive from such well or
unit).
(ii) Liens. Seller's ownership of an Oil and Gas Property is
subject to any lien or encumbrance other than (A) a lien for taxes
which are not yet delinquent or (B) a mechanic's or materialmen's
lien (or other similar lien), or a lien under an operating agreement
or similar
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agreement, to the extent the same relates to expenses incurred which
are not yet delinquent or (C) liens listed on Exhibit 2.1(a)(x).
(iii) Preferential Rights and Consents. Seller's ownership of
an Oil and Gas Property is subject to a requirement that a Consent be
obtained, unless such consent has been obtained with respect to the
transaction contemplated hereby. In the case of a Preferential Right,
the fact that the Oil and Gas Property is subject to a Preferential
Right shall not be a Defect if exercised, waived or the period for
exercising it has lapsed.
(iv) Imperfections in Title. Seller's ownership of an Oil
and Gas Property is subject to an imperfection in title which, if
asserted, would cause an imperfection in title which would normally
not be waived by persons engaged in the oil and gas business when
purchasing producing properties.
(v) Environmental Matters. Except as disclosed on the
Disclosure Exhibit, an Oil and Gas Property has been cited for
violation of applicable environmental laws (below defined) in any
material respect ("Applicable Environmental Laws" shall mean all
federal, state or local laws, rules, orders or regulations pertaining
to health or the environment, including those relating to waste
materials and/or hazardous substances) or, notwithstanding any such
citation, a condition relating to a Property exists that would
require Seller (or Buyer after Closing) to remediate such Property
within 18 months of Closing Date.
(vi) Imbalances Not Defects. Notwithstanding anything which
may appear to the contrary, an imbalance (e.g., a situation where
Seller and its predecessors in title to the Properties have taken
more or less gas, oil or other hydrocarbons or substances from a well
or unit than ownership of the Properties would entitle them to
receive) shall not constitute a Defect so long as it does not exceed
the volumes identified on Exhibit 2.1(a)(ix) and an adjustment shall
not be made for any imbalance pursuant to any provision of this
Agreement.
(c) Seller's Response. In the event that Buyer notifies Seller of
Asserted Defects:
(i) Cure. Seller may (but shall have no obligation to)
attempt to cure, prior to Closing, one or more Asserted Defects.
(ii) Postpone Closing. Whether or not Seller has then begun
to, or ever begins to, cure one or more Asserted Defects (and whether
or not Seller has elected options (iii) or (iv) below with respect to
one or more Asserted Defects), Seller may delay the Closing Date, as
defined in Section 6.1, for up to 30 days by designating a new
Closing Date. Notwithstanding any such election to postpone Closing,
Seller shall still have no obligation to cure Asserted Defects.
(iii) Indemnification. At any time, and from time to time,
prior to Closing, and regardless of whether or not Seller has then
elected any other option or options under this Section as to such
Asserted Defect or any other Asserted Defect (including without
limitation regardless of whether the procedure under Section 4.2 is
ongoing as to such Asserted Defect), Seller may (but shall have no
obligation to) elect, with respect to any Asserted Defect, to
indemnify and hold Buyer harmless from and against any actual damages
or loss (but specifically excluding consequential, special or similar
damages) Buyer may suffer as a result of a third party claim based on
such Asserted Defect. If and when such election is made as to an
Asserted Defect, such Asserted Defect will be treated under this
Agreement as if cured;
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provided, however, that Seller's right to cure under this subsection
4.1(c)(iii) shall be limited to an aggregate of 2% of the Base
Purchase Price.
(iv) Adjustment. Notwithstanding any other election made
under this Section (without limitation, it being expressly recognized
that Seller may attempt to cure Asserted Defects while acting under
this election), Seller may elect to have one or more Asserted Defects
handled under Section 4.2 below.
4.2 Certain Price Adjustments for Uncured Asserted Defects.
(a) Procedures. In the event that, as a part of the due diligence
reviews provided for in Section 4.1 above, Asserted Defects are presented to
Seller and Seller is unable (or unwilling) to cure such Asserted Defects
prior to Closing, or in the event that Buyer or Seller has elected (pursuant
to Section 9.1) to treat an Oil and Gas Property affected by a casualty loss
as if it was an Oil and Gas Property affected by an Asserted Defect, then:
(i) Agree Upon Adjustment. Buyer and Seller shall, with
respect to each Property affected by such matters, attempt to agree
upon an appropriate downward adjustment of the Purchase Price to
account for such matters; or
(ii) Exclude Property. With respect to each Property as to
which Buyer and Seller are unable to agree upon appropriate
adjustment with respect to all such matters affecting such Property,
such Property will be excluded from the transaction contemplated
hereby, and the Purchase Price will be reduced by the amount
attributed on Exhibit 4.1 to the wells located on such Property plus
the amount attributed on Exhibit 4.1 to the units in which such
Property participates (but in the case of such units, limited to the
portion of such amount which is proportionate to the portion of
Seller's interest in such units, respectively, which is attributable
to such Property).
(b) Certain Adjustments. In the event that Buyer raises as an
Asserted Defect one of the following types of Defects, Seller may (but
shall not be obligated to) propose the adjustment of the Purchase Price set
forth below in connection with such Defect:
(i) NRI Variance/Proportionate Price Reductions. If the
Asserted Defect is (i) a Defect described in clause (A) of Section
4.1(b)(i) or (ii) a Defect which otherwise affects a portion of
Seller's interest in a well or unit listed on Exhibit 4.1: a downward
adjustment equal to the amount determined by multiplying the amount
set forth for such well or unit on Exhibit 4.1 by a fraction (A) the
numerator of which is an amount equal to the "Net Revenue Interest"
shown on Exhibit 4.1 for such well or unit less the decimal share to
which Seller would be entitled to as a result of its ownership
interest in such well or unit which is unaffected by such Defect and
(B) the denominator of which is the "Net Revenue Interest" shown for
such well or unit on Exhibit 4.1. Notwithstanding subsection (ii)
below, a Defect to which such subsection is applicable may, at
Seller's election, be treated as a Defect under this subsection.
(ii) Liens/Payoff Amount. If the Asserted Defect is a Defect
described in Section 4.1(b)(ii): a downward adjustment equal to the
amount of the debt secured by such lien.
If Seller proposes such an adjustment, such adjustment will be deemed an
adjustment agreed to under Section 4.2(a)(i) above.
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(c) Possible Upward Adjustments. Should Seller determine (or
should Buyer, in the course of its due diligence reviews contemplated by
Section 4.1 above, determine) that (i) the ownership of the Properties by
Seller entitles Seller to a decimal share of the production from a well or
unit listed on Exhibit 4.1 greater than the decimal share shown for such
well or unit under the column headed "Net Revenue Interest" on such Exhibit
4.1, then Seller may propose an upward adjustment to the Purchase Price to
account for such fact, in which case such adjustment shall be handled in
the same manner as provided in Section 4.2(a) above with respect to
adjustments for Asserted Defects. The party making such determination shall
notify the other party no later than three business days prior to Closing.
(d) Limitations on Adjustments. If the Purchase Price reduction
(or increase) which would result from the above provided for procedure, as
applied to any Asserted Defect as to a single Property is less than $1,000
or as applied to all Asserted Defects for which an adjustment is to be made
(and to all upward adjustments under Section 4.2(c)) does not exceed
$250,000, then no adjustment of the Purchase Price shall occur (and in the
case of Asserted Defects of less than $1,000 as to a single Property, such
defects shall not count toward the $250,000 deductible), and none of the
Properties which would be excluded by such procedure shall be excluded. If
the Purchase Price reduction (or increase) which would result from the
above provided for procedure, as applied to all Asserted Defects for which
an adjustment is to be made (and to all upward adjustments under Section
4.2(c)) exceeds $250,000, the Purchase Price shall be adjusted by the
amount such reduction (or increase) exceeds $250,000.
5.0 Conditions to Closing
5.1 Conditions Precedent to the Obligations of Buyer. The obligations
of Buyer under this Agreement are subject to each of the following conditions
being met:
(a) Representations True and Correct. Each and every
representation of Seller under this Agreement shall be true and accurate in
all material respects as of the date when made and shall be deemed to have
been made again at and as of the time of Closing and shall at and as of
such time of Closing be true and accurate in all material respects except
as to changes specifically contemplated by this Agreement or consented to
by Buyer.
(b) Compliance with Covenants and Agreements. Seller shall have
performed and complied in all material respects with (or compliance
therewith shall have been waived by Buyer) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Seller prior to or at the Closing.
(c) Litigation. No suit, action or other proceedings shall, on the
date of Closing, be pending or threatened before any court or governmental
agency seeking to restrain, prohibit, or obtain material damages or other
material relief in connection with the consummation of the transactions
contemplated by this Agreement.
(d) Liens. The liens listed on Exhibit 2.1(a)(x) have been released
on or prior to Closing or Seller has obtained a payout letter (the "Payout
Letter") from the lender holding the mortgage listed on Exhibit 2.1(a)(x)
which commits the lender to release the liens upon payment of the sum
stated in such letter.
(e) Governmental Approvals. All required governmental approvals
have been obtained.
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With respect to any condition set forth above which is not met (and which
is asserted by Buyer as a failure of one of its conditions of Closing), and for
which the reasons why such condition is not met relate to some, but less than
all, of the Properties, Seller may require that such failure of such condition
to be met be treated as an uncured Asserted Defect and handled in accordance
with the process set forth in Section 4.2 above, and, if Seller so requires such
handling, such condition will be considered met for the purposes of this
Section.
5.2 Conditions Precedent to the Obligations of Seller. The obligations
of Seller under this Agreement are subject to the each of the following
conditions being met:
(a) Representations True and Correct. Each and every
representation of Buyer under this Agreement shall be true and accurate in
all material respects as of the date when made and shall be deemed to have
been made again at and as of the time of Closing and shall at and as of
such time of Closing be true and accurate in all material respects except
as to changes specifically contemplated by this Agreement or consented to
by Seller.
