UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-1
(Second Amended)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Arena Resources, Inc.
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(Name of small business issuer in its charter)
Nevada 1311 73-1596109
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(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
4920 South Lewis Street, Suite 107, Tulsa, Oklahoma
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74105 (918) 747-6060
(Address and telephone number of principal executive offices)
4920 South Lewis Street, Suite 107, Tulsa,
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Oklahoma 74105
(Address of principal place of business or intended principal place of business)
Wilson & Barrows Ltd., 442 Court Street, Elko, Nevada 89801 (775) 738-7271
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public January 12, 2001
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If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ] Not applicable.
Title of each class Dollar amount to be Proposed maximum Amount of
of securities to be registered offering price per registration
registered share fee
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Common voting Max: $500,000 $.25/share $139.00
stock
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
(i)
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PROSPECTUS
ARENA RESOURCES, INC.
4920 South Lewis Street, Suite 107
Tulsa, Oklahoma 74105
(918) 747-6060
Offering of the common voting stock of Arena Resources, Inc. Minimum
offering of 800,000 shares, maximum offering of 2,000,000 shares, both at
$.25/share. Arena reserves the right to close the offering at any amount between
the minimum or maximum offering during the offering term of 60 days from the
date appearing on this prospectus cover page. Arena will place all subscription
proceeds into a segregated subscription account until the minimum offering is
sold or the offering is closed. Arena has only one class of stock being offered,
100,000,000 authorized shares of common voting stock, of which 2,600,000 are
presently issued and outstanding with up to an additional 2,000,000 to be issued
by this offering.
This is a high risk offering. See risk factors at page 4.
This offering is intended as a self underwriting. That is, the stock
will be sold by Arena management without the employment of any underwriters or
other commissioned sales agents. Should Arena be unsuccessful at completing its
self underwriting, it may amend the prospectus to indicate commissions to be
paid.
These securities have not been approved or disapproved by the united states
securities and exchange commission; nor by any state or foreign securities
regulatory agency; nor has the commission or any other securities regulatory
agency passed upon the accuracy or adequacy of the prospectus. Any
representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
securities and exchange commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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Description of Estimated Cost of Estimated Net Net Proceeds as
Securities Offered Offering Proceeds of a Percentage of
Offering Offering Price
<S> <C> <C> <C> <C>
Minimum 800,000 shares $35,000 $165,000 82.5%
Offering @ 0.25/share $0.04/share $0.21/share
$200,000 (rounded) (rounded)
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Maximum 2,000,000 shares $35,000 $465,000 93%
Offering @ $0.25/share $0.02/share $0.23/share
$500,000 (rounded) (rounded)
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Date of this Prospectus: January 12, 2001 Offering Termination Date: March 12, 2001
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(ii)
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<TABLE>
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TABLE OF CONTENTS
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ITEM
NUMBER DESCRIPTION PAGE
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<S> <C> <C>
1 Summary Information.............................................................. 1
2 Risk Factors..................................................................... 4
3 Table of Significant Parties..................................................... 9
4 Dilution.........................................................................10
5 Plan of Distribution and Terms of Offering.......................................10
6 Use of Proceeds to Issuer........................................................12
7 Description of Business and Properties...........................................15
8 Description of Other Property....................................................24
9 Management's Discussion and Analysis of Financial
Condition....................................................................24
10 Directors, Executive Officers & Significant Employees............................25
11 Remuneration of Directors & Officers.............................................27
12 Security Ownership of Management & Certain
Security Holders.............................................................28
13 Interest of Management & Others in Certain Transactions..........................29
14 Securities Being Offered.........................................................30
15 Experts..........................................................................31
16 Legal Proceedings................................................................31
17 Changes in a Disagreement with Accountants.......................................31
18 Indemnity of Officers and Directors..............................................31
Glossary of Selected Oil and Gas Terms...........................................32
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EXHIBITS
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Audited Financial Statements for the period ending August 31, 2000
(iii)
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SUMMARY OF THE OFFERING
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Terms of Offering: This is a minimum/maximum offering. We, as your
management, will only determine that the offering
has been subscribed and closed when a minimum of
$200,000 of gross cash proceeds has been received
within the offering term of sixty days from the
date appearing on the face of this prospectus.
Based upon an effective date of January 12, 2001
this would mean an outside offering date of March
12,2001. All funds received up to the minimum
offering will be held in a segregated subscription
account by Arena, until or unless the minimum
offering is reached within the subscription term.
If the minimum offering is not reached within this
subscription term, all proceeds will be returned
to the investors in this offering within ten days,
without interest or deduction for costs. We may
close the offering at any time after the minimum
offering is sold within the offering term.
However, if the maximum offering of $500,000 is
reached, the offering will be closed when and if
this amount is obtained. There is neither an
obligation or prohibition placed upon officers,
directors, affiliates or any related party buying
shares to satisfy either the minimum or maximum
offering. Further, there is no dollar limit on the
amount of securities in this offering that may be
purchased by the persons affiliated with Arena.
Any shares purchased by Arena affiliates will be
restricted stock, will be purchased for cash and
must be held for investment purposes. All proceeds
received after the minimum offering will be paid
directly to Arena and may be used for the
anticipated company purposes as received. Arena is
selling 800,000 (min.) to 2,000,000 (max.) of its
common voting stock in this offering at
$0.25/share. There is no minimum subscription
amount.
We also have a class of ten million preferred
class "A" shares, none of which have been issued
and none of which are currently being offered.
No allowances are made for the payment of
commissions as we intend to sell the offering
through our own management, "a self-underwriting,"
without the payment of any third party commissions
or fees. See Section on Terms of the Offering
which contains a more detailed description of the
preceding offering outline and other related
terms.
Oil & Gas Terminology: Technical terms commonly used in the oil and gas
industry are defined or explained in the context
of where first employed in this prospectus. There
is also a glossary of select oil and gas terms.
Business: To date we have acquired, as the principal asset
of the company, a 40% carried working interest in
three existing 160 acre mineral interest leases in
McIntosh and Muskogee Counties of Oklahoma,
including a shut-in gas well on the Spears lease.
As used in the preceding sentence interest or
rights to produce natural gas or crude oil are
usually conveyed in the form of a mineral lease
commonly just called a lease. The lease typically
covers the same area and legal description as the
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underlying real estate and is usually designated
by the proper name of a current or prior owner of
the real property. Hence, the references in this
prospectus to the "Spears Lease," "Casey Lease" or
"Wallace Lease." This type of lease is actually
more like an assignment or conveyance of the
mineral interest as the oil or gas is usually
irrevocably assigned so long as produced. A
"carried working interest" is a form of ownership
of oil and gas production from a lease, expressed
in a percentage of the whole, that is not
responsible to pay for its share or percentage of
drilling and completion costs. For example, a
standard 40% working interest would typically pay
40% of all drilling, completion and operating
costs of a completed well; and receive 40% of the
net revenue produced after payment of royalties
and production costs. Whereas, a 40% "carried"
working interest would not pay any share of
drilling and completion costs, but would pay 40%
of operating expenses. Production costs usually
include all costs to lift, pump or otherwise
extract the oil and/or gas from a completed well
and all other operating costs of a well after
drilling and completion. Drilling and completion
costs are the costs to drill the well to a
predetermined depth, put casing in the well, open
and treat the formation to initiate or enhance
production, and to install any required pump,
compressor or valve system with lines and storage
tanks at the surface to complete and regulate the
production of the oil and/or gas. These costs are
generally capitalized. A royalty is a front end
payment of a percentage of gross production after
taxes, but computed before costs and usually
reserved to a landowner. Your net revenue is
computed by deducting the royalty and then
applying whatever working interests you hold times
the remaining total revenues, if any, after costs.
For example, in this offering there is a 25%
royalty leaving a 75% total net revenue interest.
Arena's share would be its 40% working interest
times the total net revenue interest, 75%,
resulting in a 30% net revenue interest to Arena.
In this offering, the carried working interest is
an individual commitment of the principals of
Arena.
In addition to the Spears production lease, we own
the same 40% carried working interest in the
adjacent non-producing Casey Lease No. 1 and
Wallace Lease No. 1, in Muskogee County, Oklahoma.
Both the Casey and Wallace leases are also 160
acres each. Under current spacing regulations one
well can be completed in each lease. Spacing
regulations are governmentally imposed limitations
on the number of wells which can be completed in a
given lease or other defined geographic area, such
as a section, to most efficiently produce the
natural resource. For example in the preceding
sentence the current spacing requirements only
allows for one well per each 160 lease acres.
There is currently no production from the Spears
Lease in which the gas well is shut-in.
As used in the preceding description, a
"production lease" is a lease in which there is
drilled and completed one or more oil and/or gas
wells capable of production, whether or not
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currently in production. As a result, the Spears
Lease would be a production lease and the Casey
Lease No. 1 and the Wallace Lease No. 1 would not
be production leases at this time. A "shut-in"
well is a commercially completed well that is
taken out of production for various reasons, such
as becoming non-commercial, low product price or
to complete repairs or improvements.
It should be noted that there is currently no
production from any of the three leases in which
Arena has an interest. The shut-in well is
intended to be put into production when an
additional zone is completed and the anticipated
additional two wells are drilled and completed on
the adjacent leases.
Arena reasonably anticipates revenue from future
production of the Spears well, as well as the
drilling and anticipated completion of two
additional gas wells in the adjacent leases not
later than the end of the first quarter of 2001.
However, no warranty or assurance of this
projection can be made by us.
Drilling, completion and potential revenues from
anticipated additional properties to be acquired
will most likely be contingent upon subsequent
financing by Arena. Presently, on the existing
leases, there is only potential gas production and
it is not anticipated that there would be any oil
production from the target formations. However,
Arena reserves the right to employ offering
proceeds for drilling or completion purposes or to
acquire producing reserves, but does not presently
intend to primarily engage in these types of
acquisitions or drilling activities. As used in
this offering "producing reserves" are oil or gas
reserves in a given lease which are actually being
extracted or could be presently extracted if the
well was not shut-in. This general description of
our business is more fully discussed, including a
reserve report, under the Sections on Business and
Properties.
Use of Proceeds: We intend to use the proceeds of this offering, in
the event of either the minimum or maximum
offering, to acquire as yet undesignated proven
undeveloped oil and gas properties, most likely
within the State of Oklahoma, for future
development through drilling and completion. As
used in this prospectus "proven undeveloped
reserves" are reserves that are expected to be
recovered from new wells on undrilled acreage, or
from existing wells where a relatively major
expenditure is required for recompletion. Reserves
on undrilled acreage shall be limited to those
drilling units offsetting productive units that
are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be
claimed only where it can be demonstrated with
certainty that there is continuity of production
from the existing productive formation. Under no
circumstances should estimates for proven
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
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proved effective by actual tests in the area and
in the same reservoir. We do not know, but would
not anticipate, the oil and gas properties to be
acquired will be carried properties. As a result,
we will most likely be responsible for
subsequently raising additional financing for
drilling and completion funding for the
development of these properties outside the scope
of this offering. See Sections on Business,
Properties and Use of Proceeds each of which
contains a more detailed explanation of the
general outline of the Use of Proceeds set-out
above and the anticipated need for further
funding.
Control & Ownership: You should also understand that even in the event
of the sale of the maximum offering, you and other
shareholders purchasing in this offering will hold
only a minority interest in Arena and the original
founders and shareholders will continue to
maintain a majority sharehold interest. Your
sharehold ownership in the maximum offering would
be approximately 43.5% and 23.5% in the event of
the minimum offering. Further, you will have no
direct ownership or control over the properties to
be acquired. You will not be liable for costs or
charges of operations, nor will you enjoy any
direct distributions or tax benefits sometimes
associated with an oil and gas program. See
Section on Risk Factors, Business and Properties,
and Terms of the Offering which more fully discuss
the nature and percentage of ownership you would
acquire as an investor and your resulting
relationship to Arena and its principals.
Offering Price: The offering price for shares in this registration
has been arbitrarily set by us and does not
purport, in any way, to reflect the actual value
of Arena or its assets.
Cost of Offering: We have estimated the cost of this offering to be
approximately $35,000 which amount should include
registration fees, printing, legal, accounting and
distribution costs.
RISK FACTORS
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The following constitutes what we believe to be the risk factors in
this offering. Each investor should also read the entire prospectus, as these
various risk factors may be further discussed or illuminated by other sections
of this prospectus.
1- Your investment in this offering is at risk to the extent Arena may
not operate profitably. Arena has experienced only net losses to date, as a
result the independent auditors for Arena have made a reservation that Arena may
not be a "going concern." You need to recognize as a risk the fact that Arena
has no current revenues and no resulting income to assure its continued
existence as a viable economic enterprise. Any potential return on your
investment will be dependent on Arena achieving revenues and ultimately future
earnings.
