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U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from _______ to _______.
Commission file number 0-8532
OAKRIDGE ENERGY, INC.
(Name of small business issuer in its charter)
UTAH 87-0287176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4613 JACKSBORO HIGHWAY
WICHITA FALLS, TEXAS 76302
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 940-322-4772
Securities registered under Section 12(b) of the Exchange Act:
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<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- -------------------------
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None ----
</TABLE>
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.04 PAR VALUE
(Title of class)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR
FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE
PAST 90 DAYS. YES [X] NO [ ]
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO
ITEM 405 OF REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE
WILL BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III
OF THIS FORM 10-KSB OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR. $3,899,490
STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON
EQUITY HELD BY NONAFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT
WHICH THE COMMON EQUITY WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES
OF SUCH COMMON EQUITY, AS OF A SPECIFIED DATE WITHIN THE PAST 60 DAYS.
$4,576,206 AS OF MAY 15, 1998
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE.
4,839,509 AS OF MAY 31, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for Annual Meeting of Stockholders for
Fiscal Year Ended February 28, 1998 - Part III
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
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TABLE OF CONTENTS
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PAGE
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PART I .................................................. 1
ITEM 1. DESCRIPTION OF BUSINESS ........................ 1
Summary of Developments in Fiscal 1996, 1997
and 1998 ..................................... 1
Oil and Gas Operations ......................... 2
Coal and Gravel Operations ..................... 3
Real Estate Held for Development ............... 3
Competition and Markets ........................ 5
Regulation ..................................... 6
Environmental and Health Controls .............. 7
Operating Hazards and Uninsured Risks .......... 8
Employees ...................................... 8
ITEM 2. DESCRIPTION OF PROPERTY ........................ 8
Oil and Gas Properties ......................... 8
Reserves ..................................... 9
Production ................................... 9
Lifting Costs and Average Sales Prices ....... 10
Sales Contracts and Major Customers .......... 10
Developed Acreage and Productive Wells ....... 11
Undeveloped Acreage .......................... 12
Drilling Activity ............................ 12
Coal and Gravel Properties .................. 13
Real Estate .................................. 14
Office Building .............................. 14
ITEM 3. LEGAL PROCEEDINGS .............................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ............................. 14
PART II ................................................. 15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .......................... 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION ............................ 15
Results of Operations .......................... 16
Financial Condition and Liquidity .............. 19
Death of Company's Parent, Principal Shareholder
and Chief Executive Officer .................. 19
</TABLE>
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<TABLE>
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ITEM 7. FINANCIAL STATEMENTS ........................... 20
Index to Financial Statements .................. 20
Independent Auditors' Report ................... 21
Balance Sheets as of February 28, 1998 and 1997 22
Statements of Operations for the years ended
February 28, 1998 and 1997 ................... 24
Statements of Stockholders' Equity for the
years ended February 28, 1998 and 1997 ....... 25
Statements of Cash Flows for the years ended
February 28, 1998 and 1997 ................... 26
Notes to Financial Statements .................. 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ....... 39
PART III ................................................ 39
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT .......................... 39
ITEM 10. EXECUTIVE COMPENSATION ......................... 39
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ........................ 39
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS ................................. 39
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ............... 40
Exhibits ....................................... 40
Reports on Form 8-K ............................ 40
SIGNATURES .............................................. 41
</TABLE>
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Parts I and II of this Report contain forward looking statements that involve
risks and uncertainties. Accordingly, no assurances can be given that the actual
events and results will not be materially different than the anticipated results
described in the forward looking statements. See "Item 1. - Description of
Business-Competition and Markets," "Regulation," "Environmental and Health
Controls" and "Operating Hazards and Uninsured Risks" and "Item 6. -
Management's Discussion and Analysis or Plan of Operation - Death of Company's
Parent, Principal Shareholder and Chief Executive Officer" for a description of
various factors that could materially affect the ability of the Company to
achieve the results described in the forward looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Oakridge Energy, Inc. (the "Company") is engaged in the exploration for
and development, production and sale of oil and gas primarily in Texas and, to a
much lesser extent, in the development of gravel in Colorado. In addition, the
Company holds certain real estate and coal deposits in Colorado for development.