(b) Compliance With Covenants and Agreements. Buyer shall have
performed and complied in all material respects with (or compliance
therewith shall have been waived by Seller) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Buyer prior to or at the Closing.
(c) Litigation. No suit, action or other proceedings shall, on the
date of Closing, be pending or threatened before any court or governmental
agency seeking to restrain, prohibit, or obtain material damages or other
material relief in connection with the consummation of the transactions
contemplated by this Agreement.
(d) Governmental Approvals. All required governmental approvals
have been obtained.
6.0 Closing
6.1 Actions At Closing. The closing (herein called the "Closing") of
the transaction contemplated hereby shall take place in the offices of Thompson
and Knight, 1700 Pacific Avenue, Suite 3300, Dallas, Texas, no later than 30
days following the date of this Agreement at 10:00 a.m. Cental Time, or at such
other date and time (i) as the Buyer and Seller may mutually agree upon or (ii)
which Seller may postpone the Closing pursuant to Section 4.1 hereof and (iii)
no later than 45 days following the date of this Agreement if Buyer extends its
due diligence period pursuant to Section 4.1(c)(ii) such date and time, as
changed pursuant to clauses (i), (ii) and (iii), being herein called the
"Closing Date"). At the Closing:
(a) Delivery of Conveyance. Seller shall execute, acknowledge and
deliver to Buyer conveyances of the Properties (the "Conveyance"), in the
form attached hereto as Exhibit 6.1(i) and 6.1(ii) (and with Exhibits
1.1(a), 1.1(b), 1.1(c), 1.1(d), 1.1(e) and the Right-of-Way Schedule, with
a special warranty of title contained therein with respect to the Oil and
Gas Properties, and with such modifications as may be mutually agreed to by
Buyer and Seller, being attached thereto), effective as to runs of oil and
deliveries of gas and for all other purposes as of 10 o'clock a.m., local
time at the locations of the Properties, respectively, on April 1, 1999
(herein called the "Effective Date").
(b) Letters in Lieu. Seller shall, execute and deliver to Buyer
letters in lieu of transfer orders (or similar documentation), in form
acceptable to both parties.
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(c) Turn Over Possession. Seller shall, to the extent Seller can
do so, turn over possession of the Properties.
(d) Payment to Seller. Buyer shall deliver to the Seller, by wire
transfer of immediately available funds to an account designated by Seller
in a bank located in the United States, an amount equal to the Purchase
Price, (ii) less or plus (as the case may be) any adjustments under Section
7.1 which are to be made at Closing, and (ii) less the Deposit. Seller
shall use the proceeds of the Purchase Price or so much of said proceeds as
is necessary to make payment on the loan or loans in the amounts set forth
in the Payout Letter or to otherwise make payments required to obtain to
obtain the release of the liens described in Exhibit 2.1(a)(x). This
obligation to make payments shall be limited to the payment of principal,
interest, expenses and amounts owing by Seller that are secured by the
liens described in Exhibit 2.1(a)(x).
(e) Succession by Buyer. Buyer shall furnish to Seller such
evidence (including, without limitation, evidence of satisfaction of all
applicable bonding requirements) as Seller may require that Buyer is
qualified with the applicable authorities to succeed Seller as the owner
and, where applicable, operator of the Properties with respect to
properties operated by Seller where Buyer is to succeed Seller as operator,
execute and deliver to Seller appropriate evidence reflecting change of
operator as required by applicable authorities and (ii) execute and deliver
to Seller such forms as Seller may reasonably request for filing with the
applicable authorities to reflect Buyer's assumption of plugging and
abandonment liabilities with respect to the wells located on the Properties
or on units in which the Properties participate.
(f) Release of Mortgage Liens. Seller shall deliver either (i) a
release, in recordable form, of the Liens disclosed on Exhibit 2.1(a)(x) or
(ii) the Payout Letter.
(g) If necessary, the Parties shall execute an Agreement in the
form of Exhibit 3.1(c) ___ part 2.
6.2 Post Closing Actions.
(a) Transfer of Files. Seller will use commercially reasonable
efforts to deliver to Buyer, at Buyer's expense, and within 45 days after
Closing, all of Seller's lease files, abstracts and title opinions,
division order files, production records, well files, accounting records
(including I.R.C. (S) 29 Tax Credit records, but not including general
financial accounting and non-production related tax accounting records),
and other similar files and records which directly relate to the
Properties, other than those which Seller considers to be proprietary or
confidential to it or which Seller cannot provide to Buyer without, in its
opinion based on the advice of counsel, breaching, or risking a breach of,
agreements with other parties, or waiving, or risking waiving, legal
privilege (such retained files and records being limited to those files and
records that relate to the litigation described on the Disclosure Exhibit)
and those files and records previously disclosed under Section 3.1(a)(i).
It is expressly understood that Buyer is not acquiring, and Seller is not
obligated to transfer to Buyer, any seismic data, or geophysical data, or
other similar data, or any interpretations thereof or other data or records
related thereto. Seller may, at its election, make and retain copies of any
or all such files. Buyer shall preserve all files so delivered by Seller
for a period of seven (7) years following Closing and will allow Seller
access (including, without limitation, the right to make copies at Seller's
expense) to such files at all reasonable times.
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(b) Operational Transition. For a reasonable period of time after
Closing, Buyer and Seller shall cooperate with respect to transition
activities as to Properties where Buyer succeeds Seller as operator. IT IS
RECOGNIZED THAT THERE IS NO ASSURANCE GIVEN BY SELLER THAT BUYER SHALL
SUCCEED SELLER AS OPERATOR OF ANY PROPERTY WHERE OTHER PARTIES OWN
INTERESTS IN THE WELLS LOCATED THEREON. Seller shall not remain as operator
after Closing as to any Property. Buyer shall also cooperate with Seller by
making its employees and records available to assist Seller in its defense
of any claims or litigation, including without limitation, with respect to
any indemnity or other obligation in Section 8.
(c) Notifications by Buyer. Immediately after the Closing, Buyer
shall notify all applicable operators, non-operators, oil and gas
purchasers, and government agencies that it has purchased the Properties.
(d) Payments. If required to obtain releases of the liens described
in Exhibit 2.1(a)(x), Seller agrees and covenants to pay principal,
interest, expenses and amounts owing by Seller that are secured by the
liens described in Exhibit 2.1(a)(x) and shall use commercially reasonable
efforts to assist Buyer in obtaining such releases as soon as practicable
after Closing.
7.0 Accounting Adjustment
7.1 Certain Accounting Adjustments.
(a) Adjustments for Revenues and Expenses. Appropriate adjustments
shall be made between Buyer and Seller so that (i) Buyer will bear all
expenses which are incurred in the operation of the Properties after the
Effective Date, including, without limitation, all drilling costs, all
capital expenditures, all overhead charges under applicable operating
agreements (regardless of whether such operating agreements are with third
parties or related entities and regardless of whether Seller is the
operator or a non-operator), all other overhead charges actually charged by
third parties, and, where Seller is the operator of a well and there is no
operating agreement, overhead at the rate of $250 per well per month
(prorated for any period less than one month and proportionately reduced to
Seller's working interest in any such well) for each month or part thereof
between the Effective Date and Closing, and Buyer will receive all proceeds
(net of applicable production, severance, and similar taxes) from sales of
oil, gas and/or other minerals which are produced from (or attributable to)
the Properties and which are produced after the Effective Date, and (ii)
except as provided in subsection 7.1(d) and 8.1 below Seller will bear all
expenses which are incurred in the operation of the Properties before the
Effective Date (including, without limitation, all liabilities of Seller
related to employee benefits owed, earned or accrued prior to the Effective
Date and Seller will receive all proceeds (net of applicable production,
severance, and similar taxes) from the sale of oil, gas and/or other
minerals which were produced from (or attributable to) the Properties and
which were produced before the Effective Date. It is agreed that, in making
such adjustments: (i) oil which was produced from the Oil and Gas
Properties and which was, on the Effective Date, stored in tanks located on
the Oil and Gas Properties (or located elsewhere but used by Seller to
store oil produced from, or attributable to, the Oil and Gas Properties
prior to delivery to oil purchasers) and above pipeline connections shall
be deemed to have been produced before the Effective Date, (ii) ad valorem
and similar taxes assessed for periods prior to the Effective Date shall be
borne by Seller and ad valorem taxes assessed for periods on or after the
Effective Date shall be borne by Buyer, (iii) ad valorem and similar taxes
assessed with respect to a period which the Effective Date splits shall be
prorated based on the number of days in such period which fall on each side
of the Effective Date (with the day on which the Effective Date
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falls being counted in the period after the Effective Date), (iv) the
provisions of Section 12.2 shall be given effect as if the same had taken
effect on the Effective Date, (v) casualty losses shall be handled in
accordance with Section 9.1, and (vi) no consideration shall be given to
the local, state or federal income tax liabilities of any party.
(b) Initial Adjustment at Closing. At least 5 days before the
Closing Date, Seller shall provide to Buyer a statement showing its
computations of the amount of the adjustments provided for in subsection
(a) above based on amounts which prior to such time have actually been paid
or received by Seller. Additionally, adjustment shall be made to reflect
Sellers' bearing one-half (1/2) of the costs of the escrow account. Buyer
and Seller shall attempt to agree upon such adjustments prior to Closing,
provided that if agreement is not reached, Seller's computation shall be
used at Closing, subject to further adjustment under subsection (c) below.
If the amount of adjustments so determined which would result in a credit
to Buyer exceeds the amount of adjustments so determined which would result
in a credit to Seller, Buyer shall, as provided in Section 6.0 above,
receive a credit at Closing for the amount of such excess, and if the
converse is true, then, as provided in Section 6.0 above, the amount to be
paid by Buyer to Seller at Closing shall be increased by the amount of such
excess.