2- Your investment in Arena may not have value, because there has been
only minimal production from properties presently held by Arena and no future
revenues can be assured. You should understand that Arena presently owns a forty
percent carried working interest in an approximate 160 acre mineral lease, known
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as the Spears lease with a shut-in well, in McIntosh County, Oklahoma, as well
as two other proximate carried drill sites in two adjacent leases. There is no
current production from these existing leasehold properties acquired as the
initial tangible assets of the company and no assurance producing wells will be
commercially completed on those leases. From the date of acquisition by Arena,
the initial production well on the Spears lease has only produced net revenues
of approximately $2,000 payable to the predecessor of Arena during a short test
period. As a result, it is possible that your investment and shares will not
have value if Arena never acquires or develops any producing wells or fails to
raise any subsequent funds for such purposes. Proceeds of this offering are
primarily intended to be used to acquire additional proven undeveloped reserves,
but there is no assurance that such reserves can be acquired; or, if acquired,
successfully developed. In all events, the cost of drilling and completion of
any potential future wells will most likely require subsequent funding to Arena
before any revenues can be reasonably anticipated from future acquisitions.
Management also reserves the right to participate in the drilling and completion
of a well or wells with the proceeds of this offering; which endeavors, if
undertaken, would entail other additional risks as described below.
3- Drilling and attempting to complete an oil and/or gas well poses a
particularly high risk of loss of your investment, because your entire
investment could be expended in drilling and completing one or more dry holes or
non-commercial wells. As indicated in the preceding risk factor, Arena presently
intends to use all or most of the proceeds of this offering to attempt to
acquire other proven oil and gas reserves for future development. However,
whether drilling and completion activities are presently engaged in with
proceeds of this offering or deferred to later, each investor in this offering
will, at some point in time, most likely incur some drilling and completion
risks to the return of their investment in Arena. The principal risks which may
be encountered in the drilling and completion of oil and gas wells are
summarized as follows:
(a) Arena may expend all its resources in drilling a dry hole,
that is a well drilled and sometimes completed to a target
formation and subsequently determined to have no recoverable
oil and/or gas reserves.
(b) Arena may complete a well which appears to be economically
productive, but later determines that well cannot produce in
sufficient quantities to justify continued operations. This
type of well is usually referred to as a non-commercial
well.
(c) A well may be completed as a commercial well, but have
dramatic declines in production due to various unforeseen
factors such as a well collapse, flooding or unanticipated
production declines.
(d) Various unforeseen factors such as drilling or completion
complications or difficult formations may greatly increase
the anticipated cost of drilling and completing a well, thus
rendering it uneconomic.
(e) The price of oil and gas, as well as the costs of
operations, can be very unstable and a commercial well may
be rendered uneconomic by relatively small changes in the
market price of oil or gas or increases in operating costs.
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(f) Charges for drilling and completion services and equipment
are also very volatile and potential increases in
anticipated costs over a short period can render a proposed
acquisition or drilling project non-commercial.
4- Your investment may be at risk to the extent Arena will be dependent
upon a single gatherer to transport its product. At present Arena would be
dependent upon a single gas line gatherer to transport its product from the
leases. This dependence upon a single gatherer constitutes a marketing risk for
any natural gas production, as well as the fair competitive pricing of any
production. The marketing risk being that Arena may not be able to practically
or economically market its intended natural gas production except through the
existing gatherer who has broad latitude to determine whether and how much gas
it will gather. There is also a market risk because the company is dependent on
a single gatherer and it is difficult to assure fully competitive prices to
Arena. As used in this offering, a gatherer is a commercial enterprise that
collects natural gas in the field from various wells for the ultimate purchaser,
pressurizes the gas, and delivers it to a purchasing pipeline after metering.
5- Even if this offering is fully subscribed there will only be a
limited amount of capital resources in Arena. Arena's minimal capitalization
increases the risk to the return of your investment. We have intentionally
limited the amount of money to be raised in this offering to help in efforts to
close this offering as a self-underwriting by marketing to potential contacts of
management without the need to employ third party underwriters or broker
dealers. As a result, the amount of capital being raised is marginal and may not
be adequate to fully or sufficiently fund either the acquisition of intended oil
and/or gas properties or participation in drilling and completion activities.
6- Current shareholders, not you, will continue to control Arena after
this offering. Even in the event that the maximum amount is sold in this
offering, the original shareholders in Arena, prior to this offering, will
continue to hold a 56.5% majority of the shares and be able to control the
future of Arena in such important matters as election of directors, type of
business, compensation to management and other matters related to control of the
corporation's board of directors.
7- You may not have a trading market for your shares. As a result it
may be difficult to resell your shares. As of the time of the anticipated
effective date of this registration statement, there will not exist any publicly
traded market for Arena's shares. If there is no trading market you may not be
able to sell your shares or have any means to recover your investment. Even
after the completion of this offering, as a minimum or maximum offering, there
can be no assurance that a publicly traded market will ever develop for the
shares being sold to you in this offering. At present, the company has not
qualified the shares for continued trading after the close of the offering in
any state, nor has it been able to have any broker or dealer complete a listing
of the stock for trading through the National Association of Securities Dealers.
Further, California, where most of these shares in this offering are anticipated
to be sold, has indicated the shares will not be eligible for secondary trading
in California. Secondary trading is trading within an anticipated resulting
public market after the offering. If we are not able to develop a public trading
market for the shares, there may be limited liquidity of the shares and you may
be forced to hold such shares for an indefinite period of time and to rely upon
the uncertain prospects of "private sales" of your securities in order to have
any type of a marketability or "exit strategy." These issues are more fully
discussed in the section of this offering entitled "Plan of Distribution and
Terms of the Offering.
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8- If you invest, your shares in Arena will be worth less, on an asset
basis, after the offering than what you paid for them. Because the initial
shares in this corporation were issued to founders or other affiliated parties
for assets accepted at a premium to the cash value you are paying for your
shares; you, as a post organization investor in this offering, will suffer a
"dilution" in the value of the shares you purchase in this offering - that is a
reduction in the asset value of your shares after the offering compared to the
price of the shares being purchased in the offering, See Dilution Section for a
more complete explanation. Moreover, the initial valuation of assets for shares
was not determined by an arms length transaction. See Certain Transactions with
Management.
9- The success of Arena, and consequently your investment, is subject
to the risk of the volatile prices for oil and gas production. You should
understand that the pricing for oil and gas production can change very rapidly
over short periods of time and profit projections or revenue expectations based
on current pricing can rapidly diminish.
10- A significant portion of the offering proceeds are being used to pay
offering and operating costs which reduces funds to be expended on the potential
production and sale of oil or gas. Funds expended on production could ultimately
determine the value of your shares. The use of offering proceeds to pay offering
costs may lessen the amount of proceeds directly applied to potential production
properties and could adversely affect your potential return. The cost of the
offering constitutes a substantial portion of the proceeds of this offering, up
to 17.5% in the event only the minimum offering is sold. As a result, you should
understand that a significant portion of the proceeds being raised will be used
to pay the cost of this offering and general operating costs, rather than being
employed for actual oil and gas acquisition or drilling or completion purposes.
We anticipated this consequence as a result of our efforts to maintain a limited
offering size. See Use of Proceeds, Description of Business and Terms of the
Offering sections for a more detailed explanation.
11- If subsequent financing is not obtained by Arena, you may not
realize any return on your investment in this offering. It is presently
anticipated Arena would need to obtain substantial subsequent financing to have
funds available for the drilling and completion of wells from the oil or gas
leases anticipated to be acquired from the proceeds of this offering. If
subsequent financing is not raised, your investment may result in Arena holding
undeveloped properties which would generate no revenue to Arena. Your potential
return on investment is predicated upon Arena generating production revenues.
12- There is a risk to Arena, and to your investment in Arena, arising
from the fact that management has no employment commitment or contract. In this
offering, management has no contractual employment commitment to Arena. The
departure of one or both current members of management could have an immediate
and adverse impact on the viability of Arena and your investment since there
would not be any immediate successor with knowledge of the company or its
production. Further, the ability of Arena to obtain oil and/or gas properties is
believed highly dependent upon current management.
13- There are potential conflicts of interest by management of Arena
which may be adverse to your interest as a shareholder. Both of the principals
in Arena, Mr. Rochford and Mr. McCabe, intend to continue with individual oil
and gas acquisition and consulting endeavors. As a result, there may arise
potential conflicts of interest such as the duty of a corporate officer to make
applicable business opportunities available to his affiliated corporation in
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contrast to his individual interests. Additionally, the commitment to "carry"
drilling and completion costs on the Wallace and Casey leases and workover costs
on the Spears well is a personal undertaking of Messrs. Rochford and McCabe. The
value of the carried working interests are totally dependent upon their personal
ability to pay these anticipated future costs or otherwise arrange for payment.
There is an additional risk that any cash paid for shares in this offering by
either Mr. McCabe or Mr. Rochford may reduce their ability to pay for drilling
and completion expenses.
14- Your investment in Arena could be used up to pay for environmental
costs or environmental compliance which could mean you would receive no return
on your investment. There are significant environmental risks and potential
liabilities, as well as governmental regulation, which could adversely affect
your investment by requiring Arena to pay for environmental costs which may
reduce funds available for revenue producing activities by Arena. It is believed
these general environmental risks may have above average significance in this
offering, because of the relative limited capital available to deal with or
prevent such risks or cure resulting environmental problems. Historically, the
oil and gas industry has been subject to significant risks of potential
liability arising from environmental risks such as oil spills, land and water
contamination, fires, blow-outs and related environmental damages. As used
herein, a "blow out" is where unusual and unanticipated gas or oil pressures
destroy or adversely affect tubing or surface equipment in a well making the
well non-producing on a temporary or permanent basis. Litigation or
administrative actions related to such risks could reduce or eliminate any
profits to Arena or lead to its economic demise. In all events, the cost of
environmental compliance is usually a significant cost factor to an oil and gas
company. In addition to environmental regulation, an oil and gas venture is
subject to significant transportation, well spacing, engineering, pricing,
safety, tax and other regulations by various government agencies.
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TABLE OF SIGNIFICANT PARTIES
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Officers and Directors:
Name Position Residential Address Business Address
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<S> <C> <C> <C>
Mr. Lloyd T. Rochford Director, CEO, 5 Clancy Lane South 4920 South Lewis,
President Rancho Mirage, California #107, Tulsa,
92270 Oklahoma 74105
Mr. Stanley McCabe Chairman Board, 5922 South Atlanta Place, 4920 South Lewis,
Treasurer/Secretary Tulsa, Oklahoma 74135 #107, Tulsa,
CFO, Accounting Officer Oklahoma 74105
Mr. Charles Crawford Director 6423 South Quebec Ave. 6423 South Quebec
Tulsa, Oklahoma 74135 Avenue, Tulsa,
Oklahoma 74135
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Five Percent or Greater Shareholders; Promotors; Underwriters; Legal Counsel; and Affiliates:
Name 1 Relationship 2 Current Per Residential Business Address
Cent Stock Address
Held 3
(Rounded)
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<S> <C> <C> <C> <C>
Mr. Lloyd T. Rochford Director/Officer 50% See above See above
Mr. Stanley McCabe Director/Officer 50% See above See above
Mr. Julian Jensen Attorney 0% 1453 Ute Drive 311 S. State #380
Salt Lake City, Salt Lake City, Utah
Utah 84108 84111
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1 The only shareholders, at present, are the two directors as listed.
2 Arena does not have any 5% shareholders, affiliates, underwriters
or promoters-other than current directors. Legal counsel is not a
shareholder and is not deemed by management to be affiliated.
3 There are no current outstanding stock options or other sharehold
rights.
See biographical information on management under the Management
Section.
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DILUTION
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Dilution is a term which normally defines the reduction in value per
share which occurs to the investor in certain offerings compared to the purchase
price of those shares. By way of specific illustration, an investor in this
offering is paying $0.25 per share. It is estimated that the net worth per share
after the completion of the maximum offering will only be $ 0.12 per share.
Therefore, each investor in this offering will suffer an immediate dilution to
his investment of $0.13 per share or 52% in the maximum offering; and $0.17 per
share or 68 % in the minimum offering. Dilution would generally be pro rated
between the minimum and maximum offering if closed between those extremes. These
dilution factors are illustrated in the following graphical representations.
[Graphic Ommitted]
Minimum offering Maximum Offering
Value Subscription Value share after Value Subscription Value share after
------------------ ----------------- ------------------ -----------------
$0.25/share offering $0.25/share offering
100% $0.08/share 100% $0.12 /share
(Rounded) (Rounded)
Dilution 68% Dilution 52%
$0.17/Share $0.13/Share
In this offering dilution primarily arises because the original
founders who organized the corporation took shares for oil and gas properties
which must generally be valued at predecessor costs. As a result, after the
initial funding, there was little significant accountable net worth in Arena.