The Company is a Utah corporation incorporated in 1969. The Company's
executive offices are located at 4613 Jacksboro Highway, Wichita Falls, Texas
76302. The Company's telephone number is (940) 322-4772.
SUMMARY OF DEVELOPMENTS IN FISCAL 1996, 1997 AND 1998
In fiscal 1996, the Company continued its accelerated exploratory
drilling activity started in the prior fiscal year following the Company's sale
of its principal producing oil and gas leases covering lands in Edwards and
Sutton Counties, Texas and made substantial progress toward its goal of
rebuilding its revenue base by adding significant new proven developed oil and
gas reserves from two separate fields in East Texas. The Company also took
initial steps toward commencing a golf course/residential lots development on
2,020 acres of land owned by the Company adjacent to Durango, Colorado. In
fiscal 1997, the Company developed a substantial portion of the East Texas
reserves, which enabled the Company to return to profitability, and received a
land use permit enabling the Company to commence preliminary site work on the
golf course portion of its Colorado land development. During fiscal 1998, the
Company developed most of the remainder of the East Texas reserves, cleared the
major
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brush off the land for the fairways portion of the golf course and secured the
water rights and applied for the necessary permits to install an irrigation
system for the golf course. Following the end of fiscal 1998, the Company sold
its interest in one of the two East Texas fields. In addition, on May 26, 1998
Noel Pautsky, the Company's parent, principal shareholder and long-time chief
executive officer, died unexpectedly in Durango, Colorado while on Company
business. See "Oil and Gas Operations," and "Real Estate Held for Development"
below and "Item 6. - Management's Discussion and Analysis or Plan of Operation -
Results of Operations" and "Death of Company's Parent, Principal Shareholder and
Chief Executive Officer."
OIL AND GAS OPERATIONS
During fiscal 1998, the Company's oil and gas operations were primarily
conducted in Madison and Limestone Counties of East Texas and in various areas
of North Texas.
The Company's President originates or selects most of the exploration
and development prospects in which the Company participates. See "Item 6. -
Management's Discussion and Analysis or Plan of Operation - Death of Company's
Parent, Principal Shareholder and Chief Executive Officer." Until recent fiscal
years, the Company typically utilized its own funds to acquire oil and gas
leases covering the lands comprising the prospects. The leases were obtained
directly from landowners as well as from lease brokers and other operators not
affiliated with the Company by direct purchase, farmin and option agreements.
The Company then conducted any additional geological and/or geophysical
operations considered appropriate. To share costs, the Company usually sold
interests in the prospects to a limited number of industry participants and
private investors.
In fiscal 1995 through 1998, however, to broaden its exploratory
activity exposure, the Company purchased interests of varying size in a number
of exploration prospects which were originated by others (i.e., independent
geologists or other independent oil and gas companies). These prospects covered
lands in the States of Texas, Nevada, Mississippi, New Mexico and Kansas. In
each case, the originator of the prospect had already assembled the leases and
performed most, if not all, of the necessary geological and/or geophysical work
before the interest in the prospects were offered for sale to the Company. Under
such circumstances, the Company typically paid a percentage of the initial
prospect costs greater than the percentage of ownership interest in the prospect
which the Company acquired. See "Item 2. - Description of Property - Oil and Gas
Properties - Drilling Activity."
On June 2, 1998, the Company completed the sale to
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Mitchell Energy Corporation of all of the Company's interest in its Limestone
County, Texas gas property effective as of March 1, 1998 for approximately
$3,100,000. The Company will invest the funds received from the sale back into
its oil and gas operations and into its golf course/real estate development in
Colorado. See "Item 6. - Management's Discussion and Analysis or Plan of
Operation - Results of Operations" and "Financial Condition and Liquidity."
COAL AND GRAVEL OPERATIONS
The Company's principal coal and only gravel property is the Carbon
Junction mine located on a portion of the 2,020 acres of land owned by the
Company in fee in La Plata County, Colorado. The Company holds a coal mine
permit on 236.9 acres of the property. During fiscal 1998, the Company's gravel
mining permit on approximately 33 acres of the property was transferred to its
lessee, Durango Construction, Inc. ("Durango Construction"). See "Item 2 -
Description of Property - Coal and Gravel Properties." After the Company
obtained an updated appraisal of the coal deposits on the property at the end of
fiscal 1994 which concluded that the deposits had no value, the Company limited
its operations at the Carbon Junction mine in fiscal 1995 through 1998 to
maintenance and regulatory compliance activities, and it will continue to do so
in the future until the coal market improves substantially. The Company
continues to have posted with the State of Colorado a reclamation performance
bond in the amount of $816,526 for its Carbon Junction coal operations. The
current coal mine permit will expire in July 1998, and the Company expects to
renew the permit.