(c) Adjustment Post Closing. On or before 120 days after Closing,
Buyer and Seller shall review any additional information which may then be
available pertaining to the adjustments provided for in subsection (a)
above, shall determine if any additional adjustments should be made beyond
those made at Closing (whether the same be made to account for expenses or
revenues not considered in making the adjustments made at Closing, or to
correct errors made in the adjustments made at Closing), and shall make any
such adjustments by appropriate payments from Seller to Buyer or from Buyer
to Seller. At such time, Seller shall furnish Buyer a certificate from an
officer stating that, to such officer's knowledge, an exhibit attached to
the certificate contains all then known outstanding payables of Seller.
(d) No Further Adjustments. Following the adjustments under
subsection (c) above, no further adjustments shall be made under this
Section 7.1. Should any expenses with regard to the Properties be charged
to Seller or Buyer after the earlier of (i) the conclusion of such
adjustments under subsection (c) or (ii) 120 days after Closing, the same
shall be borne by Buyer, regardless of the periods to which the same
relate, and any bills received by Seller will be forwarded to Buyer. Should
any revenues with regard to the Properties be received by Buyer after (i)
the conclusions of such adjustments under subsection (c) above or (ii) 120
days after Closing, such revenues shall be retained by and belong to Buyer
regardless of the periods to which the same relate.
8.0 Assumption and Indemnification
8.1 Assumption and Indemnification.
(a) FROM AND AFTER THE CLOSING, BUYER SHALL, SUBJECT TO THE
ADJUSTMENTS PROVIDED FOR IN SECTIONS 7.1 (b) AND (c), AND SUBJECT TO 8.1(b)
AND (c), FULLY DEFEND, PROTECT, INDEMNIFY, HOLD HARMLESS AND RENDER WHOLE
SELLER AND SELLER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES FROM AND
AGAINST EACH AND EVERY CLAIM, DEMAND OR CAUSE OF ACTION AND ANY LIABILITY,
COST, EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEY'S FEES)
OR CLAIMS WITH RESPECT TO DAMAGE OR LOSS IN CONNECTION THEREWITH
(COLLECTIVELY THE "CLAIMS"), WHICH MAY BE MADE OR ASSERTED BY BUYER, ITS
AGENT OR
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SUCCESSORS OR BY ANY THIRD PARTY OR PARTIES (INCLUDING, BUT NOT LIMITED TO,
GOVERNMENTAL BODIES) (i) ON ACCOUNT OF A BREACH BY BUYER OF ANY
REPRESENTATION, WARRANTY OR COVENANT UNDER THIS AGREEMENT OR (ii) ON
ACCOUNT OF PERSONAL INJURY OR DEATH, OR PROPERTY OR ENVIRONMENTAL DAMAGE,
OR ANY CLAIMS BASED ON, RELATED OR ARISING OUT OF OR INCIDENTAL TO (A) THE
BREACH BY BUYER OF ANY REPRESENTATION, WARRANTY OR COVENANT OR (B) THE
OWNERSHIP AND/OR OPERATION OF THE PROPERTY FOR PERIODS BEFORE, ON AND AFTER
THE EFFECTIVE DATE.
(b) Limited Seller Indemnity. Notwithstanding the anything to the
contrary in 8.1(a) above, to the extent of Limited Pre-Effective Date
Claims (as hereinafter defined), and only to the extent such Limited Pre-
Effective Date Claims are asserted against Buyer within eighteen months
following the Closing Date, and for which Buyer gives written notice to
Seller within such eighteen month period, Seller shall fully defend,
protect, indemnify, hold harmless and render whole Buyer and the directors,
officers, agents and employees of Buyer from and against the following:
(i) for the first amounts actually paid by Buyer in
connection with Limited Pre-Effective Date Claims up to an amount in
the aggregate equal to one per cent (1%) of the Base Purchase Price,
zero per cent (0%), that is, the indemnity in this 8.1(b) does not
apply; and
(ii) for the next amounts actually paid by Buyer in
connection with Limited Pre-Effective Date Claims in excess of an
amount equal to one per cent (1%) of the Base Purchase Price and up
to an amount equal to thirty per cent (30%) of the Base Purchase
Price, fifty per cent (50%) of such next amounts for such Limited
Pre-Effective Date Claims; and
(iii) for all additional amounts actually paid by Buyer in
connection with Limited Pre-Effective Date Claims in excess of an
amount equal to thirty per cent (30%) of the Base Purchase Price,
zero percent (0%), that is, the indemnity in this 8.1(b) does not
apply.
For purposes of this Section 8.1(b), "Limited Pre-Effective Date Claims"
shall mean Claims made by a third party or parties (including, but not
limited to, governmental bodies) related to, arising out of or incidental
to the ownership and/or operation of the Properties by Seller prior to the
Effective Date, except any and all Claims based on, related to or arising
out of or incidental to title to the Properties, provided however, that
"Limited Pre-Effective Date Claims" expressly shall not include any and all
Claims of whatever kind or character which are known or disclosed to Buyer
prior to Closing.
(c) All lawsuits disclosed on Exhibit 2.1(a)(v) hereto shall be the
responsibility of Seller, and when requested Buyer shall fully cooperate or
assist Seller in defending such suits by making its employees and records
available at reasonable times.
(d) THE FOREGOING ASSUMPTIONS AND INDEMNIFICATIONS IN 8.1(a) AND
(b) SHALL APPLY WHETHER OR NOT THE ASSUMED OBLIGATIONS , OR THE CLAIMS
ARISE OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE,
CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT
INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT
LIABILITY.
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8.2 No Commissions Owed. Seller agrees to indemnify and hold Buyer (and
its affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of such parties) harmless from and against any and all
claims, actions, causes of action, liabilities, damages (including to the extent
permitted by applicable law, special, consequential, and punitive damages),
losses, costs or expenses (including, without limitation, court costs and
attorneys fees) of any kind or character arising out of or resulting from any
agreement, arrangement or understanding alleged to have been made by, or on
behalf of, Seller with any broker or finder in connection with this Agreement or
the transaction contemplated hereby. Buyer agrees to indemnify and hold Seller
(and its affiliates and the respective officers, directors, employees,
attorneys, contractors and agents of such parties) harmless from and against any
and all claims, actions, causes of action, liabilities, damages, losses, costs
or expenses (including, without limitation, court costs and attorneys fees) of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Buyer with any broker or finder in connection with this Agreement or the
transaction contemplated hereby.
8.3 Plugging Operations. Seller has posted a bond ("Plugging Bond")
with the Commonwealth of Kentucky, Department of Mines and Minerals, Division of
Oil and Gas, and has obtained a letter of credit ("Plugging Letter of Credit")
for the benefit of the State Oil and Gas Board of Tennessee in connection with
its obligation and/or liability with respect to the plugging of the wells listed
on part one of Exhibit 8.3. Buyer (i) shall furnish bonds or obtain letters of
credit and (ii) shall perform and do such other things as may be required in
order for Seller to be released from its obligations under the Plugging Bond and
the Plugging Letter of Credit as those obligations apply to the Oil and Gas
Properties. Buyer shall assume and perform any and all duties, obligations and
liabilities of Seller to properly plug and abandon or replug and reabandon all
wells located upon the Oil and Gas Properties. With respect to the wells listed
on part two of Exhibit 8.3 (the "Other Wells"), and except as otherwise
expressly provided in this Section 8.3, to the extent it is permitted by law to
do so, and upon notice from Seller that Seller is being required to do so, Buyer
shall assume and perform any and all duties, obligations and liabilities of
Seller to properly plug and abandon or replug and reabandon the Other Wells;
provided, however that Buyer shall have no liability and shall assume no
obligations of any kind with respect to (a) Other Wells assigned to third
parties prior to the Effective Date, and (b) Other Wells located on leases
assigned to third parties prior to the Effective Date. Once the aggregate costs
reasonably incurred by Buyer with respect to said plugging and abandonment
operations of Other Wells exceed $300,000, Buyer will notify Seller of each
additional plugging or abandonment operation with respect to the Other Wells,
before such operation is performed, and Buyer's plans for the performance of
each operation, including details of all costs that will be incurred with
respect to each operation. For a period of two (2) years after the Closing,
Seller shall, at its election, with respect to each such operation, either agree
to reimburse the actual costs of such operations in accordance with said plans
or perform or cause said operations to be performed at Seller's expense in a
good and workmanlike manner in accordance with all applicable laws, rules or
regulations. Notwithstanding anything to the contrary, in no event shall Seller
be responsible for (a) the costs of performing any such operation or for
performing or causing any such operation to be performed, if the costs are
incurred or the operation will be commenced more than two (2) years after the
Closing or (b) any costs of performing or for performing or causing such
operations to be performed until the aggregate costs reasonably incurred by
Buyer with respect to such operation exceeds $300,000.
9.0 Pre-Closing Losses
9.1 Casualty Loss. In the event of damage by fire or other casualty to
the Properties prior to the Closing, this Agreement shall remain in full force
and effect, and in such event, then (unless Seller elects to repair such damage,
which Seller shall have no obligation to do, in which case all rights to
insurance proceeds, and claims against third parties, related thereto shall
belong to Seller), (i) at the election of either Buyer or Seller, such Property
shall be treated as if it had an Asserted Defect associated with it and
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the procedure provided for in Section 4.2 shall be applicable thereto (in which
case, unless Buyer and Seller agree to the contrary, all rights to insurance
proceeds, and claims against third parties, related thereto shall belong to
Seller), or, (ii) if no such election is made by Buyer or Seller, the Purchase
Price will not be adjusted, and Seller shall, at Seller's election, either
collect (and when collected pay over to Buyer) any insurance claims related to
such damage, or assign to Buyer such insurance claims, and, in either event,
Buyer shall take title to the Property affected by such loss without reduction
of the Purchase Price.