You, as an investor, will contribute essentially all of the working capital.
PLAN OF DISTRIBUTION AND TERMS OF THE OFFERING
----------------------------------------------
Arena does not intend to employ the services of any underwriter or
other broker/dealer to place or sell its securities. Arena believes it can place
the limited amount of securities being offered by this registration through the
efforts of its own management group who will not be paid any consideration,
commission or other compensation for their selling and placement efforts.
Consequently, no provisions for commissions have been provided for in this
prospectus. Should management determine, at any time, that it is necessary to
sell this offering through the use of commissions to an underwriter, management
will reserve the right to amend the registration and prospectus to reflect any
such commission arrangements and to continue with the offering in accordance
with all other terms and provisions.
It is anticipated that Mr. Rochford and Mr. McCabe will be primarily
responsible for the efforts to sell the Arena stock through this offering to
various business contacts and acquaintances through delivery of this prospectus.
We cannot promise the offering will be sold, as management will only engage in
these efforts as they deem necessary. Obviously, there is an indirect benefit to
management, as principal shareholders, if the shares are sold in this offering
as the management shareholders would most likely realize an increase in the
value of their shares and potentially an active market for their shares.
-10-
<PAGE>
Each officer, director or affiliated persons may purchase shares in
this offering for cash at the offering price without restriction. There is no
limitation on the number of securities which may be purchased by these
affiliated persons. In like manner there is no obligation or commitment by any
officer, director or affiliate to purchase any shares in this offering. All
securities purchased by any officer, director, or person able to direct or
influence the company as a control person will not be freely tradeable, but will
be subject to restrictions on resales, and must be purchased for investment
purposes requiring, in most instances, a holding period.
The costs of this offering are estimated at $35,000 and include legal,
accounting, filing or permit fees, printing and related distribution costs.
These amounts are estimates but are believed reasonably accurate for the
intended size of the offering. Approximately $25,000 of these funds have been
personally advanced by management and described in the financial statements as
an unwritten loan. It is intended that these advances will be repaid to
management from the offering proceeds as part of the "estimated costs of the
offering line item." As noted under the Risk Factors and Use of Proceeds
Sections, payment of these estimated offering costs will expend a significant
portion of both the minimum or maximum offering. Funds paid for offering costs
will limit the amount of net proceeds available for actual business purposes.
Proceeds of the offering, up to the minimum amount, will be placed in a
segregated subscription account under control of Arena and will not be employed
for any business purposes of the company until or unless the minimum offering is
sold within the offering term of 60 days from the date appearing on the face of
this prospectus. If the minimum offering is not fully sold and collected within
such offering period, then the offering will be terminated and all proceeds will
be returned without deduction for costs or addition of any interest. Arena will
obtain an address from each subscriber and will return all proceeds within ten
days of the termination of the offering to that address. Any interest earned on
the subscription account will be employed by Arena to pay for anticipated
offering costs and return of subscription proceeds to investors.
In the event of the close of the minimum offering, Arena will employ
any additional proceeds of this offering upon receipt without further utilizing
the subscription account.
Arena reserves the right to close the offering at any time within the
offering term of 60 days whenever the minimum offering proceeds have been
received in the subscription account, even if less than the maximum offering has
been sold. Factors which may influence Arena's decision to close the offering
would be the effort required to continue sales and the rate at which
subscriptions were obtained up to the minimum offering. In all events, the
company will not sell more than the maximum offering and will close the offering
at any time that the maximum amount has been sold. The use of proceeds section
reflects Arena's best present estimate of the use of proceeds in the event of
either the minimum or maximum offering amount being received. The offering most
likely will be closed at some point between the minimum and maximum and the use
of proceeds will generally be adjusted to increase the actual proceeds available
for business purposes, it is generally expected that such adjustment will be pro
rata to the difference between the minimum and maximum offering.
We intend this offering will be sold primarily to citizens of the State
of California, based upon a qualification filing in that jurisdiction as a
limited offering. Should Arena deem it appropriate it may attempt to place its
securities in one or more additional jurisdictions where the offered shares may
be qualified or registered by coordination. That is, Arena will be deemed to be
qualified as a registered offering in these jurisdictions upon clearance of this
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<PAGE>
registration with the SEC and a notice type filing in the appropriate state. If
the offering is offered or sold in other jurisdictions, the offering must be
registered or qualified under the applicable state law of that jurisdiction.
Arena does not intend to register or qualify this offering in any other
jurisdiction for sale unless such registration can primarily be achieved by
coordination without the necessity of merit review or substantial additional
disclosure requirements. However, should Arena elect to sell in any jurisdiction
that imposes any additional disclosure requirements, they will be included in
this offering as a supplemental disclosure.
Arena has been informed by the State of California, incident to its
initial filing for qualification in that State, that if the registration is
qualified it will be qualified as a "limited offering" and that shares sold in
California will not automatically be qualified for continuing trading after the
initial placement of the shares (sometimes called secondary trading) in that
jurisdiction. Moreover, California authorities did not think it probable that
stock in the company could be qualified in California for secondary trading in
the foreseeable future due to the fact the company is a new venture, is high
risk, and because of the low price of its securities. In pragmatic terms, this
means that any California investor wishing to resale their stock will have to
rely upon our efforts to qualify the stock for secondary trading in other
jurisdictions, and will then have to incur the cost and additional effort of
reselling in such other jurisdiction if such a trading venue is established.
In addition, all sales to California residents will require a
predetermined suitability standard to invest in this limited offering requiring
each prospective investor to state to Arena in writing:
(1) The investor has a minimum net worth of $150,000, exclusive of
home, home furnishings and vehicles, with assets stated at fair market values;
and had minimum gross income of not less than $65,000 during the current tax
year; or, alternatively, a minimum net worth of $250,000.
(2) The investment shall not exceed 10% of the net worth, as determined
above, of the investor.
Arena has not secured a commitment to list or trade the securities
being registered through any broker/dealer or in any jurisdictions and there is
no present assurance that a public market will exist for the securities, even in
the event of a successful completion of this offering. Each prospective investor
should consider the potential lack of a public market as a significant risk
factor. Management will work to attempt to obtain the listing of the securities
after this offering by one or more broker/dealers, but can give no warranty or
assurance that they will be successful in such efforts.
No shares of current management or original shareholders are being
registered in this offering and no intent or obligation exists by Arena to
currently register issued shares in any manner.
ESTIMATED USE OF PROCEEDS
-------------------------
We have set-out in the following tabular format the intended use of
proceeds based upon the sale of either the minimum or maximum offering. The
offering may be closed at some point between the minimum and maximum offering.
-12-
<PAGE>
Should that occur, the proceeds received over the minimum will be allocated to
funds committed to acquiring oil and/or gas properties.
You are advised that management may alter or change the use of proceeds
in the exercise of sound business discretion after the completion of the
offering and the following should be viewed only as an outline of the present
intended use of proceeds.
<TABLE>
<CAPTION>
Minimum Offering: $200,000
General Description of Intended Expenditure Dollar Amount Percentage of
Offering
(Rounded)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Estimated costs of offering $ 35,000 1 17.5%
2. Estimated overhead expenses (six months) $ 20,000 3 10%
3. Funds committed to acquiring oil and/or gas $130,000 2 65%
properties.
4. Funds reserved for subsequent financing $15,000 7.5%
expenses.
Totals $200,000 100%
</TABLE>
<TABLE>
<CAPTION>
Maximum Offering: $500,000
General Description of Intended Expenditure Dollar Amount Percentage of
Offering
(Rounded)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Estimated costs of offering. $ 35,000 1 7%
2. Estimated overhead expenses (six months). $ 20,000 4%
3. Funds committed to acquiring oil and/or gas $ 430,000 2 86%
properties.
4. Funds reserved for subsequent financing $ 15,000 3%
expenses.
Totals $500,000 100%
</TABLE>
1 Includes $25,000 advanced by management which advance will be repaid
from the proceeds of this offering.
2 While Arena presently intends to use the "business portion" of net
offering proceeds for anticipated acquisitions of non-carried proven
developmental reserves; it may, alternatively and as otherwise discussed, use
these proceeds for drilling or completion activities or acquiring existing
production.
3 Arena has reserved and allocated approximately $20,000 of the net
proceeds of the offering for operational costs. The operational costs are to be
employed to cover the minimum costs of operations of Arena for an estimated
period of six months. Included within the operational costs are payments of
rent, utilities, and other overhead. No salaries will be paid from offering
proceeds. Present management will continue to serve the company on a full-time
basis with the commencement of compensation deferred until revenues are
available, if at all, to pay salaries. No present salaries are accruing and Mr.
McCabe and Mr. Rochford will negotiate reasonable salaries with Arena only when
-13-
<PAGE>
and if revenues justify the payment of salaries. During the period when the
offering proceed are expended we do not plan to have any other full-time
salaried officers or employees, unless revenues are generated sufficient to
justify payment of salaries to other employees.
We believe revenues will be sufficient to cover operating expenses
after the first six months of operations based upon anticipated revenues from
the initial carried working interests, though no assurance or warranty of this
projection can be made. This projection is based upon the belief that wells on
the two drill sites will be drilled and completed and placed into production,
together with reworking the shut-in Spears well, prior to the end of the 1st
quarter of 2001. Arena reasonably projects these three wells would provide
sufficient revenues to pay all operations. However, we may elect to use
additional offering proceeds for continuing operations beyond the initial six
month term in the exercise of sound business discretion, if so required. In all
events, the use of proceeds of the offering to pay operational costs will
necessarily reduce the amount of proceeds of the offering available for actual
production acquisition or potential drilling and completion of wells. Each
prospective investor should understand that there is a risk factor in investing
in a start-up entity in that a substantial amount of the offering proceeds may
be used for operational costs at a time when the company does not have
sufficient revenues to pay for such costs.
We can make no assurance to you that any of the estimated use of
proceeds for the specific business purposes outlined above will be sufficient to
adequately fund the costs of such anticipated endeavors.
We, as management of Arena, may decide in the exercise of our business
judgment that some or all of the proceeds of this offering could most profitably
be used to participate in drilling and completion of one or more oil or gas
wells in presently undesignated properties to be acquired. Alternatively, some
or all of the proceeds may be used to acquire existing production properties.
These determinations cannot be presently made and are contingent upon such
variables as the price of oil or natural gas at the completion of the offering;
the availability of participation opportunities in other wells to be drilled or
completed; the availability of drilling and completion equipment and services;
and primarily the going rates for such equipment and services and alternative
properties.
Based on Arena's primary intent to use the net operating proceeds
of this offering to acquire new oil and gas interests for future drilling and
completion operations, there is a potential risk factor that if the company is
not successful in arranging subsequent financing it may not have adequate funds
to complete any proposed drilling and completion of wells on newly acquired
properties. Secondly, the drilling and completion of wells is a high risk
venture, as previously described, even if sufficient funds are raised by Arena.
Arena cannot direct drilling, completion or workover on the existing
leasehold properties. As a result, future revenues are contingent upon whether
the third party operator of the existing leases determines to move forward with
-14-
<PAGE>
drilling and completion operations and a workover of the existing well on the
Spears lease to complete a new formation. Arena has been assured, but cannot
warrant, that drilling and completion of two additional gas wells on the Casey
and Wallace leases and operation of the third well on the Spears lease will
occur before the end of the 1st quarter of 2001. Arena, as a carried interest
owner, would not have to participate in such drilling, completion or workover
costs, but may be required to use some of the proceeds of this offering to pay
for ongoing operational costs of the anticipated well or wells until self
sustaining. In all events, it is anticipated that a compressor would be required
to be placed on the existing Spears lease to service all three potential wells
if additional wells are drilled and completed and brought on line in the three
initial leases. The operator has indicated it is not willing to acquire a
compressor until the anticipated two new wells are drilled and completed as well
as the Spears workover. A compressor is necessary for production to pressurize
the natural gas to pipeline required pressure. This compressor would constitute
an operating expense to Arena. The exact amount of such expense is not presently
known, but is estimated that the total lease cost per month for the compressor
would be $1,000 of which Arena's pro rata share would be approximately
$400/month payable from anticipated revenues as a rental payment for the
compressor.
Arena intends to devote most of its efforts to acquiring, drilling, and
completing natural gas wells as opposed to oil production. However, no firm
commitment or undertaking is made that the company may not act upon
opportunities to participate in properties primarily acquired for production of
crude oil. Specific cost estimate for these alternative use of proceeds cannot
presently be made. This matter is discussed in more detail under the subheading
of the next section captioned, "Twelve Month Operating Projections."