The Company received approximately $58,500 in royalty payments and
rentals during fiscal 1998 from its gravel contract and surface lease entered
into during 1993 with Durango Construction pursuant to which such company is
mining sand, gravel and rock products from the gravel permit area. The contract
and lease have remaining terms of approximately four years, and the terms may be
extended under certain conditions. The right obtained by the Company from
Durango Construction in the contract and lease to purchase gravel, asphalt and
cement at an attractive price should be beneficial to the Company's golf course
site work as well as the development of the real estate infrastructure in fiscal
1999 and 2000.
REAL ESTATE HELD FOR DEVELOPMENT
In fiscal 1998, the Company proceeded with the preliminary site work on
the golf course portion of the golf course/residential lots development it
initiated in fiscal 1996 on approximately 300 acres of the 2,020 acres of land
owned by the Company in La Plata County, Colorado. The land is located
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adjacent to Durango, Colorado along the two principal highways leading into
Durango from the south. The entrance to the land is located approximately 2.5
miles southeast of the City. The land is not currently in the City limits of
Durango but possibly could be annexed in the future.
During fiscal 1996, the draft design for the golf course was prepared.
The Company also retained a local engineering firm to assist it in interacting
with the City of Durango and La Plata County planners responsible for preparing
the City's comprehensive development plan and the City's and County's land use
and development plan for the South corridor area, in representing the Company at
town hall meetings at which the proposed plans were discussed and to begin the
preparation of a master plan for the Company's property. The firm also aided the
Company in preparing and submitting an application to the County for a land use
permit, which was granted in August 1996 with certain conditions attached.
The permit allows preliminary site work only on the golf course, which
will cover approximately 170 of the 300-acre proposed golf course/residential
lots development. Clubhouse, pump and waterline construction and the further
work on the residential lots portion of the development will require the Company
to obtain a revised permit and master plan approval or annexation and approval
by the City. The Company expects to complete its master plan and submit it to
the County for approval during fiscal 1999. The time period to obtain approval
is unknown but could be lengthy. Any annexation of the land by the City could
further extend the time for approval.
The Company had always planned on using its employees and the heavy
earth-moving equipment it acquired for its coal operations to perform as much of
the golf course work as possible. Consequently, after receipt of the permit,
during the remainder of fiscal 1997 the Company repaired such equipment to ready
it for commencement of work on the golf course in fiscal 1998 after the
conclusion of the winter season.
During fiscal 1998, the Company commenced and completed clearing the
major brush off the land and commenced leveling the land for the golf course
fairways. The Company also secured the necessary rights to use water from the
nearby Animas River in the irrigation system to be installed for the golf course
and purchased an additional 10 acres of land adjacent to the Animas River as a
site for the construction of a station to pump the water from the Animas River
through a line to the system. The Company has applied for the permits from the
various federal agencies to construct the pumping station and waterline and
hopes to secure them in time to commence construction of the station, line and
system by September 1998. Fall and winter weather could limit such construction
activities during the remainder of fiscal 1999.
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In addition to such construction, during the remainder of fiscal 1999
the Company will be working on completing the remainder of the fairways,
installing the base part and then completing the remainder of the greens and
installing the necessary electrical power for the golf course. The Company has
not yet prepared definitive cost information for the golf course portion of the
project but expects the total cost, inclusive of the pumping station, waterline
and irrigation system, to be at least $2,000,000 to $2,500,000. The Company
expects to fund such cost from a combination of the sales proceeds from its
Limestone County, Texas gas property, the cash flow from its other oil and gas
properties and the use of its investment securities available for sale. See
"Item 6. - Management's Discussion and Analysis or Plan of Operations -
Financial Condition and Liquidity."
It should continue to be emphasized that, although the Company believes
that it has a good working relationship with the City and County governments, no
assurances can be given that permits for the construction of the pumping station
and waterline and a revised permit allowing work beyond the preliminary site
work for the golf course can be obtained within satisfactory time frames and
without burdensome conditions attached.