10.0 Notices
10.1 Notices. All notices and other communications required under this
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service which provides a receipt, by telecopier (with receipt acknowledged), or
by registered or certified mail (postage prepaid), at the following addresses:
If to Buyer: Columbia Natural Resources
900 Pennsylvania Ave.
P.O. Box 6070
Charleston, West Virginia 25362-0070
Attention: W. Henry Harmon
Phone: 304-353-5115
Fax: 304-353-5249
If to Seller: The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Attention: A. Wayne Ritter
Phone: 214-265-0080
Fax: 214-373-3610
and shall be considered delivered on the date of receipt. Either Buyer or
Seller may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other party,
in the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.
11.0 Survival
11.1 Survival of Provisions and Limitation of Liability. All
representations and warranties made herein by Buyer and Seller shall be
continuing and shall be true and correct on and as of the date of Closing with
the same force and effect as if made at that time, and all of such
representations and warranties of Seller in Sections 2.1(a)(i), (ii), (iii),
(iv), (v), and (ix)(D) shall survive the Closing and the delivery of the
Conveyance for a period of eighteen (18) months after the Closing. All such
representations and warranties of Seller in Section 2.1(a)(vii), (b) and (c) and
Section 2.1(a)(vi) as to the knowledge of the individuals on Exhibit 2.1(a)(iii)
who are officed in Dallas, Texas shall survive the Closing and the delivery of
the Conveyance for a period of 18 months after the Closing. The obligations of
the parties under Section 6.0 (to the extent the same are, by mutual agreement,
not performed at Closing), and Sections 7.1, 8.0, 10.0, 11.0 and 12.0 shall
(subject to any limitations set forth therein) also survive the Closing and the
delivery of the Conveyance and continue in effect thereafter. All breaches of
representations, covenants and warranties which are known to Buyer, its agents,
representatives or employees shall be deemed waived for all purposes and no
claim, including a claim for indemnity, may be made by Buyer against Seller for
any matter relating to or arising from the facts or events relating to
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any such breach or breaches if Buyer, its agents, employees or representatives
had knowledge of same at the time of Closing.
12.0 Miscellaneous Matters
12.1 Further Assurances. After the Closing, Seller shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time to
time, such further instruments, notices, division orders, transfer orders and
other documents, and do such other and further acts and things including the
conveyancing to Buyer of any Properties owned by an affiliate of Seller, as may
be reasonably necessary to more fully and effectively grant, convey and assign
the Properties to Buyer.
12.2 Imbalances, Makeup Obligations. Without limitation on any other
provision of this Agreement, it is expressly understood and agreed that, upon
the occurrence of Closing, but effective as of the Effective Date, Buyer shall
succeed to and assume the position of Seller with respect to all imbalances and
make-up obligations related to the Properties (regardless of whether such
imbalances or make-up obligations arise at the wellhead, pipeline, gathering
system or other level, and regardless of whether the same arise under contract
or otherwise). As a result of such succession, Buyer shall (i) be entitled to
receive any and all benefits which Seller would have been entitled to receive by
virtue of such position (including, without limitation, rights to produce and
receive volumes of production in excess of volumes which it would otherwise be
entitled to produce and receive by virtue of ownership of the Properties and
rights to receive cash balancing payments), and (ii) be obligated to suffer any
detriments which Seller would have been obligated to suffer by virtue of such
position (including, without limitation, the obligation to deliver to others
production volumes which would have otherwise been attributable to its ownership
of the Properties, to deliver production to purchasers hereof without receiving
full payment therefor, or to make cash balancing payments or to repay take or
pay payments) and (iii) shall be responsible for any and all royalty obligations
with respect to such imbalances (including, without limitation, any of the same
arising out of royalties having been paid on an "entitlement" basis rather than
a "receipts" basis).
12.3 Deceptive Trade Practices Waiver. To the extent applicable to the
transaction contemplated hereby or any portion thereof, Buyer waives Buyer's
rights under the provisions of the Texas Deceptive Trade Practices - Consumer
Protection Act, Sections 17.41 et. seq. of the Texas Business and Commerce Code,
a law that gives consumers special rights and protections, and any comparable
act in any other state in which the Properties are located; Buyer states that,
after consultation with an attorney of Buyer's selection, Buyer voluntarily
consents to this waiver.
12.4 Parties Bear Own Expenses/No Special Damages. Each party shall bear
and pay all expenses (including, without limitation, legal fees) incurred by it
in connection with the transaction contemplated by this Agreement. Neither
party shall have any obligations with respect to this agreement, or otherwise in
connection herewith, for any special, consequential or punitive damages.
12.5 No Sales Taxes. No sales, transfer or similar tax will be collected
at Closing from Buyer in connection with this transaction. If, however, this
transaction is later deemed to be subject to sales, transfer or similar tax, for
any reason, Buyer agrees to be solely responsible, and shall indemnify and hold
Seller (and its affiliates, and its and their directors, officers, employees,
attorneys, contractors and agents) harmless, for any and all sales, transfer or
other similar taxes (including related penalty, interest or legal costs) due by
virtue of this transaction on the Properties transferred pursuant hereto and the
Buyer shall remit such taxes at that time. Seller and Buyer agree to cooperate
with each other in demonstrating that the requirements for exemptions from such
taxes have been met.
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12.6 Entire Agreement. This Agreement contains the entire understanding
of the parties hereto with respect to subject matter hereof and supersedes all
prior agreements, understandings, negotiations, and discussions among the
parties with respect to such subject matter; provided that any Confidentiality
Agreement executed by Buyer and Seller, or any representative of Seller, in
connection with the transaction contemplated hereby remains in full force and
effect and is not superseded or modified by this Agreement.
12.7 Amendments, Waivers. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.
12.8 Choice of Law. Without regard to principles of conflicts of law,
this Agreement shall be construed and enforced in accordance with and governed
by the laws of the state of Texas applicable to contracts made and to be
performed entirely within such state and the laws of the United States of
America, except that, to the extent that the law of a state in which a portion
of the Properties is located (or which is otherwise applicable to a portion of
the Properties) necessary governs, the law of such state shall apply as to that
portion of the property located in (or otherwise subject to the laws of) such
state.
12.9 Headings, Time of Essence, etc. The descriptive headings contained
in this Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement. Within this
Agreement words of any gender shall be held and construed to cover any other
gender, and words in the singular shall be held and construed to cover the
plural, unless the context otherwise requires. Time is of the essence in this
Agreement.
12.10 No Assignment. Except as provided in Section 12.15, neither party
shall have the right to assign its rights under this Agreement, without the
prior written consent of the other party first having been obtained.
12.11 Successors and Assigns. Subject to the limitation on assignment
contained in subsection 12.10 above, the Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns.
12.12 No Press Releases. Except as may be required under applicable law,
prior to Closing neither party shall make any public announcement with respect
to the transaction contemplated hereby without the consent of the other party.
12.13 Counterpart Execution. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and the
same instrument. It shall not be necessary for Buyer and Seller to sign the
same counterpart.
12.14 Employees.
(a) Upon Closing, Buyer agrees that if it fails to hire at least
eighteen (18) employees of Seller listed on Exhibit 2.1(a)(ix) or fails to
continue their employment for six months after Closing, Buyer shall pay to
Seller one-half (1/2) of any severance costs as shown on Exhibit 12.14 Seller
pays to such employees; provided however, that if any employee of Seller is
initially offered employment by the Buyer, but then is denied such employment or
such employment is terminated within 6 months of the Closing Date, (i) based on
the negative results of a drug test administered by Buyer, or its agent, as a
part of Buyer's ordinary employee hiring or retention practices or (ii) for
other good cause pursuant to such
21
<PAGE>
practices, such employee shall nevertheless be treated, for the purposes of this
Section 12.14, as one of the employees hired by Buyer.
(b) For purposes of computing the vacation eligibility of any employee
of Seller hired by Buyer, an employee's vacation eligibility with Seller on the
date immediately preceding the Effective Date will be such employee's vacation
eligibility with Buyer as of the Effective Date.
12.15 Like Kind Exchange. Buyer or Seller may elect to structure this
transaction, in whole or in part, as a like-kind exchange pursuant to section
1031 of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder, with respect to any or all of the Properties (a "Like-
Kind Exchange") by giving notice of such election to the other party at any time
prior to the date of Closing. In order to effect a Like-Kind Exchange, the
party receiving such notice shall cooperate and do all acts as may be reasonably
required or requested by the party giving such notice with regard to effecting
the Like-Kind Exchange, including, but not limited to, permitting the party
giving such notice to assign its rights under this Agreement to a qualified
intermediary of its choice in accordance with Treasury Regulation (S) 1.1031(k)-
1(g)(4) and/or executing additional escrow instructions, documents, agreements
or instruments to effect an exchange; provided, however, the party receiving
such notice shall incur no expense in connection with such Like-Kind Exchange,
shall not be required to take title to any property other than the Properties in
connection with the Like-Kind Exchange, and shall not have its possession of the
Properties nor the receipt of any payment (including, without limitation,
payment of the Purchase Price) delayed by reason of any such Like-Kind Exchange.
This Agreement will serve to identify "replacement property" for purposes of
making a "deferred exchange" in accordance with the requirements of Section 1031
of the Internal Revenue Code."
13.0 Termination
13.1 Termination Rights. Either party may terminate this Agreement
prior to Closing as follows:
(a) by mutual written consent of Buyer and Seller;
(b) by the Buyer within five (5) days prior written notice if all
the conditions set forth in Section 5.1 shall not have been satisfied on
the Closing Date other than through the failure of Buyer to comply with its
obligations hereunder in all material respects, or shall not have been
waived by it on or before such date.
(c) by the Seller within five (5) days prior written notice if all
the conditions set forth in Section 5.2 shall not have been satisfied on
the Closing Date other than through the failure of Seller to comply with
its obligations hereunder in all material respects, or shall not have been
waived by it on or before such date.
(d) by either party if the adjustments for Asserted Defects to the
Purchase Price exceed 15% of the Base Purchase Price.
(e) by Buyer if the adjustments for Asserted Defects which relate
to 4.1 (b)(v) exceed 10% of the Base Purchase Price.