DESCRIPTION OF BUSINESS AND PROPERTIES
--------------------------------------
GENERAL DESCRIPTION OF PROPERTIES AND OPERATIONS
Arena Resources, Inc. was incorporated on August 31, 2000 as a Nevada
corporation. The company was concurrently organized by its two principal
shareholders, Mr. Lloyd T. Rochford and Mr. Stanley McCabe. Each received
1,300,000 shares of Arena for their cash contribution of $67,384 from which
proceeds Arena purchased the three lease interests for approximately $61,174.00.
Mr. Rochford and Mr. McCabe also entered into the commitment to "carry" any
drilling and completion of initial wells on each of the three leases acquired.
This carried interest obligation, based upon projected drilling and completion
costs and including a workover of the Spears well, is valued at approximately
$134,000. The obligation of Messrs. Rochford and McCabe to carry these costs is
not, however, limited by the estimate of $134,000. Mr. McCabe and Mr. Rochford
have undertaken to pay whatever actual drilling and completion costs are
incurred on the initial three leases. In like manner, their shares in Arena will
not be reduced if drilling and completion costs are less. These initial
contributions are more particularly described as part of the audited financial
statements as attached and in the subsequent description of the leases.
As an accounting matter, the contributed properties are deemed to have
been acquired in March, 2000 by Mr. McCabe and Mr. Rochford acting as a joint
venturers and subsequently contributed to Arena in September, 2000. As a result,
the accounting basis for the properties is valued from the date of initial
acquisition by the joint venture and the limited production reflected in the
financial statements is only for this predecessor entity.
-15-
<PAGE>
As previously noted, there is no current production from the Arena
forty percent carried working interest in the Spears lease subsequent to its
contribution, nor from the two additional carried drill sites in Muskogee
County, Oklahoma. There was minimal production from the well on the Spears lease
(approximately $2,000 to the predecessor venture), in April of 2000 when this
well was tested. This well has been shut-in from 1997 because of declining
production. The operator did not want to lease a compressor for one well and
until the workover on the Spears well is completed. It is intended the Spears
lease well will be put on line when and if the two gas wells are completed in
the adjacent leases and the workover on the Spears completed. It is presently
anticipated that the Spears lease, as well as completion of the two additional
adjacent drill sites, would primarily produce, if the anticipated two new wells
are commercial as well as the Spears workover, natural gas production and not
crude oil production. Arena intends to currently emphasize natural gas
production, but may buy primarily oil producing properties if economically
advantageous. It is further noted that sometimes wells drilled and completed
primarily for anticipated natural gas production also produce commercial
quantities of crude oil, and oil wells usually produce natural gas, often in
recoverable quantities.
The terms of the Spears, Casey and Wallace leases are each summarized
below. Arena is current on these lease obligations and intends to hold these
leases by future production. The leases were acquired by Arena in September,
2000. To date, Arena or its predecessors have paid a total of $61,174 as lease
costs, but anticipate no future lease payment will be required as the leases are
anticipated to be held by production. There are no existing or anticipated
subleases. The leases are subject to a 25% royalty payment to unrelated parties.
Arena retains 40% of the remaining interest, or a 30% net revenue interest.
The essential terms, together with acquisition basis, for the three
leases is summarized below:
Spears Lease -
------------
(a) The Spears lease was assigned to Arena on September 15, 2000,
for approximately $33,000 of the initial capital contributions
by Messrs. Rochford and McCabe;
(b) The Spears gas well has been shut-in since 1997, except for a
brief test period in April, 2000 when approximately $2,000 in
revenues was generated to the predecessor joint venture of
Arena.
(c) The lease is currently held by production for which Arena is
paying a shut- in royalty payment of $1.00/acre per year, or
$160/year. "Held by Production" is a term used to mean that a
mineral lease is deemed to be held and rental payments made
when the lessor is receiving his agreed upon monthly
production percentage payment, rather than a fixed cash
payment for the lease. As in this case, when there is a
completed commercial well that is shut-in, the lease is still
technically held by production, but the lessees pay a
"shut-in" royalty in lieu of actual production. With the
Spears lease that shut-in royalty payment by Arena is
$160/year. Arena has kept this payment current.
-16-
<PAGE>
Wallace Lease -
-------------
(a) The Wallace lease was assigned to Arena as an initial
acquisition on September 7, 2000. It was valued at its
predecessor cost basis of $20/acre, or $3,200.
(b) The lease may be held for a three year term without production
commencing April 4, 2000.
(c) The lease is paid up to January 1, 2001. As of that date there
will commence an annual lease payment of $1.00/acre until held
by production.
Casey Lease -
-----------
(a) The Casey lease is a one year lease from April, 2000 which is
paid up.
(b) The lease was initially acquired by the Arena predecessor for
$25/acre, $4,000.
(c) It is intended the well will be held by production.
In the existing Spears lease, Arena has a forty percent carried working
interest. This means that Arena has a forty percent interest in total production
after it pays its pro rata share, forty percent, of operating costs, but before
royalty payments to the mineral interest owner. As used in this prospectus total
production is the total recoverable amount of product produced from an oil or
gas well, usually expressed in quantity (barrels for oil; thousand cubic feet
"MCF" for gas) or dollar amount of production. Royalty payments are a portion of
the total production (usually 5-25%) paid directly to the landowner, and
sometimes others, from the net cash proceeds of production after extraction
taxes, but before charging any costs. The mineral interest owner is usually the
person who ultimately owns the oil and gas and is usually the "lessor" or person
creating the lease. The mineral interest owner usually retains a royalty
interest.
Arena estimates its net revenue interest, which it retains after the
payment of royalty interest, would be approximately thirty percent. This is
derived by taking total production, 100%, subtracting the royalty 25%, then
multiplying the remaining net revenue interest, 75%, by Arena's working interest
share, 40%, thus yielding a 30% net mineral revenue or net revenue interest. A
net revenue interest is a term which defines the actual revenues which a working
interest holder will obtain from a given lease after payment of its pro rata
share of production costs and after royalty payments. Because the interest of
Arena is "carried," Arena is not required to pay any of the anticipated workover
costs to complete another formation in the Spears well or the drilling and
completion costs anticipated for the adjacent Casey and Wallace leases. Workover
costs are costs that sometimes occur to keep a well in production or increase
production after it has operated for a period of time. In this offering it is
intended that approximately $8,000 will be expended to complete the Upper Booch
formation in the Spears well as part of the work-over costs. Arena does not have
the authority or legal capacity to direct the drilling and completion of
additional wells or any workover and must rely upon the operator to initiate
such actions. Further, Arena has no written contractual basis to enforce the
undertaking of Mr. McCabe and Mr. Rochford to carry the contributed properties
and pay the carried costs.
-17-
<PAGE>
As used in this prospectus "formation" is the underground geological
structure which is believed to hold the natural gas or crude oil to be produced
by the well. These formations are often sand or limestone. Various physical or
chemical applications are applied to the formation after it is penetrated to
induce production. Target geological formations to which the well is drilled and
completed are typically described by proper names. The principal gas production
formations on the Spears and adjacent leases would be the Atoka, Booch and Upper
Booch formations.
It is anticipated that the operator of the Spears lease intends to
reactivate the Spears gas well after completion of the Upper Booch formations
and upon the drilling and completion of one or more additional commercial wells
on the adjacent leases and the installation of a compressor unit for production
purposes from all three wells. A compressor is a device used on a gas well to
pressurize the gas produced to the pipeline standards required by the gatherer.
Arena has been informed, but cannot warrant, that all three wells will be on
line by not later that the end of the 1st quarter of 2001. Arena would then be
required to participate in any cost of the compressor and other equipment
directly related to production after drilling and completion of any additional
wells, or the workover of the existing Spears well. Initially Arena has been
informed that its pro rata costs of participating in the compressor and other
initial production costs for the anticipated three wells would be approximately
$3,000 per month. These include estimated costs of approximately $0.24/MCF for
fuel, transportation and compressor costs and approximately $0.10/MCF for pumper
and miscellaneous costs. It is anticipated, though not warranted, these costs
will be paid from revenues.
It is not possible to presently estimate all anticipated production
costs for the existing well, or other gas wells to be drilled on the additional
adjacent leases. Historically, commercial gas wells in this area drilled to the
anticipated formation depth of approximately 2,000 feet have not required
significant operating expenditures and have usually been positive net revenue
producers from the time of completion. The current approximate drilling and
completion cost of a gas well to the Atoka and Booch formations to be paid by
Arena would be approximately $58,000 per well. The completion of the Upper Booch
formation in the Spears well is estimated at $8,000. There is estimated another
approximate $12,000 in completion costs for all three wells. These amounts will
be paid by Messrs. McCabe and Rochford as their commitment to carry the assigned
working interest in these leases. Mr. McCabe and Mr. Rochford in their
predecessor partnership have expended approximately $33,000 for the shut-in
Spears well and will incur approximately $10,000 for workover costs on this
well, including opening the new formation. No formal third party estimates of
these costs, sometimes called AFE's, are available or anticipated. It should
also be noted that the foregoing are estimates only and the undertaking of Mr.
McCabe and Mr. Rochford to carry these obligations exist whatever the actual
costs.
Until and unless the existing well or other wells are brought online,
Arena will not have any revenues from its present reserves or anticipated
reserves.
The present intent of Arena is to use the proceeds of this offering, if
sold and closed, to acquire additional proven reserves with drill site
locations. However, Arena may elect to use proceeds, in the exercise of sound
business discretion by management, to acquire working interests, whether
"carried" or "uncarried," in new currently producing properties. Further, if
appropriate opportunities avail themselves, Arena reserves the right to engage
in drilling and completion participation in proven reserves. Each investor
should understand that the exact allocation of proceeds between these various
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<PAGE>
oil and gas alternatives is not presently determined by management and will not
be determined until after the close of the offering and will depend on various
market factors and availability of properties or other drilling and completion
opportunities, particularly the variable costs and availability of alternative
oil and gas properties or interests available when the offering is closed.
Further, no assurance can be given in any manner that Arena will be successful
in subsequent efforts to raise additional capital for anticipated drilling and
completion of production properties.
We presently have no specific allocation of the funds anticipated to be
raised in this offering, or plans for the allocation of oil or gas interest,
other than the general undertakings outlined in the preceding paragraph. It
should be understood that the value, availability and price of various types of
small oil and gas properties which may be acquired by Arena change rapidly so
that it is not feasible to have a rigid long term acquisition program or plan.
For example, in one week a producing property may sell at a premium to
non-producing proven reserves while the next week the best value may be found in
acquiring non-production properties or a potential drilling opportunity. Each
investor should understand that the market for and contacts to acquire small oil
and gas properties is extremely informal and ad hoc. and that investors are
largely reliant on current management to make these contacts and acquisitions in
the exercise of their business judgment without a strict set of guidelines.
In this offering, each investor needs to understand they will be a
shareholder in Arena and not a direct participant in the oil or gas properties
acquired or to be acquired. As a result, investors will be relying fully upon
management of Arena to select properties and to pay all operating costs. There
will be no assessments on the shareholders of Arena for additional capital
contributions, though the success of Arena depends on its ability to pay
anticipated costs.
REVENUES, COSTS AND TAXES
All revenues, if any, and costs from oil and gas wells will be accrued
as income or costs to Arena, not to you as a shareholder. Your expectation of
return of investment will be directly linked to the success of Arena, not
directly to the anticipated production. You will not incur any liability or
assessments as a shareholder. In like manner, typical anticipated tax benefits
in an oil or gas program such as write-offs for drilling and completion costs
and percentage or cost depletion will accrue directly to Arena and not to you as
an investor. Each investor is encouraged to discuss potential tax aspects of
investing with the investor's own tax advisor prior to investing. In all events,
this investment should not be considered a tax advantage or deferral investment.
OPERATING AGREEMENT
The day-to-day operations of the leases are governed by an operating
agreement between the owner/operator of the leases, Tri-State Energy
Corporation, with Arena and other non-operators. The operator under this
agreement is charged with day-to-day operations, as well as making drilling,
completion and workover decisions, but subject to the pro rata financial
participation by the non-operations, such as Arena. While Tri-State has a
contractual relationship with the gas purchaser, ONEOK Energy Marketing and
Trading Company, which in turn contracts with the gas gatherer, Enogex. Arena
does not have any contract with these companies and looks solely to its
operating agreement with Tri-State as generally described in this prospectus.