(f) by either party if the Board approvals of both parties are not
obtained on or before three (3) business days after the date hereof.
22
<PAGE>
13.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 13.1, this Agreement shall terminate and there
shall be no liability as to either party except as set forth herein relating to
the Deposit, and Section 3.1(a)(iii) (relating to inspection and indemnity by
Buyer). In the event the Agreement is terminated pursuant to 13.1(d) and Seller
is not in material breach of this Agreement, Seller shall be entitled to keep
the Deposit. In the event the Agreement is terminated pursuant to Section 13.1
other than pursuant to 13.1(c) or if terminated pursuant to 13.1(c) and Seller
is in material breach of this Agreement, Buyer shall be entitled to the return
of the deposit. Notwithstanding anything in this Agreement to the contrary, in
no event, shall Seller, after Closing, have any liability to Buyer in the event
it breaches or has breached any representation or warranty contained herein
which does not survive Closing, and prior to Closing, Buyer's sole and exclusive
remedy for the breach of any representation covenant or warranty shall be to
terminate this Contract as provided herein.
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
THE WISER OIL COMPANY
By: /s/ A. W. Ritter
------------------------------
Name: A. Wayne Ritter
----------------------
Title: Vice President
----------------------
COLUMBIA NATURAL RESOURCES, INC.
By: /s/ W. H. Harmon
------------------------------
Name: W. H. Harmon
----------------------
Title: President
----------------------
23
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 1.1(a) Description of the Oil and Gas Leases
Exhibit 1.1(b) Description of Fee Mineral Interest and Surface
Property
Exhibit 1.1(d) Material Subject Contracts
Exhibit 1.1(e) Pipeline and Subject Equipment
Exhibit 1.1(g) (Part 1) Corbin Office Building
Exhibit 1.1(g) (Part 2) Office Equipment and Vehicles
Exhibit 2.1(a)(iii) Certain of Seller's Personnel
Exhibit 2.1(a)(v) Disclosure Exhibit
Exhibit 2.1(a)(ix) Certain Other Contracts, Imbalances, List of
Employees, etc.
Exhibit 2.1(a)(x) Liens
Exhibit 3.1a(i) Confidential Records
Exhibit 3.1(c) Preferential Rights; Consents
Exhibit 3.1(c) - part 2 Assumption Agreement
Exhibit 4.1 (Part 1) List of Wells and Units with WI & NRI and Allocated
Value
Exhibit 6.1(i) Assignment and Bill of Sale
Exhibit 6.1(ii) Deed and Bill of Sale
Exhibit 8.3 (Part 1) Bonded Wells
Exhibit 8.3 (Part 2) Other Wells
24
<PAGE>
EXHIBIT 1.1
-----------
Description of the "Properties"
[example]
-------------------------------------------------------------------------------
| | | | Recording Data | Description |
| Lessor | Lessee | Date | Book/Page | [Needed in some States]|
-------------------------------------------------------------------------------
<PAGE>
EXHIBIT 2.1(a)(v)
Disclosure Exhibit
------------------
PENDING OR THREATENED LITIGATION AND CLAIMS
DAVIDSON V. WISER, Leslie Circuit Court, Civil Action No. 91-CI-176
VERNON MILLS V. WISER, Knox Circuit Court, Civil Action No. 98-CI-477
NANCY ANN SIZEMORE, ET AL. VS. WISER OIL COMPANY, ET AL., Leslie Circuit Court,
Civil Action No. 88-CI-063
GEORGE F. MILLS AND WIFE, OPAL LEE MILLS V. WISER MARKETING COMPANY, JOHN C.
MAIN AND WIFE, EVELYN MAIN AND UNKNOWN DEFENDANTS OF LIMITED LIABILITY
PARTNERSHIP OPERATED BY JOHN C. MAIN, JR., Knox Circuit Court, Civil Action No.
98-C1-267
WISER OIL COMPANY V. ROSS OIL & GAS COMPANY AND BONANZA OIL & GAS, INC., Lee
Circuit Court, Civil Action No. 98-CI-130
<PAGE>
EXHIBIT 4.1
[example]
- ------------------------------------------------------------------------------
| | Working | Net Revenue | Allocated |
| Well or Unit | Interest | Interest | Amount |
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 6.1(i)
ASSIGNMENT AND BILL OF SALE
---------------------------
The Wiser Oil Company (herein called "Seller"), for Ten Dollars and other
good and valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET
OVER, and DELIVER unto Columbia Natural Resources, Inc. (herein called "Buyer"),
whose address is 900 Pennsylvania Ave., Charleston, West Virginia, 25362:
the following described properties, rights and interests:
(a) Oil and Gas Leases. All right, title and interest of Seller in
and to the oil, gas and/or mineral leases described on Exhibit 1.1(a)
hereto (and any ratifications and/or amendments to such leases, whether or
not such ratifications or amendments are described on such Exhibit 1.1(a))
insofar as such leases (and such ratifications and amendments) cover the
lands and depths described on such Exhibit 1.1(a); and
(b) This Section left intentionally blank.
(c) Related Pooling Agreements. All rights, titles and interests of
Seller in and to, or otherwise derived from, all presently existing and
valid oil, gas and/or mineral unitization, pooling, and/or communitization
agreements, declarations and/or orders (including, without limitation, all
units formed under orders, rules, regulations, or other official acts of
any federal, state, or other authority having jurisdiction, and voluntary
unitization agreements, designations and/or declarations) relating to the
properties described in subsection (a) or (b) above (all of such contracts
and agreements are herein referred to as the "Related Pooling Agreements");
and
(d) Subject Contracts. All rights, titles and interests of Seller in
and to (i) all presently existing and valid production sales agreements,
operating agreements, gas transportation agreements, capacity lease
agreements, and other agreements and contracts which relate to any of the
properties described in subsections (a) (b) and (c), to the extent and only
to the extent such rights, titles and interests are attributable to the
properties described in subsections (a) (b) and (c) above (all of such
contracts and agreements are herein referred to as the "Subject
Contracts"); and
(e) Pipeline and Subject Equipment. All rights, titles and interests
of Seller in and to (i) all wells, materials, supplies, machinery,
equipment, improvements and other personal property and fixtures
(including, but not by way of limitation, all wells, wellhead equipment,
pumping units, flowlines, gathering pipelines, (including any related right
of way agreements) tanks, buildings, injection facilities, saltwater
disposal facilities, compression facilities, and other equipment) to the
extent and only to the extent such personal property is located on the
properties described in subsections (a), (b) and (c) above or used in
connection with the exploration, development, operation or maintenance
thereof and (ii) the plants, equipment, facilities and other tangible
personal property listed on Exhibit 1.1(e) and the pipelines shown on the
plat attached as a part of said Exhibit 1.1(e); and
(f) Books and Records. All right, title and interest of Seller in
and to any books and records directly relating to the Properties (defined
below) including without limitation (i) existing engineering, operating,
accounting, tax (including product, severance and ad valorem), business,
<PAGE>
marketing, title and division order files, (ii) existing ledgers, journals,
property records, title policies, maps, charts, surveys, customer lists,
supplier lists, (iii) existing environmental reports, assessments, studies,
and plans and (iv) geological similar data, or any interpretation thereof
(the "Records"); and
(g) This Section left intentionally blank
___________________________________________________________________________
___________________________________________________.
(h) Easements and Rights-of-Way. All right, title and interest of
Seller in and to the easements and rights-of-way described on Exhibit
1.1(a) and Exhibit 1.1(h) attached hereto; and
(i) Surface Leases. All right, title and interest of Seller in and
to the surface leases described on Exhibit 1.1(i) attached hereto.
The properties, rights and interests specified in the subsection (a) of Section
1.1, exclusive of the properties, rights and interests excluded below, are
herein sometimes collectively called the "Oil and Gas Properties," and the
properties, rights and interests specified in the foregoing subsections (a),
(b), (c), (d), (e), (f), (g), (h), and (i) exclusive of the properties, rights
and interests excluded below, are herein sometimes collectively called the
"Properties". The Properties do not include, and there is hereby expressly
excepted and excluded therefrom and reserved to Seller, (a) all hedging or
derivative agreements, and (b) all rights and choses in action, arising,
occurring or existing in favor of Seller prior to the Effective Date or arising
out of the operation of or production from the Oil and Gas Properties prior to
the Effective Date (including, but not limited to, any and all contract rights,
claims, receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments or other claims of any nature in
favor of Seller and relating and accruing to any time period prior to the
Effective Date).
TO HAVE AND TO HOLD the Properties unto Buyer its successors and assigns,
forever.
SELLER DOES HEREBY WARRANT AND FOREVER DEFEND TITLE TO THE OIL AND GAS
PROPERTIES UNTO BUYER AGAINST THE CLAIMS AND DEMANDS OF ALL PERSONS CLAIMING BY,
THROUGH OR UNDER SELLER, BUT NOT OTHERWISE. EXCEPT FOR THE SPECIAL WARRANTY IN
THE FOREGOING SENTENCE, THIS ASSIGNMENT AND BILL OF SALE IS MADE WITHOUT
WARRANTIES OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE.
WITHOUT LIMITATION OF THE FOREGOING, THE PROPERTIES ARE CONVEYED PURSUANT HERETO
WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, RELATING TO TITLE TO THE SUBJECT PROPERTIES OR RELATING TO THE
CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO
THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS
FITNESS FOR ANY PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR
OTHER WARRANTY OR REPRESENTATION WHATSOEVER.
This Assignment and Bill of Sale is made subject to that certain Agreement
of Sale and Purchase between Seller and Buyer dated ______________________.
Seller agrees to execute and deliver to Buyer, from time to time, such
other and additional instruments, notices, division orders, transfer orders and
other documents, and to do all such other and further acts and things as may be
necessary to more fully and effectively grant, convey and assign to Buyer the
Properties.
<PAGE>
This Assignment and Bill of Sale is being executed in several counterparts
all of which are identical. All of such counterparts together shall constitute
one and the same instrument.