-19-
<PAGE>
The essential elements of the operating agreement for the three leases
is outlined as follows:
o Arena's estimated share of standard total monthly operating expenses,
40%, will be approximately $1,000 per completed well. The operating
agreement also provides for the payment of Arena's 30% net revenue
interest.
o If a non-operator, like Arena, does not participate in drilling and
completion expenses agreed upon by the operator and a majority of the
non-operators, then Arena will receive a penalty equal to five times
the amount of the assessment to be deducted from its future net revenue
interest.
o The Operating Agreement is concurrent with production from the subject
leases, unless terminated for cause or upon notice.
o The operator may expend up to $25,000 without getting consent of the
non-operators and pay third party claims up to $11,000 without this
consent.
GATHERER AND PURCHASER
Gas produced in the lease areas is gathered in the field by a
gathering/transport company which charges a transportation charge to deliver the
gas to a principal pipeline purchaser. The present gatherer is Enogex.
The current net price paid is approximately $4.50 to $5.25 per thousand
cubic feet of gas (MCF). The gas is currently purchased by ONEOK Energy
Marketing and Trading Company LP. ONEOK pays to the operator, Tri-State, which
then distributes our share of net revenue to Arena.
RESERVE ESTIMATES
The following table summarizes the existing net gas properties held by
Arena showing both estimated proven developed and proven non-developed reserves
with estimated recoverable natural gas revenues from those reserves expressed in
increments of a thousand cubic feet (MCF). Proven developed reserves are proven
reserves, as previously defined, upon which there is actual production:
Current Current Proven Estimated Net Cash Flow At
--------------------------------------------------------------------------------
Proven Developed Reserves Undeveloped Reserves Current Prices Discounted
at 10% to Present Value
--------------------------------------------------------------------------------
60,034 MCF 418,229 MCF $1,096,866
================================================================================
Another common method by which oil and gas companies production
potential is expressed is to compare the interests which an oil and gas
production company has in existing wells, regardless of how small that interest
may be, by designating each such interest as a gross well and then to aggregate
that percentage of interest in the various "gross wells" until a total
percentage is derived up to one hundred percent of interest in a comparable
well, which is described as a net well. Using this analysis, the company
presently has an interest in one "gross well" and a thirty percent "net well"
-20-
<PAGE>
interest as its net revenue interest in the one well would be thirty
percent. By comparison, if a company had a thirty percent net revenue interest
in three gross wells, then it would have a ninety percent net well.
The independent mineral report upon which the foregoing analysis of
existing interest is derived has not been attached as an exhibit to this
Prospectus, but has been filed as part of the registration materials. Arena does
not warrant or guarantee the accuracy or completeness of the results contained
in such independent reserve report prepared for the company, and any such
mineral report should be considered as an estimate rather than an actual
determination of recoverable and potential reserves.
COMPETITIVE FACTORS
Current competitive factors in the domestic oil and gas industry are
unique. The actual price range of natural gas and crude oil is largely
established by major international producers. Because domestic demand for oil
and gas exceeds supply, there is little risk that all current production will
not be sold at relatively fixed prices. To this extent Arena does not see itself
as directly competitive with other producers, nor is there any significant risk
that the company could not sell all production at current prices with a
reasonable profit margin. The risk of domestic overproduction at current prices
is almost nil. The primary competitive risks would come from falling
international prices which could render current production uneconomical.
Secondarily, Arena is presently committed to use the services of the
existing gatherer in its present areas of anticipated production. This gives to
such gatherer certain short term relative monopolistic powers to set gathering
and transportation costs, because obtaining the services of an alternative
gathering company would require substantial additional costs since an
alternative gatherer would be required to lay new pipeline and obtain new rights
of way in the lease.
It is also significant that more favorable prices can usually be
negotiated for larger quantities of oil and/or gas product, such that Arena
views itself as having a price disadvantage to larger producers. Large producers
also have a competitive advantage to the extent they can devote substantially
more resources to acquiring prime leases and completing production. They also
have more geological and engineering experts and resources to better find and
develop prospects.
NUMBER OF PERSONS EMPLOYED
Both Mr. Lloyd T. Rochford and Mr. Stanley McCabe will actively engage
in management on a full time basis for the company. Mr. Rochford presently
serves the company on a full-time basis as its president and chief executive
officer (CEO). Mr. McCabe is the chief financial officer (CFO), secretary and
treasurer on a full-time basis. Both Mr. Rochford and Mr. McCabe are currently
involved full-time in start-up and promotional efforts for Arena. Mr. Rochford
and Mr. McCabe do not receive any direct compensation. Arena will pay Mr.
Rochford and Mr. McCabe for their continuing executive services in the event
there are subsequent net revenues on a to be negotiated bases. No prior salaries
will be accrued or paid. No proceed of this offering will be used to pay
salaries. No actual costs or compensation has been determined or paid to
management and the parties have simply agreed to negotiate the future
compensation on a good faith basis in the future.
Arena has agreed to pay general costs such as travel and communications
directly related to the organizational and selling efforts of Mr. Rochford and
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<PAGE>
Mr. McCabe in organizing the company and engaging experts and other efforts
required to complete this initial public offering of its securities.
Arena intends to extend to Mr. Rochford and Mr. McCabe full-time salary
compensation in the event that revenues are subsequently generated in sufficient
amount to continue their services on a full time basis. No proceeds of this
offering will be used to pay compensation to either of these principals. Until
such time as such revenues are realized in sufficient quantities to pay regular
compensation, the two officers designated above have indicated a willingness to
continue on a full-time basis to serve the company indefinitely. However, it
should be realized that the company has no fixed compensation contract with
either party and either party could terminate services to the company at any
time.
In the event that Arena realizes subsequent revenues, it may also
retain such other employees or experts on a full or part-time basis as it deems
appropriate. It is presently intended that the company may employ the services
of a CFO, office manager, field geologist, and well completion supervisor. The
geologist and well completion supervisor may be retained on either a part-time
salary or independent contract basis as Arena would subsequently deem most
appropriate in the future. Arena would also probably consider hiring a full-time
secretary or office manager as the development of Arena would justify, along
with other as yet undetermined office workers or personnel.
ENVIRONMENTAL COMPLIANCE
Oil and gas production is a highly regulated activity which is subject
to significant environmental and conservation regulations both on a federal and
state level. Historically, most of the environmental regulation of oil and gas
production has been left to state regulatory boards or agencies in those
jurisdictions where there is significant gas and oil production, with limited
direct regulation by such federal agencies such as the Environmental Protection
Agency. However, while the company believes this generally to be the case for
its intended production activities in Oklahoma, it should be noticed that there
are various Environmental Protection Agency regulations which would govern
significant spills, blow-outs, or uncontrolled emissions.
In Oklahoma specific oil and gas regulations exist related to the
drilling, completion and operation of wells, as well as disposal of waste oil.
There are also procedures incident to the plugging and abandonment of dry holes
or other non-operational wells governed by the Oklahoma Corporations Commission,
Oil and Gas Division.
Compliance with these regulations may constitute a significant cost and
effort for Arena. No specific accounting for environmental compliance has been
maintained or projected by Arena to date. Arena does not presently know of
environmental demands, claims, or adverse actions, litigation or administrative
proceedings in which it or the acquired properties are involved relevant to or
arising out of its predecessor operations.
In the event of a breach of environmental regulations, these
environmental regulatory agencies have a broad range of alternative or
cumulative remedies to include: ordering a clean up of any spills and
restoration of the soil or water to conditions existing prior to the
environmental violation; fines; or enjoining further drilling, completion or
production activities. In certain egregious situations the agencies may also
pursue criminal remedies against the company or its principals.
-22-
<PAGE>
DISTINCTIVE CHARACTERISTICS OF ISSUER'S BUSINESS AND INDUSTRY
There are certain special or distinctive characteristics of this
issuer's business which should be understood by any prospective investor. While
some of these characteristics have been earlier discussed or alluded to, we are
summarizing below the more significant of these factors:
o The company has had no revenues or income to date and has occurred a
net loss of ($3,660) from inception in March, 2000 to August 31, 2000.
The independent auditors, as a result, expressed a reservation that
Arena is a going concern.
o Oil and gas production is a highly regulated industry. The Oklahoma
Corporate Commission, Oil and Gas Division imposes limitations on the
number of wells per geographic area and also may regulate the amount of
production from wells in a formation or given conservation area.
o Environmental issues, including disposal of drilling fluids and
chemicals, waste oil, surface contamination are regulated by the
Oklahoma Commission and, secondarily, by the Federal Environmental
Protection Agency, EPA. Typically the EPA does not impose specific
standards or regulations unless there is a significant environmental
contamination.
o Any drilling and completion of a well must be considered high risk due
to the danger a well may be drilled and completed at substantial cost
only to be determined to be a dry hole or non-commercial well.
o The pricing for oil and gas has historically been extremely volatile
and these price changes could render, in a short period, an otherwise
commercially successful well non- commercial and require it to be
shut-in. Additionally, there are risks to production including casing
or formation collapses, blow-outs, flooding, silting, as well as
equipment failures.
o Arena will be dependent upon a third party operator to complete the
initial three wells in the company prior to the end of the 1st quarter
of 2001 and for Messrs. McCabe and Rochford to pay Arena's share of
there costs, neither of which can be assured or warranted.
o The exact structure of Arena's future oil and gas acquisition and
operating activities is not and cannot be determined prior to the close
of this offering.
TWELVE MONTH OPERATING PROJECTIONS:
As earlier discussed, Arena has received an oral undertaking from the
Operator for the Spears and adjacent leases that the projected two wells will be
drilled and completed prior to the end of the 1st quarter 2001. At the same
time, the Spears well would be brought back on line after the workover
completing of the Upper Booch and after the lease of a compressor for these
wells. It is reasonably anticipated that revenues from the anticipated wells
will make the company self sustaining within that period, unless the wells are
dry holes or non-commercial.
At the same time, proceeds of this offering will be used to acquire
proven non-operating properties to be developed through subsequent financing
-23-
<PAGE>
efforts. No reasonable projection of when the drilling and completion of
additional wells will be completed, if at all, can be made at this time because
Arena is not certain of when this offering may close, the time required to
acquire suitable development properties, the time required to raise subsequent
additional developmental funds, or the exact nature of interests or properties
to be acquired.
There is also a possibility , as discussed earlier in this prospectus,
that Arena may elect to use the proceeds of this offering to alternatively
acquire producing acreage or to invest in the drilling and completion of one or
more wells. As the economic factors upon which these alternative development
decisions must be made changes on an almost daily basis for small independent
oil and gas producers, such as Arena, it is impossible to make economic
forecasts as to the ultimate structure of Arena's oil and gas program or the
exact use of proceeds within the over-all parameters outlined earlier in this
offering. It is, however, anticipated that all proceeds of this offering will be
expended within six months from the close of this offering. It is anticipated,
though not warranted, the company will be self sustaining from revenue, after
the six month period based upon the reasonable probability the initial three
leases will be commercially completed.
DESCRIPTION OF OTHER PROPERTY
-----------------------------
In addition to the described oil and gas properties, Arena has rental
office space, equipment and facilities. At present, it leases office space at
4920 South Lewis, Suite 107, Tulsa, Oklahoma. As of October 1, 2000, this lease
consists of approximately 671square feet of office space and is leased by the
company for $ 460.00 per month including all standard office equipment and
furnishings, including its telephone system.
The current facilities are believed adequate for the initial operation
of Arena after the completion of this offering.
Arena does not presently own any oil or gas production equipment such a
pump jacks, pipe or compressors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
Arena, exclusive of very limited predecessor test production, does not
have any revenues or net income to date. Its anticipation of future revenues is
contingent upon various factors previously discussed. In particular, it is not
anticipated that Arena would realize any significant revenues or income from oil
and gas properties to be acquired with proceeds of this offering, unless it
arranges additional financing to create drilling and completion funding for the
company. As a result, the success of this offering is also partially dependent
upon the subsequent success of additional financing being raised, which factor
constitutes a significant additional risk of investment in this offering.
A very limited amount of production revenues from the Spears well are
reflected in the financial statements due to the test production by the
predecessor venture consisting of Mr. McCabe and Mr. Rochford in April, 2000.
This test period of approximately one month generated total gross revenues of
approximately $8,000 of which the net revenue interest to the predecessor was
approximately $2,000. In like manner, the predecessor cost basis of the leases
is established from the March Acquisition date.
-24-
<PAGE>
The valuation of the oil and gas reserves placed into Arena by
management for shares were based upon a discounted current estimated market
value through a reserve report, even though such properties are valued for
accounting purposes on a predecessor cost basis. This valuation is more fully
discussed under the auditor's footnotes in the attached and incorporated audited
financial statements. It is difficult to actually value the present assets
placed into Arena, notwithstanding the existence of an independent petroleum
reserve report. The reserve report should be considered only as estimates of
potential value and recoverable reserves and not as an assurance and warranty
that the company will realize either cash flow or gains from those resources,
even assuming maximum sustained production.
The initial capital being raised in this offering is marginal for the
primary purpose of obtaining additional proven developmental reserves. In short,
Arena may expend all of the net proceeds available from this registration and
not acquire sufficient oil and gas properties to justify sustained economic
production in the future, even allowing for receipt of sufficient drilling and
completion funding from any subsequent financing efforts.
The initial capital assets contributed to Arena were supplied by its
two existing shareholders. In contributing these assets there was no independent
board of directors or shareholders to determine the reasonable valuation of the
cash, oil and gas properties and related interest for the sharehold interest
obtained by the founders and initial shareholders. For the initial 1,300,000
shares acquired by both Mr. McCabe and Mr. Rochford, each contributed $33,694.50
in cash and a carried working interest obligation worth approximately $134,000.
From the cash contribution, the company acquired the three lease properties at a
basis of approximately $61,174. The contributed cash increased both
shareholders' equity in Arena. The prior uncompensated services of Messrs.
McCabe and Rochford have been valued at $60,000 for accounting purposes and
carried as additional paid in capital.
In this offering, investors are assuming the risk that there is no
present revenue, that the economic viability of the company is partially
dependent upon subsequent financing which cannot be warranted, and that even if
subsequent financing is obtained there may not be sufficient funds to adequately
develop or operate oil and gas properties in sufficient amounts or quantities to
justify an economic return to investors. Moreover, there is always the risk that
oil and gas prices could adversely change in a dramatic fashion independently of
any efforts or control by Arena. Finally, there is the ongoing risk and concern
that costs of operations, as well as drilling and completion risks, may
substantially exceed any present estimates and render such future anticipated
economic endeavors as unsuccessful.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
-------------------------------------------------------
Following this table is a brief biographical description for each of
the management principals with a brief description of their business experience
and present relationship to Arena, together with all required relevant
disclosures for the past five years. Following the biographical information for
the directors and officers is a remuneration table showing current compensation
and following this table is a security ownership table showing security
ownership of the principal officers and directors, as well as those holding 5%
or more of the issued and outstanding stock.
-25-
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION CURRENT TERM OF
OFFICE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mr.Lloyd "Tim" Rochford Director/CEO/ President Appointed in Organizational Minutes
- September, 2000. Will serve as
director until first annual
meeting, not yet set. Will serve as
an officer without term/contract
pursuant to leave of the Board of
Directors on deferred compensation
basis.
------------------------------------------------------------------------------------------------------------------------
Mr. Stanley McCabe Director/Treasurer/Secretary Appointed in Organizational Minutes
CFO/Accounting Officer - September, 2000. Will serve as
Director until first annual
meeting, not yet set. Will serve as
an officer without term/contract
pursuant to leave of the Board of
Directors on deferred compensation
basis.
------------------------------------------------------------------------------------------------------------------------
Mr. Charles Crawford Director Appointed in Organizational Minutes
- September, 2000. Will serve as
Director until first annual
meeting, not yet set.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
BIOGRAPHICALS
MR. LLOYD "TIM" ROCHFORD - DIRECTOR , CEO/PRESIDENT
Age: 54
Mr. Rochford has been active as an individual consultant and
entrepreneur in the oil and gas industry since 1973. In this capacity, he has
primarily been engaged in the organization and funding of private oil and gas
drilling and completion projects and ventures within the mid continent region of
the United States. Mr. Rochford continues to be active on an independent basis
in oil and gas consulting, funding, and prospect origination.
In 1989 Mr. Rochford was co-founder, director and CEO of a small public
company known as Magnum Petroleum, Inc. ("Magnum") which is listed on the
American Stock Exchange. Subsequently, Magnum acquired Hunter Resources, Inc. in
August, 1995. Mr. Rochford served as Chairman of the Board of the combined
companies from August, 1995 - June, 1997. Since July, 1997, Mr. Rochford has
primarily devoted his time and efforts to individual oil and gas acquisition and
development prior to his commitment to participate in Arena Resources. In 1982,
Mr. Rochford was co-founder of Dana Niguel Bank, a publicly held California bank
operation and served as a director until 1994. Mr. Rochford currently serves as
a director for E-Vantage Solutions, Inc., a public company and New Systems,
Inc., a public company. Mr. Rochford attended various college level courses in
business from 1967-1970 in California.
MR. STANLEY McCABE - DIRECTOR/SECRETARY/TREASURER/CFO
ACCOUNTING OFFICER
Age: 68
From 1979 to 1995, Mr. McCabe was involved in Stanton Energy, Inc., a
Tulsa, Oklahoma natural resource company specializing in contract drilling and
operation of oil and gas wells. From 1990 to 1995, he was Chairman and CEO of
that company. In 1990, Mr. McCabe also became a co-founder and subsequent
officer and director of Magnum Petroleum, Inc., along with Mr. Rochford as
previously discussed. Subsequently, Mr. McCabe served as a director of Magnum
Hunter Resources, Inc., through December, 1996. Since January, 1997, Mr. McCabe
has been involved as an independent investor and developer of oil and other
natural resource companies.
Mr. McCabe attended college courses at the University of Maryland,
primarily in business in 1961-1962.
MR. CHARLES CRAWFORD - DIRECTOR
Age: 48
For the past twenty-five years from 1975 to present, Mr. Crawford has
served as an independent oil and gas exploration consultant to various private
and public oil and gas companies within the United States. He has acted as a
consultant to such firms as Texaco Corporation, Phillips Petroleum,
Mid-Continent and Energy as well as other regional and national companies
primarily acting in the mid-continent area.
Mr. Crawford is not presently affiliated with any private or public companies
other that his participation on the board of directors with Arena.
-27-
<PAGE>
Mr. Crawford received a Masters Degree in geology from Miami University
of Ohio, in 1976. Mr. Crawford will serve the company on an as needed basis as
an outside director.
Further, it is anticipated that if Arena is successful in generating
revenues, it will attempt to hire one or more other officers and employees to
supply administrative and marketing services. As a result, the following chart
only includes the current management, with reservation of salaries to other
officers pending revenues.
<TABLE>
<CAPTION>
COMPENSATION CHART
------------------------------------------------------------------------------------------------------------------------
POSITION NAME OF CAPACITY IN WHICH AGGREGATE
INDIVIDUAL OR REMUNERATION WILL REMUNERATION
IDENTITY OF GROUP BE RECEIVED
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
All executive officers as a President No present salary. Officers will be
group and compensated on a reasonable to be negotiated
Other Officers basis when and if revenues are obtained.
</TABLE>
SHARES OWNED BY MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table includes all shares issued to a director, officer
or 5% or greater shareholder. There are no created or issued stock options or
other stock rights in Arena at the present time:
<TABLE>
<CAPTION>
Title or Class Name of Owner Amount Amount Percent of Percent of
owned owned Class Class
before the after the Before After
Offering Offering1 Offering Max.
(Rounded) Offering
(Rounded)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Lloyd T. Rochford 1,300,000 same 50% 28%
Stock
Common Stanley McCabe 1,300,000 same 50% 28%
Stock
Common All 2,600,000 same 100% 56%
Stock Officers/Directors as
a Group
</TABLE>
1 Assumes management does not purchase shares in the offering.
There are no other shareholders which own any of the outstanding stock
prior to the offering. Further, the company has not issued or adopted any form
of warrants or option rights or any plan for options or warrants. It is
anticipated that in the event of the successful completion of this offering, the
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<PAGE>
board of directors may authorize and approve a standard incentive stock option
plan.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
---------------------------------------------------------
There are certain transactions related to Arena and this offering which
are not deemed to be "arms-length" transactions. That is, the parties on both
sides of the contract or agreement have substantial relationships or common
interests. All such material transactions are believed to be disclosed in this
section.
1. The initial capital assets contributed to Arena were supplied by its
two existing shareholders. In contributing these assets there was no independent
board of directors or shareholders to determine the reasonable valuation of the
cash, oil and gas properties and related interest for the sharehold interest
obtained by the founders and initial shareholders. For the initial 1,300,000
shares acquired by both Mr. McCabe and Mr. Rochford, each contributed $33,694.50
in cash and a carried working interest obligation worth approximately $134,000.
Of the cash contributed, $61,174 was employed to acquire the three leases. The
contributed cash increased both shareholders' equity in Arena. The estimated
future development costs to Messrs. McCabe and Rochford of $134,000 were
estimated by independent engineers and have been accounted for as an estimated
receivable from stockholders in the accompanying financial statements. Each
investor in this offering should consider the lack of independent valuation and
review of the assets contributed by the principal shareholders for their
relative sharehold interest. In all events, such contribution to the corporation
cannot be considered an independent or arms- length transaction. In like manner,
the two initial shareholders will most likely be in a position, even after the
completion of this offering, to determine their initial salaries and any amount
of deferred compensation and these actions will not constitute an independent
transaction and should be considered as a potential risk factor.
2. Messrs. Rochford and McCabe advanced Arena $25,000 to finance its
short-term operations and offering costs. Arena and Messrs. Rochford and McCabe
have agreed that the loan will be repaid from the proceeds of this equity
offering with no interest incurred.
3. Even if the total offering is sold, the prior management group, as
described above, will continue in control and will essentially be in a position
to dictate salaries, distributions, and other interests as to all shareholders.
While there is a general common law or statutory obligation placed upon
management of Arena to act in the best interest of all shareholders, each
investor in this offering should consider that their minority shareholder status
imposes a certain risk of not being in a position to influence or affect the
direction of the company.
4. There exists a potential conflict that both Mr. Rochford and Mr.
McCabe will continue to pursue individually various oil and gas interests for
their accounts. As officers and directors, Mr. Rochford and Mr. McCabe have a
fiduciary duty to make appropriate oil and gas opportunities first available to
Arena. As a result, a certain potential conflict exists between their pursuit of
individual oil and gas interests and the duty owed to Arena. The company
believes it has resolved this potential conflict through the understanding of
this issue by current management and their oral undertakings to make all
appropriate and feasible oil or gas opportunities first available to the
company. However, each prospective investor should consider such potential
conflict as a risk factor. Further, Mr. Rochford and Mr. McCabe have
individually undertaken to carry the drilling and completion costs on the two
drill sites in the Casey No. 1 and the Wallace No. 1 leases, as well as the
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<PAGE>
workover on the Spears well. Mr. McCabe and Mr. Rochford will pay actual costs
regardless of the estimated valuation of $134,000. Arena then becomes dependent
upon their financial capacity as well as willingness to honor this commitment.
There are no written commitments or undertakings between Arena or Messrs. McCabe
and Rochford on either of the matters discussed in this paragraph. While the
company considers the undertakings as an enforceable agreement such undertaking
may be difficult to legally enforce or to assert damages arising from
non-performance.
SECURITIES BEING OFFERED
------------------------
Only Arena's voting common stock is being offered by this prospectus.
Of the 100,000,000 shares of common stock authorized, $0.001 par, Arena
presently has issued and outstanding 2,600,000 shares of common stock and will
sell between 800,000 shares of common stock in the minimum offering and
2,000,000 shares in the maximum offering. If the minimum offering is sold, the
shareholders purchasing in this offering would hold approximately 24% of the
issued and outstanding common stock and in the event of the maximum offering
approximately 43% of the issued and outstanding common stock.
In summary of the nature of the securities being offered, each investor
should note as follows:
o Arena does not have any dividend policy, nor has it declared
dividends. It is not anticipated that dividends will be paid for the foreseeable
future.
o Each common share has an equal voting right.
o There are no pre-emptive rights or cumulative voting in Arena.
o The shares are not subject to any conversion rights or obligations,
nor any redemptive provisions, sinking fund provisions, or liability for any
call or assessment.
o We do not believe that any shareholder under Nevada law would be
subject to any debts, liabilities or claims made against the company.
o Arena does not have any outstanding warrants, rights or other stock
interest or rights to acquire stock; however, management will most likely
institute some standard management stock option plan if this offering is
completed.
o Our common stock is covered by a Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors, generally institutions with assets in excess of $5,000,000 or
individuals with net worth in the excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse. For transactions
covered by the rule, the broker-dealer must make a special suitability
determination for the purchaser and transaction prior to the sale. Consequently,
the rule may affect the ability of purchasers of our stock to sell their shares
in the secondary market. It may also cause fewer broker dealers to be willing to
make a market and it may affect the level of news coverage we receive.
-30-
<PAGE>
EXPERTS
-------
Legal Counsel - Arena has retained the firm of Jensen, Duffin, Carman,
Dibb & Jackson to act as independent securities counsel. Counsel has passed upon
the eligibility of the Company to file this registration. Counsel has also
passed upon the validity of the shares offered by this registration as being
legally issued, fully paid and non-assessable as sold. The named expert has no
relationship with any member of management or Arena.