IN WITNESS WHEREOF this Assignment and Bill of Sale has been executed on
________________, 1999 by the parties hereto effective as to runs of oil and
deliveries of gas, and for all other purposes, as of 7:00 a.m. ______ local time
at the locations of the Properties, respectively, on April 1, 1999.
SELLER:
THE WISER OIL COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
BUYER:
COLUMBIA NATURAL RESOURCES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
SELLER'S ACKNOWLEDGMENT
-----------------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
The foregoing instrument was acknowledged before me this _____day of
____________, 1999, by ________________________, as _______________________ of
The Wiser Oil Company, a _____________________ corporation, on behalf of such
corporation.
----------------------------------------
Notary Public, State of Texas
[Seal]
BUYER'S ACKNOWLEDGMENT
----------------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
The foregoing instrument was acknowledged before me this _____day of
____________, 1999, by ________________________, as _______________________ of
Columbia Natural Resources, Inc., a _____________________ corporation, on behalf
of such corporation.
---------------------------------------
Notary Public, State of Texas
[Seal]
<PAGE>
EXHIBIT 3.1(a)(i)
None except as listed on the other Exhibits.
<PAGE>
EXHIBIT 6.1(ii)
DEED AND BILL OF SALE
---------------------
The Wiser Oil Company (herein called "Seller"), for Ten Dollars and other
good and valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, SET OVER, and
DELIVER unto Columbia Natural Resources, Inc. (herein called "Buyer"), whose
address is 900 Pennsylvania Ave., Charleston, West Virginia 25362:
the following described properties, rights and interests:
(a) This Section left intentionally blank.
(b) Fee Mineral Interest. All right, title and interest of Seller in
and to the fee mineral interests in oil, gas and other minerals described
on Exhibit 1.1(b) hereto; and
(c) Related Pooling Agreements. All rights, titles and interests of
Seller in and to, or otherwise derived from, all presently existing and
valid oil, gas and/or mineral unitization, pooling, and/or communitization
agreements, declarations and/or orders (including, without limitation, all
units formed under orders, rules, regulations, or other official acts of
any federal, state, or other authority having jurisdiction, and voluntary
unitization agreements, designations and/or declarations) relating to the
properties described in subsection (a) or (b) above, all of such contracts
and agreements are herein referred to as the "Related Pooling Agreements");
an d
(d) Subject Contracts. All rights, titles and interests of Seller in
and to (i) all presently existing and valid production sales agreements,
operating agreements, gas transportation agreements, capacity lease
agreements, and other agreements and contracts which relate to any of the
properties described in subsections (a) (b) and (c), to the extent and only
to the extent such rights, titles and interests are attributable to the
properties described in subsections (a) (b) and (c) above all of such
contracts and agreements are herein referred to as the "Subject
Contracts"); and
(e) This Section left intentionally blank.
(f) Books and Records. All right, title and interest of Seller in
and to any books and records directly relating to the Properties (defined
below) including without limitation (i) existing engineering, operating,
accounting, tax (including product, severance and ad valorem), business,
marketing, title and division order files, (ii) existing ledgers, journals,
property records, title policies, maps, charts, surveys, customer lists,
supplier lists, (iii) existing environmental reports, assessments, studies,
and plans and (iv) geological similar data, or any interpretation thereof
(the "Records"); and
(g) Corbin Office. All right, title and interest of Seller in and to
that certain land together with that certain building structure commonly
referred to as the Wiser Corbin Building located at _________ Street,
Corbin, Kentucky, as more particularly described on part one of Exhibit
1.1(g), and all related personal property located on or in the premises,
including without limitation furniture and equipment and the vehicle listed
on part two of Exhibit 1.1(g), but excluding any computer software.
<PAGE>
(h) This Section left intentionally blank.
(i) This Section left intentionally blank.
The properties, rights and interests specified in the subsection (b) of Section
1.1, exclusive of the properties, rights and interests excluded below, are
herein sometimes collectively called the "Oil and Gas Properties," and the
properties, rights and interests specified in the foregoing subsections (a),
(b), (c), (d), (e), (f), (g), (h), and (i) exclusive of the properties, rights
and interests excluded below, are herein sometimes collectively called the
"Properties". The Properties do not include, and there is hereby expressly
excepted and excluded therefrom and reserved to Seller, (a) all hedging or
derivative agreements, and (b) all rights and choses in action, arising,
occurring or existing in favor of Seller prior to the Effective Date or arising
out of the operation of or production from the Oil and Gas Properties prior to
the Effective Date (including, but not limited to, any and all contract rights,
claims, receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments or other claims of any nature in
favor of Seller and relating and accruing to any time period prior to the
Effective Date).
TO HAVE AND TO HOLD the Properties unto Buyer its successors and assigns,
forever.
SELLER DOES HEREBY WARRANT AND FOREVER DEFEND TITLE TO THE OIL AND GAS
PROPERTIES UNTO BUYER AGAINST THE CLAIMS AND DEMANDS OF ALL PERSONS CLAIMING BY,
THROUGH OR UNDER SELLER, BUT NOT OTHERWISE. EXCEPT FOR THE SPECIAL WARRANTY IN
THE FOREGOING SENTENCE, THIS DEED AND BILL OF SALE IS MADE WITHOUT WARRANTIES OR
REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. WITHOUT LIMITATION
OF THE FOREGOING, THE PROPERTIES ARE CONVEYED PURSUANT HERETO WITHOUT ANY
WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
RELATING TO TITLE TO THE SUBJECT PROPERTIES OR RELATING TO THE CONDITION,
QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY
PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR
REPRESENTATION WHATSOEVER.
This Deed and Bill of Sale is made subject to that certain Agreement of
Sale and Purchase between Seller and Buyer dated ______________________.
Seller agrees to execute and deliver to Buyer, from time to time, such
other and additional instruments, notices, division orders, transfer orders and
other documents, and to do all such other and further acts and things as may be
necessary to more fully and effectively grant, convey and assign to Buyer the
Properties.
This Deed and Bill of Sale is being executed in several counterparts all of
which are identical. All of such counterparts together shall constitute one and
the same instrument.
IN WITNESS WHEREOF this Deed and Bill of Sale has been executed on
________________, 1999 by the parties hereto effective as to runs of oil and
deliveries of gas, and for all other purposes, as of 7:00 a.m. ______ local time
at the locations of the Properties, respectively, on April 1, 1999.
<PAGE>
SELLER:
THE WISER OIL COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BUYER:
COLUMBIA NATURAL RESOURCES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
SELLER'S ACKNOWLEDGMENT
-----------------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
The foregoing instrument was acknowledged before me this _____day of
____________, 1999, by ________________________, as _______________________ of
The Wiser Oil Company, a _____________________ corporation, on behalf of such
corporation.
--------------------------------------
Notary Public, State of Texas
[Seal]
BUYER'S ACKNOWLEDGMENT
----------------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
The foregoing instrument was acknowledged before me this _____day of
____________, 1999, by ________________________, as _______________________ of
Columbia Natural Resources, Inc., a _____________________ corporation, on behalf
of such corporation.
--------------------------------------
Notary Public, State of Texas
[Seal]
<PAGE>
EXHIBIT 10.4a
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the first day of August,
1994, by and between THE WISER OIL COMPANY, a Delaware Corporation and ALLAN J.
SIMUS is hereby amended so that Article I, Section 1.02, shall read as follows:
1.02 Term. Subject to the terms and provisions of Article II hereof,
-----
Employee's employment hereunder shall be extended and shall continue
through the close of business on March 1, 1998 unless extended by
subsequent agreement of the parties hereto.
IN WITNESS WHEROF, the parties hereto have executed this Amendment to
Agreement or caused it to be executed as of March 22, 1996.
/s/ Allan J. Simus
--------------------------------
THE WISER OIL COMPANY
By: /s/ Andrew J. Shoup, Jr.
----------------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
<PAGE>
EXHIBIT 10.4c
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
For good and valuable consideration, the receipt of which is hereby
acknowledged, that EMPLOYMENT AGREEMENT made as of the 1st day of August, 1994,
by and between THE WISER OIL COMPANY OF CANADA, a Canadian corporation (the
"Company"), and ALLEN J. SIMUS ("Employee") (as amended, the "Agreement") is
hereby amended in the following respects only:
FIRST: Section 2.05 of the Agreement is hereby amended by restating
-----
subsection (a) thereof in its entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason (other than by the Company for Cause
or by reason of the death of Employee) within twelve months following a
Change of Control of the Company or the Parent Company, Employee shall be
paid, within 30 days following such termination, an amount in cash equal to
the sum of (i) Employee's Base Salary at the time of his termination of
employment multiplied by three, (ii) the amount equal to the premium cost
or other amount paid by the Company during the one-year period preceding
Employee's termination of employment to provide Employee with (A) life,
health and disability insurance benefits, and (B) the use of an automobile
for such year, and (iii) the amount of the additional payment, if any,
determined pursuant to Section 1.05. If Employee's employment with the
Company is terminated under circumstances in which the provisions of this
Section 2.05(a) and Section 2.04 are applicable, the provisions of this
Section 2.05(a) shall control with respect to the amounts payable to
Employee as a result of such termination.
SECOND: Section 2.05(b) is hereby amended to add a new paragraph (6) to
------
the end thereof to read as follows:
(6) "Cause" shall mean a termination of Employee's employment pursuant
to Section 2.03 on the basis of actual fraud or embezzlement by Employee in
respect of the Company or its affiliates.
THIRD: Section 2.01 of the Agreement is hereby amended by restating the
-----
last sentence thereof in its entirety to read as follows:
Upon delivery to Employee of such notice, together with payment of any
Base Salary accrued to the date of termination under Section 1.03 hereof,
Employee's employment and
<PAGE>
all obligations of the Company under Article I hereof (other than its
obligations, if any, under Sections 1.05 and 2.05) shall forthwith
terminate.