Accountants - The balance sheet as of August 31, 2000 and the
statements of operations, stockholders' equity, and cash flows for the period
from March 3, 2000 (date of inception) through August 31, 2000 have been
included in this Prospectus in reliance on the report of Hansen, Barnett and
Maxwell, Salt Lake City, Utah, independent certified public accountants, given
on authority of that firm as experts in accounting and auditing.
LEGAL PROCEEDINGS
-----------------
Arena is not presently engaged in any legal proceedings as either a
plaintiff or defendant, nor does it know of any material claims.
CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
--------------------------------------------
Neither Arena nor its management has had any disagreement with its
independent certified public accountants regarding the scope of the audit or the
application of accounting principles. The company has retained the same auditors
since inception.
INDEMNITY OF OFFICERS AND DIRECTORS
-----------------------------------
The By-laws and Articles for Arena provide indemnity statements for
general indemnities and relief from liability for management. These indemnities,
as well as Nevada law, provide for general indemnity, including costs of defense
for officers, directors and agents acting within the normal scope of their duty
and service to Arena.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
-31-
<PAGE>
GLOSSARY OF SELECTED OIL AND GAS TERMS
--------------------------------------
The following selected oil and gas terms as used in this prospectus
shall have the following meanings. Management has included what it deems to be
the most significant terms used in this offering. The terms as defined here may
be more extensive that the abbreviated definitions contained in the text, but
may not include all textual terms. These terms were derived, with certain
modifications, from the Manual of Oil and Gas Terms, Williams and Meyers, Mathew
Bender, 5th Edition:
Carried Working Interest. A fractional interest in oil or gas
properties, usually a lease, the holder of which has no obligation to pay for
drilling and completion costs, but which holder does pay its pro rata share of
operating expenses. A working interest is normally calculated as to the whole of
the production after deduction for royalty interests as defined below. As a
result, a working interest would produce a lessor revenue interest which is
computed after deduction for costs of operation, as well as royalties. See Net
Revenue Interest below.
Drill Site. The particular area within a lease which has been
designated for the intended drilling and completion of an oil and/or gas well. A
lease is often designated or referred to by the number of allowable drill sites
contained therein under prevailing spacing or unit requirements.
Drilling and Completion Costs. Those costs normally incurred by the
working interest holders as necessary to drill, complete and bring an oil or gas
well to a state of commercial completion. Drilling costs involve the cost
associated with drilling the well to a predetermined depth or formation and
stabilizing the bore hole. Completion costs usually include adding production
casing (underground tubing) to the bore hole and perforating the casing at the
formation levels to allow for anticipated production to enter the wall. The
formation to be produced is typically treated by chemicals or small explosives
to "fracture" the formation to induce or enhance production. Other completion
costs include adding surface or down hole pumps, as necessary, or surface valves
or compressors with tubing to gathering lines or storage trunks. Costs of
drilling and completion are typically capital costs and are incurred and paid
separately from operating costs. The foregoing constitutes a general description
and it should be understood that there are significant variations and technical
procedures involved in specific drilling and completion activities which are not
described by this generic description.
Dry Hole. A term used to denote an oil or gas well which was drilled to
its intended formation depth and was determined, prior to completion, not to
contain sufficient recoverable quantities of oil and/or gas to warrant
completion.
Formation. That area or group of geographic strata which is typically
productive of oil or gas in a given lease or field. As a result, a well is
typically drilled to this or that formation, or combination of formations,
usually at a predetermined depth within a given lease or field.
Gas Gatherer or Gatherer. That person or entity which has the right and
facilities to place temporary pipes within a producing oil or gas lease for the
purposes of gathering the production of the various wells and placing the gas,
usually under pressure, into a main gas line for purchase purposes. The gatherer
usually contracts with the gas purchaser who, in turn, contracts with the
operator. See definition of operator below.
-32-
<PAGE>
Gross Well. A term used in the oil and gas industry to define the
number of wells in which a working interest may hold any fractional interest.
For example, even if an interest holder had only a ten percent interest in each
of ten wells he would still have ten gross wells, but only one net well. See
definition of Net Well below.
Lease or Mineral Lease. The instrument by which a leasehold or working
interest is created in a mineral estate. A mineral lease should not be confused
with a common law lease, but is more similar to a mineral ownership in that the
lease usually survives for so long as there is production from the property
after a stated initial period. In most cases, the mineral lease reflects the
entire mineral interest to be produced from the leasehold subject to only the
royalty interest payments. Leases are often called by the proper name of the
owner of the underlying property at the time the lease was created. There is
usually an annual cash lease payment until the lease is held by production. See
Production Lease below.
Net Revenue Interest. The net revenue interest is a term which defines
the actual revenues which a mineral interest or working interest holder will
obtain from a given lease after payment of its pro rata share of production
costs and after royalty payments.
Net Well. A term sometimes employed to define the aggregate of the
fractional net revenue interests in multiple oil and gas wells which, when
combined, constitute the percentage of an entire well or wells owned by a
working interest holder. For instance, if one has a thirty-three percent net
revenue interest in three wells of substantially similar production, then that
person or entity would hold a ninety-nine percent net well from three gross
wells. See definition of Gross Well above.
Non-Commercial Well. An oil or gas well which was typically drilled and
completed based upon preliminary determination that sufficient quantities of oil
or gas may be produced, but which subsequently does not produce oil and gas in
sufficient quantities to repay the costs of drilling and completion or the cost
of continued production.
Operating Costs. Those costs normally associated with an oil and/or gas
well after a commercial completion and which are typically paid on a monthly
basis and cover the costs of actual operation of a well to sustain its
production.
Operator and Operating Agreement. In an oil and gas lease the operator
is usually the principal lessee and is responsible for satisfying the terms of
the lease including drilling and completion rights and obligations. The operator
usually enters into an operating agreement with various non-operators who may be
viewed somewhat as sublessees. The non-operators have certain participation
rights and obligations under the operating agreement, but the operator still
generally exercises control over drilling, completion and operation decisions,
as well as the sale of the product.
Plug and Abandon. The process of abandoning a dry hole or
non-commercial well which normally requires the pulling of certain equipment
from the well and pouring concrete or other material into the well to seal the
producing formations and the surface hole. Plugging and abandoning operations
are normally subject to various state regulations and procedures.
Production Costs. Production costs are the typical costs incurred to
continue operations or productions from a well after drilling and completion and
include such costs as lifting and pumping costs, compressor costs, gathering
costs, maintenance, storage and transportation costs.
-33-
<PAGE>
Production Lease. A mineral lease which is held because there are one
or more completed oil and/or gas wells on the lease whether or not currently
shut-in. A production lease usually pays the lease costs as a percentage of
production, or if shut-in, by a shut-in payment.
Proven Undeveloped Reserves. Proven undeveloped oil and gas reserves
are reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is required
for recompletion. Reserves on undrilled acreage shall be limited to those
drilling units offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units can be
claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proven 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.
Royalty. That percentage of total production from the lease which is
paid to the landowner "landowners royalty" or to other designated and created
royalty holder(s) "overriding royalty." Royalties are a payment of total
production, net of all costs of production, except taxes. The typical aggregate
royalties usually ranges from 8% to 15% of total production.
Shut-In Well. An oil or gas well that was commercially completed, but
is not in current production for various reasons. Such wells usually are shut-in
for maintenance, regulatory reasons or economic factors such as the prevailing
cost of production versus prices for the product. Typically, such a well can be
put back in to production without significant costs.
Unproven Reserves. A lease or other oil and gas property which is
believed to contain commercial quantities of oil or gas, but which has not been
currently proven to be commercially productive through the drilling of
sufficiently close producing wells.
Working Interest. A fractional interest in oil and gas properties,
usually a lease, which reference the percentage of ownership of the interest
holder in the remaining production after payment of royalties. A working
interest holder would normally pay his pro rata share of drilling and completion
costs, "unless carried," and the pro rata share of operating costs. Since a
working interest would have deducted from it royalty payments as well as
operating costs, the resulting actual payment to the holder is known as a net
revenue interest. See definition of Net Revenue and Carried Working Interest
above.
-34-
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
TABLE OF CONTENTS
-----------------
Page
----
Report of Independent Certified Public Accountants F-2
Balance Sheet - August 31, 2000 F-3
Statement of Operations for the period from March 3, 2000
(Date of Inception) through August 31, 2000 F-4
Statement of Stockholders' Equity for
the period from March 3, 2000 (Date of
Inception) through August 31, 2000 F-5
Statement of Cash Flows for the period
from March 3, 2000 (Date of Inception)
through August 31, 2000 F-6
Notes to Financial Statements F-7
Supplemental Information on Oil and Gas
Producing Activities F-10
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associate Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Arena Resources, Inc.
Rancho Mirage, California
We have audited the balance sheet of Arena Resources, Inc. (a development stage
company) as of August 31, 2000, and the related statements of operations,
stockholders' equity and cash flows for the period from March 3, 2000 (date of
inception) through August 31, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Arena Resources, Inc. as of August
31, 2000, and the results of its operations and its cash flows for the period
from March 3, 2000 (date of inception) through August 31, 2000, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in the exploration and development of oil and gas properties
and the production and sale of oil and gas. As discussed in Note 1 to the
financial statements, the Company's operating loss since inception and the
deficit accumulated during the development stage raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/HANSEN, BARNETT & MAXWELL
----------------------------
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 6, 2000
F-2
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 2000
ASSETS
------
Current Assets
Cash $ 31,059
--------
Oil and Gas Properties, Using Full Cost Accounting
Properties subject to amortization 61,174
Less: Accumulated depletion (263)
Net Oil and Gas Properties 60,911
--------
Total Assets $ 91,970
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Revenue distribution payable $ 3,241
Loans from stockholders 25,000
---------
Total Current Liabilities 28,241
---------
Stockholders' Equity
Preferred stock - par value $0.001 par share;
10,000,000 shares authorized; no shares issued
or outstanding --
Common stock - par value $0.001 per share;
100,000,000 shares authorized; 2,600,000 shares
issued and outstanding 2,600
Additional paid-in capital 258,789
Estimated receivable from stockholders (134,000)
Deficit accumulated during the development stage (63,660)
---------
Total Stockholders' Equity 63,729
---------
Total Liabilities and Stockholder's Equity $ 91,970
=========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 3, 2000 (DATE OF INCEPTION)
THROUGH AUGUST 31, 2000
Gas Revenues $ 2,424
-----------
Costs and Operating Expenses
Gas production costs 263
Depletion 263
General and administrative expense 65,558
-----------
Total Costs and Operating Expenses 66,084
-----------
Net Loss $ (63,660)
===========
Basic and Diluted Loss Per Common Share $ (0.02)
Weighted Average Number of Common
Shares Used in Per Share Calculation 2,600,000
===========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 3, 2000 (DATE OF INCEPTION)
THROUGH AUGUST 31, 2000
<TABLE>
<CAPTION>
Estimated Accumulated
Common Stock Additional Receivable During the Total
---------------- Paid-in From Development Stockholders'
Shares Amount Capital Stockholders Stage Equity
------ ------ --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance - March 3, 2000 (Date
of inception) -- $ -- $ -- $ -- $ -- $ --
Services contributed by officers,
no shares issued, March 3, 2000
through August 31, 2000 -- -- 60,000 -- -- 60,000
Common stock issued for $ 67,389 in
cash and receivable for a carried
interest in gas properties,
March 3, 2000 through August
31, 2000 - $0.08 per share 2,600,000 2,600 198,789 (134,000) -- 67,389
Net loss -- -- -- -- (63,660) (63,660)
---------- ---------- ---------- ---------- ---------- ----------
Balance - August 31, 2000 2,600,000 $ 2,600 $ 258,789 $ (134,000) $ (63,660) $ 63,729
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 3, 2000 (DATE OF INCEPTION)
THROUGH AUGUST 31, 2000
Cash Flows From Operating Activities
Net loss $(63,660)
Adjustments to reconcile net loss to net cash
used in operating activities:
Services contributed by officers 60,000
Depletion 263
Changes in operating assets and liabilities:
Increase in revenue distribution payable 3,241
--------
Net Cash Used in Operating Activities (156)
Cash Flows from Investing Activities
Capital expenditures (61,174)
--------
Net Cash Used in Investing Activities (61,174)
--------
Cash Flows from Financing Activities
Proceeds from loan from stockholders 25,000
Proceeds from issuance of common stock 67,389
--------
Net Cash Provided by Financing Activities 92,389
--------
Net Increase in Cash 31,059
Cash at Beginning of Period --
--------
Cash at End of Period $ 31,059
========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Arena Resources, Inc. (the Company) began operations as an
unincorporated joint venture on March 3, 2000. Thereafter, the joint
venture acquired an interest in oil and gas properties in Oklahoma. On
August 31, 2000, the joint venture was incorporated under the laws of the
State of Nevada. On that date, the assets of the joint venture, which
consisted primarily of the property interests, net of the liabilities of
the joint venture, were transferred to the corporation in exchange for the
issuance of 2,600,000 shares of common stock. The joint venture was owned
100% by Stanley McCabe and Lloyd T. Rochford as was the corporation after
the transfer.