FOURTH: Section 2.03 of the Agreement is hereby amended by restating the
------
last sentence thereof in its entirety to read as follows:
Upon such termination, Employee shall be entitled to any Base Salary
accrued under Section 1.03 hereof, and all of the Company's obligations
under Article I hereof (other than its obligations, if any, under Sections
1.05 and 2.05) shall forthwith terminate.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the 1st day of January, 1999.
--------------------------------------
ALLEN J. SIMUS
THE WISER OIL COMPANY OF CANADA
By
------------------------------------
Name:
------------------------------
Title:
-----------------------------
2
<PAGE>
EXHIBIT 10.5a
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the first day of July,
1991, by and between THE WISER OIL COMPANY, a Delaware Corporation and ANDREW J.
SHOUP, JR. is hereby amended so that Article I, Section 1.02, and Article IV,
Section 4.04, shall read as follows:
1.02 Term. Subject to the terms and provisions of Article II hereof,
-----
Employee's employment hereunder shall be extended and shall continue
through the close of business on July 1, 1997 unless extended by subsequent
agreement of the parties hereto.
4.04. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Texas.
IN WITNESS WHEROF, the parties hereto have executed this Amendment to
Agreement or caused it to be executed as of June 1, 1994.
/s/ Andrew J. Shoup, Jr.
--------------------------
THE WISER OIL COMPANY
By: /s/ A. Wayne Ritter
-------------------------------
Title: Vice President
----------------------------
<PAGE>
EXHIBIT 10.5c
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
THAT EMPLOYMENT AGREEMENT made as of the 1st day of July, 1991, by and
between THE WISER OIL COMPANY, a Delaware corporation, and ANDREW J. SHOUP, JR.
(as heretofore amended, the "Agreement") is hereby amended in the following
respects only:
FIRST: Section 1.03 of the Agreement is hereby amended to add a new
-----
sentence to the end thereof to read as follows:
Notwithstanding the foregoing, Employee hereby agrees to accept a
voluntary, temporary reduction in his Base Salary to a rate of $200,000 per
annum, with respect to the period commencing on January 1, 1999 and continuing
for at least 12 months thereafter. At any time after the end of such 12-month
period, Employee may, by written notice to Wiser, reinstate Employee's Base
Salary to his annual rate of Base Salary in effect immediately prior to his
voluntary reduction in Base Salary. Thereafter, Employee's Base Salary shall be
paid to him at the reinstated rate with respect to the period of his employment
that begins on the effective date of such reinstatement, subject to such
increases in Base Salary as may be determined from time to time by the Board.
The effective date of such reinstatement shall be the first day of the first pay
period following Wiser's receipt of Employee's notice of reinstatement or as
otherwise agreed to by the parties.
SECOND: Section 1.08 of the Agreement is hereby amended by restating
------
subsection (a) thereof in its entirety to read as follows:
(a) If Employee's employment with Wiser is terminated by Wiser or by
Employee for any reason (other than by Wiser for Cause or by reason of the
death of Employee) within twelve months following a Change of Control of
Wiser, Employee shall be paid, within 30 days following such termination,
an amount in cash equal to the sum of:
(i) an amount equal to the product of (A) the amount equal to 12
times the highest monthly base salary paid or payable, including any
base salary that has been earned but deferred, to Employee by Wiser
and its subsidiaries in respect of the 60-month period immediately
preceding the month in which his employment terminated, multiplied by
(B) three, plus
(ii) the amount equal to the premium cost or other amount paid
by Wiser during the one-year period preceding Employee's termination
of employment to provide Employee with (A) life, health and disability
insurance benefits, and (B) the use of an automobile for such year,
plus
<PAGE>
(iii) the amount of the additional payment, if any, determined
pursuant to Section 1.09.
THIRD: Section 1.08(b) is hereby amended to add a new paragraph (6) to
-----
the end thereof to read as follows:
(6) "Cause" shall mean a termination of Employee's employment pursuant
to Section 2.03 for actual fraud or embezzlement by Employee in respect of
Wiser or its subsidiaries.
FOURTH: Section 2.01 of the Agreement is hereby amended by restating the
------
last sentence thereof in its entirety to read as follows:
Upon delivery to Employee of such notice, together with payment of any
Base Salary accrued to the date of termination under Section 1.03 hereof,
Employee's employment and all obligations of Wiser under Article I hereof
(other than its obligations, if any, under Sections 1.08 and 1.09) shall
forthwith terminate.
FIFTH: Section 2.03 of the Agreement is hereby amended by restating the
-----
last sentence thereof in its entirety to read as follows:
Upon such termination, Employee shall be entitled to any Base Salary
accrued under Section 1.03 hereof and any award under Section 1.04 hereof
previously earned by Employee but not paid, and all of Wiser's obligations
under Article I hereof (other than its obligations, if any, under Sections
1.08 and 1.09) shall forthwith terminate.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the 1st day of January, 1999.
ANDREW J. SHOUP, JR.
THE WISER OIL COMPANY
By
------------------------------------
Name:
------------------------------
Title:
-----------------------------
-2-
<PAGE>
EXHIBIT 10.8a
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the first day of
November, 1993, by and between THE WISER OIL COMPANY, a Delaware Corporation and
LAWRENCE J. FINN is hereby amended so that Article I, Section 1.02, shall read
as follows:
1.02 Term. Subject to the terms and provisions of Article II hereof,
-----
Employee's employment hereunder shall be extended and shall continue
through the close of business on March 1, 1998 unless extended by
subsequent agreement of the parties hereto.
IN WITNESS WHEROF, the parties hereto have executed this Amendment to
Agreement or caused it to be executed as of March 22, 1996.
/s/ Lawrence J. Finn
--------------------------------
THE WISER OIL COMPANY
By: /s/ Andrew J. Shoup, Jr.
-------------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
<PAGE>
EXHIBIT 10.8c
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
For good and valuable consideration, the receipt of which is hereby
acknowledged, that EMPLOYMENT AGREEMENT made as of the 1st day of November,
1993, by and between THE WISER OIL COMPANY, a Delaware corporation (the
"Company"), and LAWRENCE J. FINN ("Employee") (as amended, the "Agreement") is
hereby amended in the following respects only:
FIRST: Section 1.05 of the Agreement is hereby amended by restating
-----
subsection (a) thereof in its entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason (other than by the Company for Cause
or by reason of the death of Employee) within twelve months following a
Change of Control of the Company, Employee shall be paid, within 30 days
following such termination, an amount in cash equal to the sum of (i)
Employee's Base Salary at the time of his termination of employment
multiplied by three, (ii) the amount equal to the premium cost or other
amount paid by the Company during the one-year period preceding Employee's
termination of employment to provide Employee with (A) life, health and
disability insurance benefits, and (B) the use of an automobile for such
year, and (iii) the amount of the additional payment, if any, determined
pursuant to Section 1.06.
SECOND: Section 1.05(b) is hereby amended to add a new paragraph (6) to
------
the end thereof to read as follows:
(6) "Cause" shall mean a termination of Employee's employment pursuant
to Section 2.03 on the basis of actual fraud or embezzlement by Employee in
respect of the Company or its subsidiaries.
THIRD: Section 2.01 of the Agreement is hereby amended by restating the
-----
last sentence thereof in its entirety to read as follows:
Upon delivery to Employee of such notice, together with payment of any
Base Salary accrued to the date of termination under Section 1.03 hereof,
Employee's employment and all obligations of the Company under Article I
hereof (other than its obligations, if any, under Sections 1.05 and 1.06)
shall forthwith terminate.
FOURTH: Section 2.03 of the Agreement is hereby amended by restating the
------
last sentence thereof in its entirety to read as follows:
<PAGE>
Upon such termination, Employee shall be entitled to any Base Salary
accrued under Section 1.03 hereof, and all of the Company's obligations
under Article I hereof (other than its obligations, if any, under Sections
1.05 and 1.06) shall forthwith terminate.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the 1st day of January, 1999.
----------------------------------------
LAWRENCE J. FINN
THE WISER OIL COMPANY
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
2
<PAGE>
EXHIBIT 10.9a
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THAT EMPLOYMENT AGREEMENT ("Agreement") made as of the twenty fourth day of
January, 1994, by and between THE WISER OIL COMPANY, a Delaware Corporation and
A. WAYNE RITTER is hereby amended so that Article I, Section 1.02, shall read as
follows:
1.02 Term. Subject to the terms and provisions of Article II hereof,
-----
Employee's employment hereunder shall be extended and shall continue
through the close of business on March 1, 1998 unless extended by
subsequent agreement of the parties hereto.
IN WITNESS WHEROF, the parties hereto have executed this Amendment to
Agreement or caused it to be executed as of March 22, 1996.
/s/ A. Wayne Ritter
-----------------------------------
THE WISER OIL COMPANY
By: /s/ Andrew J. Shoup, Jr.
--------------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
<PAGE>
EXHIBIT 10.9c
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
For good and valuable consideration, the receipt of which is hereby
acknowledged, that EMPLOYMENT AGREEMENT made as of the 24th day of January,
1994, by and between THE WISER OIL COMPANY, a Delaware corporation (the
"Company"), and A. WAYNE RITTER ("Employee") (as amended, the "Agreement") is
hereby amended in the following respects only:
FIRST: Section 1.05 of the Agreement is hereby amended by restating
-----
subsection (a) thereof in its entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason (other than by the Company for Cause
or by reason of the death of Employee) within twelve months following a
Change of Control of the Company, Employee shall be paid, within 30 days
following such termination, an amount in cash equal to the sum of (i)
Employee's Base Salary at the time of his termination of employment
multiplied by three, (ii) the amount equal to the premium cost or other
amount paid by the Company during the one-year period preceding Employee's
termination of employment to provide Employee with (A) life, health and
disability insurance benefits, and (B) the use of an automobile for such
year, and (iii) the amount of the additional payment, if any, determined
pursuant to Section 1.06.