The reorganization of the joint venture into the corporation was a transfer
between enterprises under common control and the assets and liabilities
transferred were recorded by the corporation at their historical cost to
the joint venture. In addition, the accompanying financial statements have
been restated to reflect the shares of common stock issued in the
reorganization as though they had been issued on the dates capital
contributions were received from the owners of the joint venture.
Accordingly, the accompanying financial statements include the operations
of the joint venture from its formation on March 3, 2000 through August 31,
2000.
Nature of Operations - The Company owns interests in oil and gas properties
located in Oklahoma. The Company is engaged primarily in the acquisition,
exploration, development, and production of oil and gas properties and the
production and sale of oil and gas.
Use of Estimates - The preparation of financial statement in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The amount recorded as
estimated receivable from stockholders is based on a current estimate by a
petroleum engineer of the Company's carried interest in the cost to work
over one well and to drill and complete two wells on the Company's
properties. These estimated costs are subject to change in the near term.
Business Condition - The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As shown in the financial statements for the period from March 3,
2000 (date of inception) through August 31, 2000, the Company earned only
nominal revenue and incurred a net loss of $63,660. The lack of operations
and the loss from operations raise substantial doubt about the Company's
ability to continue as a going concern for a reasonable period of time. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amount and
classification of liabilities which might be necessary should the Company
be unable to continue as a going concern. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash
flows to meet its obligations on a timely basis, to obtain additional
financing as may be required, and ultimately to attain successful
operations. The Company's management intends to raise additional equity
capital for operations and to begin production of its gas properties. There
is no assurance additional capital will be obtained.
F-7
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
Oil and Gas Properties - The full cost method of accounting is used for oil
and gas properties. Under this method, all costs associated with
acquisition, exploration, and development of oil and gas properties and
capitalized. Costs capitalized include acquisition costs, geological and
geophysical expenditures, lease rentals on undeveloped properties and costs
of drilling and equipping productive and non-productive wells. Drilling
costs include directly related overhead costs. Capitalized costs are
categorized either as being subject to amortization or not subject to
amortization. There were no capitalized internal costs during the period
from March 3, 2000 (date of inception) through August 31, 2000.
All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves and estimated future costs of site
restoration, are amortized on the unit-of-production method using estimates
of proved reserves as determined by independent engineers. Investments in
unproved properties and major development projects are not amortized until
proved reserves associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized. Depletion expense for the period from
March 3, 2000 through August 31, 2000, was $263, based on depletion at the
rate of $0.42 per thousand cubic of gas.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present
value," discounted at a 10-percent interest rate of future net revenues
from proved reserves, based on current economic and operating conditions,
plus the lower of cost or fair market value of unproved properties.
None of the properties acquired were producing or had any operating
activities during the two years prior to their acquisition by the Company.
Accordingly, neither pro forma information nor audited financial
information pertaining to the properties prior to the Company's acquisition
of the properties is presented.
Basic and Diluted Loss Per Share -Basic loss per common share is computed
by dividing net loss by the weighted-average number of common shares
outstanding during the period. Diluted loss per share is calculated to give
effect to potentially issuable common shares except during loss periods
when those potentially issuable common shares would decrease the loss per
share. There were no potentially issuable common shares which were excluded
from the calculation of diluted loss per common share.
NOTE 2 - LOAN FROM STOCKHOLDERS
On August 29, 2000, two stockholders loaned the Company $25,000 to finance
its short-term operations. The Company and the stockholders have mutually
agreed that the loan will be paid back from the proceeds of the Company's
planned equity financing with no interest incurred. The loan was not
memorialized with a promissory note.
F-8
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 100,000,000 common shares, with a par
value of $0.001 per share, and 10,000,000 Class A preferred shares, with a
par value of $0.001 per share. The rights of the Class A preferred shares
may be established by the Board of Directors. If issued, the Class A
preferred shares shall be non-voting and will be entitled to priority over
the common shares in the payment of dividends and in liquidation.
From March 3, 2000 through August 31, 2000, the owners of the Company,
while it was a joint venture, contributed $67,389 in cash to the joint
venture and contributed a carried interest in gas property. Upon its
incorporation on August 31, 2000, the Company issued 2,600,000 shares of
common stock in exchange for the capital contributions previously made to
the joint venture and for the commitment by the shareholders to pay the
Company's 40% share of the costs to work over one well and drill and
complete two wells on the Company's property. The estimated future
development costs to the Company's shareholders of $134,000 was estimated
by independent engineers and has been accounted for as an estimated
receivable from stockholders. Any changes to the estimated future
development costs will be reflected in the financial statements as changes
to both the estimated receivable from stockholders and additional paid-in
capital. In addition, if the work is never completed, the estimated
receivable from stockholders and the corresponding additional paid-in
capital will be eliminated. At this time, there is no deadline for the work
to be completed; however, management anticipates that the work will be
complete within six months.
During the period March 3, 2000 (date of inception) through August 31,
2000, the stockholders contributed services to the Company with an
estimated value of $60,000.
NOTE 4 - RELATED PARTY TRANSACTIONS
As discussed in Note 3, there was an estimated receivable from stockholders
in the amount of $134,000 at August 31, 2000.
As discussed in Note 2, two stockholders loaned the Company $25,000. The
loan is short-term with no due date and no interest rate.
NOTE 5 - INCOME TAXES
There was no benefit or provision for income taxes for the period from
March 3, 2000 (date of inception) through August 31, 2000 as the Company
was a joint venture partnership during that period, and the deductions were
passed through to its partners. There were no differences between the tax
bases and the reported amounts of the Company's assets and liabilities.
F-9
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - SUBSEQUENT EVENT
On October 1, 2000, the Company entered into a one-year operating lease
agreement for office space. Under terms of the lease, the Company pays $460
per month through October 1, 2001, at which time it has the option to renew
the lease for an additional year. The future minimum lease payments under
the operating lease agreement as of August 31, 2000 were:
Year Ending August 31,
----------------------
2001 $ 5,060
2002 460
F-10
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Capitalized Costs Relating to Oil and Gas Producing Activities at August
31, 2000:
Proved gas properties $ 61,174
Less accumulated depletion (263)
---------
Net Capitalized Costs $ 60,911
=========
Costs Incurred in Oil and Gas Producing Activities
for the Period from March 3, 2000
through August 31, 2000
Acquisition of proved properties $ 61,174
=========
Results of Operations for Oil and Gas Producing Activities for the Period
from March 3, 2000 through August 31, 2000
Gas revenues $ 2,424
Production costs (263)
Depletion (263)
---------
Results of Oil and Gas Producing Operations $ 1,898
=========
Reserve Information - The following estimates of proved and proved
developed reserve quantities and related standardized measure of discounted
net cash flow are estimates only, and do not purport to reflect realizable
values or fair market values of the Company's reserves. The Company
emphasizes that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of producing oil
gas properties. Accordingly, these estimates are expected to change as
future information becomes available. All of the Company's reserves are
located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate
and natural gas liquids) that geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing
wells, equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying period-end prices of oil (with consideration of price changes only
to the extent provided by contractual arrangements) to the estimated future
production of proved oil reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based on
year-end statutory tax rates, with consideration of future tax rates
already legislated) to be incurred on pretax net cash flows less tax basis
of the properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are then
discounted using a rate of 10 percent a year to reflect the estimated
timing of the future cash flows.
F-11
<PAGE>
ARENA RESOURCES, INC.
(A Development Stage Company)
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Gas
(MCF)
-----------
Proved Developed and Undeveloped Reserves
Balance - March 3, 2000 --
Purchases of minerals in place 478,909
Production (646)
-----------
Balance - August 21, 2000 478,263
===========
Proved Developed Reserves
March 3, 2000 --
August 31, 2000 60,034
===========
Standardized Measure of Discounted Future
Net Cash Flows at August 31, 2000
Future cash inflows $ 1,782,724
Future production and development costs (295,583)
Future income tax expenses (484,918)
-----------
Future Net Cash Flows 1,002,223
10% annual discount for estimated timing
of cash flows (263,017)
-----------
Standardized Measures of Discounted
Future Net Cash Flows Relating to Proved
Oil and Gas Reserves $ 739,206
===========
The following are the principal sources of change in the standardized
measure of discounted future net cash flows during the period from March 3,
2000 through August 31, 2000:
Purchase of minerals in place $ 1,046,121
Sales of gas produced, net of production
costs (2,161)
Accretion of discount 52,906
Net change in income taxes (357,660)
----------
Net Change During the Period $ 739,206
==========
F-12
<PAGE>
PART II
-------
Item 1. Indemnification of Officers & Directors. Arena indicates that
it has normal and customary indemnification provisions under its By-laws and
Articles of Incorporation as well as those generally provided by Nevada law. It
is believed these provisions would indemnify all officers and directors from any
good faith mistake or omission in the performance of his or her duties including
cost of defense. Such indemnity would not extend to intentionally wrongful acts
including fraud, appropriation, self dealing or patent conflicts of interest.
The Articles and By-Laws are being filed as Exhibit items.
Item 2. Other Expenses of Issuance & Distribution. Arena does not know
of any accrued or to be accrued expenses of issuance and distribution other than
as outlined in the foregoing prospectus Use of Proceeds section. The present
estimates of offering expenses are incorporated as costs for registration,
including: fees, legal, accounting, printing and miscellaneous in the aggregate
amount of $35,000.
Item 3. Undertakings. The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933. This
includes:
a. For determining liability under the Securities
Act, the issuer will treat each post-effective
amendment as a new registration statement of the
securities offered, and the offering of the
securities at that time to be the initial bona
fide offering.
b. The issuer will file a post-effective amendment
to remove from registration any of the
securities that remain unsold at the end of the
offering.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post- effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(iv) To the extent this issuer requests acceleration of
the effective date of the registration statement
under Rule 461 under the Securities Act, it will
include the following in the appropriate portion of
the prospectus:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling
persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
35
<PAGE>
Item 4. Unregistered Securities Issued or Sold Within One Year. Arena
believes that in the body of this prospectus it has described all shares issued
within the past year from the date of inception of Arena. In summary of that
disclosure, Arena represents the only shares issued were to its founders and
principals, Mr. Lloyd T. Rochford and Mr. Stanley McCabe. All shares issued to
them are the same shares set forth in the chart showing securities held by
management and are deemed exempted transactions under section 4(2) of the
Securities Act of 1933 as initial capital contributions. The shares issued to
Mr. Rochford and Mr. McCabe were common voting stock of the issuer. Mr. Rochford
and Mr. McCabe received 1,300,000 shares each for the initial oil and gas assets
contributed equally by them to Arena. The following table summarized these
transactions:
<TABLE>
<CAPTION>
Name/ Number of Acquisition Date Consideration
Shareholder Shares
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. Lloyd Tim Rochford 1,300,000 September, 2000 Cash and Carried
Working Interest.
Mr. Stanley McCabe 1,300,000 September, 2000 Cash and Carried
Working Interest.
-------------------------------------------------------------------------------------------------------------
</TABLE>
Item 5. Index of Exhibits As Listed under Part III, Item I, Form I-A:
Exhibit Item 1 - Audited Financial Statements for the period ending
August 31, 2000 (Attached to Prospectus)
Exhibit Item 2 - Articles of Incorporation and By-Laws (previously
filed)
Exhibit Item 4 - Subscription Agreement (previously filed)
Exhibit Item 5 - Reserve Report (previously filed)
Consent of Reserve Engineers (previously filed)
Exhibit Item 10a - Auditor's Consent Letter (current filing updated)
Exhibit Item 10b - Attorney Letter in re Legality (previously filed)
-- --
Miscellaneous Exhibits - Specimen Stock Certificate (previously filed)
Operating Agreement (previously filed)
Exhibit 27.1 - Financial Data Schedule
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SIGNATURES
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In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Salt
Lake, State of Utah on December 29, 2000.
(Registrant) Arena Resources, Inc.
By: /s/Lloyd T. Rochford, Its President
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Lloyd T. Rochford
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/Lloyd T. Rochford
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Lloyd T. Rochford
Director, CEO, President
(Date) December 29, 2000
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In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/Stanley McCabe
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Stanley McCabe
Director, Secretary/Treasurer, Chief Financial & Accounting Officer
(Date) December 29, 2000
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In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/Mr. Charles Crawford
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Mr. Charles Crawford
Director
(Date) December 29, 2000
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