SECOND: Section 1.05(b) is hereby amended to add a new paragraph (6) to
------
the end thereof to read as follows:
(6) "Cause" shall mean a termination of Employee's employment pursuant
to Section 2.03 on the basis of actual fraud or embezzlement by Employee in
respect of the Company or its subsidiaries.
THIRD: Section 2.01 of the Agreement is hereby amended by restating the
-----
last sentence thereof in its entirety to read as follows:
Upon delivery to Employee of such notice, together with payment of any
Base Salary accrued to the date of termination under Section 1.03 hereof,
Employee's employment and all obligations of the Company under Article I
hereof (other than its obligations, if any, under Sections 1.05 and 1.06)
shall forthwith terminate.
FOURTH: Section 2.03 of the Agreement is hereby amended by restating the
------
last sentence thereof in its entirety to read as follows:
<PAGE>
Upon such termination, Employee shall be entitled to any Base Salary
accrued under Section 1.03 hereof, and all of the Company's obligations
under Article I hereof (other than its obligations, if any, under Sections
1.05 and 1.06) shall forthwith terminate.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the 1st day of January, 1999.
----------------------------------------
A. WAYNE RITTER
THE WISER OIL COMPANY
By
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
2
<PAGE>
EXHIBIT 10.10b
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
For good and valuable consideration, the receipt of which is hereby
acknowledged, that EMPLOYMENT AGREEMENT made as of the 30th day of September,
1996, by and between THE WISER OIL COMPANY, a Delaware corporation (the
"Company"), and KENT E. JOHNSON ("Employee") (as amended, the "Agreement") is
hereby amended in the following respects only:
FIRST: Effective as of the date of this Amendment, Employee hereby resigns
-----
as Vice President of Exploration of the Company, but the Company hereby agrees
to continue Employee in its employ as an executive employee for the period set
forth in Section 1.02 and upon the other terms and conditions of the Agreement.
During the remainder of the term of Employee's employment under the Agreement,
Employee shall serve as a business consultant to the Company for the purpose of
rendering to it such general advice and assistance as the Board of Directors of
the Company or the Chief Executive Officer of the Company may reasonably request
from time to time in connection with matters within the responsibility of a
person serving as a Vice President of Exploration of the Company. During the
remainder of his employment term, Employee shall devote such portion of his
business time, skill and attention as shall reasonably be required for the
performance by him of the services contemplated hereby; provided, however, that
it is specifically understood and agreed by the Company and Employee that
Employee may perform such services at locations convenient to him, unless the
nature of the services reasonably requires his presence at the Company's
offices.
SECOND: The second sentence of Section 3.02 of the Agreement is
------
hereby amended by deleting from such sentence the words "full time".
THIRD: Section 1.04 of the Agreement is hereby amended by restating the
-----
first sentence thereof in its entirety to read as follows:
<PAGE>
At all times during the term of Employee's employment hereunder,
Employee shall: (a) be covered by such major medical or health
benefit plans and savings and retirement plans as are available
generally to other executive employees of the Company; (b) receive
reimbursement for all properly substantiated business expenses; and
(c) be entitled to paid vacation each year and such holidays and sick
days as are available to other executive employees of the Company.
FOURTH: Section 1.05 of the Agreement is hereby amended by restating
------
subsection (a) thereof in its entirety to read as follows:
(a) If Employee's employment with the Company is terminated by the
Company or by Employee for any reason (other than by the Company for Cause
or by reason of the death of Employee) within twelve months following a
Change of Control of the Company, Employee shall be paid, within 30 days
following such termination, an amount in cash equal to the sum of (i)
Employee's Base Salary at the time of his termination of employment
multiplied by three, (ii) the amount equal to the premium cost or other
amount paid by the Company during the one-year period preceding Employee's
termination of employment to provide Employee with (A) life, health and
disability insurance benefits, and (B) the use of an automobile for such
year, and (iii) the amount of the additional payment, if any, determined
pursuant to Section 1.06; provided, however, that the amount payable to
Employee under clause (i) of this Section 1.05(a) shall be payable to
Employee if and only if such Change of Control occurred, or the Company
entered into the definitive agreement providing for such Change of Control,
prior to February 1, 1999. The rights and remedies of Employee arising out
of or otherwise in respect of a termination by the Company of Employee's
employment hereunder other than pursuant to Sections 2.01 and 2.03 within
12 months following a Change of Control shall in no way be limited by the
fact that, in connection with such termination of employment, the proviso
contained in the immediately preceding sentence shall operate to deny
Employee the amount otherwise payable to him under clause (i) of such
sentence.
FIFTH: Section 1.05(b) is hereby amended to add a new paragraph (6) to the
-----
end thereof to read as follows:
(6) "Cause" shall mean a termination of Employee's employment pursuant
to Section 2.03 for actual fraud or embezzlement by Employee in respect of
the Company or its subsidiaries.
SIXTH: Section 2.01 of the Agreement is hereby amended by restating the
-----
last sentence thereof in its entirety to read as follows:
2
<PAGE>
Upon delivery to Employee of such notice, together with payment of any
Base Salary accrued to the date of termination under Section 1.03 hereof,
Employee's employment and all obligations of the Company under Article I
hereof (other than its obligations, if any, under Sections 1.05 and 1.06)
shall forthwith terminate.
SEVENTH: Section 2.03 of the Agreement is hereby amended by restating the
-------
last sentence thereof in its entirety to read as follows:
Upon such termination, Employee shall be entitled to any Base Salary
accrued under Section 1.03 hereof, and all of the Company's obligations
under Article I hereof (other than its obligations, if any, under Sections
1.05 and 1.06) shall forthwith terminate.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the 1st day of January, 1999.
----------------------------------------
KENT E. JOHNSON
THE WISER OIL COMPANY
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
3
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE WISER OIL COMPANY
T.W.O.C., Inc.
The Wiser Oil Company of Canada
Wiser Delaware LLC
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 15, 1999 appearing on page F-2 on this
Annual Report on Form 10-K, into the Registration Statements on Form S-8
relating to the stock incentive plans of The Wiser Oil Company (Nos. 33-44171,
33-62441, 33-44172, 333-22525 and 333-15083).
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Dallas, Texas,
April 15, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF PETROLEUM ENGINEERS
April 7, 1999
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Gentlemen:
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-44171, 33-62441, 33-44172, 333-22525, and 333-
15083) relating to the stock incentive plans of The Wiser Oil Company
(theCompany) of our reserves estimates included in the Annual Report on Form 10-
K (the Annual Report) of the Company for the year ended December 31, 1998, and
to the references to our firm included in the Annual Report. Our estimates of
the oil, condensate, natural gas liquids (shown collectively as "Oil and NGL"),
and natural gas reserves of certain properties owned by the Company are
contained in our report entitled "Appraisal Report as of December 31, 1998 on
Certain Properties owned by the Wiser Oil Company-Proved Reserves". Reserves
estimates from our report are included in the sections "Principal Oil and Gas
Properties," "Oil and Gas Reserves," and "Supplemental Financial Information for
the years ending December 31, 1998, 1997 and 1996 (unaudited)-Oil and Gas
Reserves." Also included in the third section mentioned above are reserves
estimates from our "Appraisal Report as of December 31, 1995 on Certain
Properties owned by the Wiser Oil Company--Proved Reserves," our "Appraisal
Report as of December 31, 1995, on Certain Properties owned by Maljamar Wiser
Inc.," our "Appraisal Report as of December 31, 1996, on Certain Properties
owned by Maljamar Wiser Inc.," our "Appraisal Report as of December 31, 1996, on
Certain Properties owned by The Wiser Oil Company--Proved Reserves, and our
"Appraisal Report as of December 31, 1997 on Certain Properties owned by The
Wiser Oil Company-Proved Reserves." In the sections "Summary Reserve and
Operating Data" and "Oil and Gas Reserves," estimates of reserves, revenue, and
discounted present worth set forth in our above mentioned reports have been
combined with estimates of reserves, revenue, and discounted present worth
prepared by another petroleum consultant. We are necessarily unable to verify
the accuracy of the reserves, revenue, and present worth values contained in the
Annual Report when our estimates have been combined with those of another firm.
Very truly yours,
/S/ DEGOLYER AND MACNAUGHTON
DeGOLYER and MacNAUGHTON
<PAGE>
EXHIBIT 23.3
LETTER OF CONSENT
CONSENT OF PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference in the Registration Statements on Form S-8 relating to the stock
incentive plans of The Wiser Oil Company (the "Company"), (Nos. 33-44171, 33-
62441, 33-44172, 333-22525 and 333-15083), of certain data from our report
entitled "The Wiser Oil Company Canada Ltd. Reserve Appraisal and Economic
Evaluation effective January 1, 1999" with respect to the oil and gas reserves
of the Company, the future net revenues therefrom and present values
attributable to these reserves included in this Annual Report on Form 10-K, and
to all references to our firm included in this Annual Report.
Yours very truly,
GILBERT LAUSTSEN JUNG ASSOCIATES LTD.
/s/ Wayne W. Chow, P. Eng.
Vice-President
April 12, 1999
Calgary, Canada
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,779
<SECURITIES> 0
<RECEIVABLES> 10,372
<ALLOWANCES> 0
<INVENTORY> 669
<CURRENT-ASSETS> 14,855
<PP&E> 373,497
<DEPRECIATION> 160,202
<TOTAL-ASSETS> 231,810
<CURRENT-LIABILITIES> 34,203
<BONDS> 124,452
0
0
<COMMON> 27,385
<OTHER-SE> 44,706
<TOTAL-LIABILITY-AND-EQUITY> 231,810
<SALES> 59,197
<TOTAL-REVENUES> 60,630
<CGS> 27,969
<TOTAL-COSTS> 95,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,097
<INCOME-PRETAX> (35,206)
<INCOME-TAX> (10,740)
<INCOME-CONTINUING> (24,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,466)
<EPS-PRIMARY> (2.73)
<EPS-DILUTED> (2.73)
</TABLE>