COMPETITION AND MARKETS
COMPETITION: A large number of companies and individuals are engaged in
the exploration for oil and gas, and most of the companies so engaged possess
substantially greater technical and financial resources than the Company.
Competition for desirable leases and suitable prospects for oil and gas drilling
operations is intense, and in the past the Company has experienced significant
competition in obtaining the services of drilling contractors and in purchasing
tubular goods and other materials necessary to drill and complete wells. In
recent years, the Company has not experienced any significant difficulties in
obtaining services and materials although the product price increases which
occurred in the industry in fiscal 1997 caused demand for such services and
materials to rise.
The coal and gravel industries are also highly competitive. A principal
competitive factor in both industries is product price. In addition, with
respect to coal, its quality and, in regard to major sales agreements, the
financial and organizational ability of the selling company to meet long-term
coal delivery requirements of utility companies, are important. With regard to
quality of coal, the important criteria include BTU (heating value), sulfur and
ash content. The principal competitive hurdles the Company faces in any future
coal
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operations it conducts are higher production costs resulting from greater
overburden levels, higher transportation costs caused by the lack of railroad
facilities in close proximity to its mine site and the additional costs that
would have to be incurred for its coal to meet acceptable quality standards.
These factors, coupled with the low sale price of coal, have currently
eliminated any value for the Company's coal deposits.
MARKETS: The Company's ability to produce and market oil and gas and
coal profitably depends upon a number of factors which are beyond the control of
the Company, the effect of which cannot be accurately predicted or anticipated.
These factors include the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels and other factors
affecting the availability of a ready market, such as fluctuating supply and
demand. Additional factors affecting the marketing of oil, gas and coal include
imports and actions by foreign producing nations.
During fiscal 1997 and a portion of fiscal 1998, the Company benefitted
from higher oil prices as compared to previous fiscal years. During the fourth
quarter of fiscal 1998, however, oil prices began a downward trend that has
continued into May 1998. As a result, the Company's average oil price received
during fiscal 1998 declined $4.34 per barrel (approximately 19.2%). A
continuation of the oil price environment currently being experienced will have
an adverse effect on the Company's revenues and operating cash flow and could
result in additional decreases in the carrying value of the Company's oil and
gas properties.
The Company's average gas price received also fell $.22 per MCF
(approximately 8.7%) during fiscal 1998 from $2.52 per MCF to $2.30 per MCF.
While certain of the Company's gas properties experience seasonal variations in
demand, the Company was not experiencing any significant curtailment, or an
inability to sell all of its deliverable gas, on an overall basis at February
28, 1998.
The Company will not undertake any efforts to market its coal until it
believes its coal deposits once again have value. All of the Company's gravel
resources are currently being marketed through its contractual arrangements with
Durango Construction.
REGULATION
OIL AND GAS: The production of oil and gas is subject to extensive
federal and state laws, rules, orders and regulations governing a wide variety
of matters, including the drilling and
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spacing of wells, allowable rates of production, prevention of waste and
pollution and protection of the environment. In addition to the direct costs
borne in complying with such regulations, operations and revenues may be
impacted to the extent that certain regulations limit oil and gas production to
below economic levels. The regulations are generally designed to ensure that oil
and gas operations are carried out in a safe and efficient manner and to ensure
that similarly situated operators are provided with reasonable opportunities to
produce their respective fair shares of available oil and gas reserves. Since
these regulations generally apply to all oil and gas producers, the Company
believes that these regulations do not put the Company at a material
disadvantage to other oil and gas producers.
Certain sales, transportation and resales of natural gas by the Company
are subject to both federal and state laws and regulations, including, but not
limited to, the Natural Gas Act (the "NGA"), the Natural Gas Policy Act of 1978
(the "NGPA") and regulations promulgated by the Federal Energy Regulatory
Commission ("FERC") under the NGA, the NGPA and other statutes. The provisions
of the NGA and the NGPA, as well as the regulations thereunder, are complex and
can affect all who produce, resell, transport, purchase or consume natural gas.
Although FERC transportation regulations do not directly apply to the
Company because it is not engaged in rendering jurisdictional transportation
services, these regulations do affect the operations of the Company by virtue of
the need to deliver its gas production to markets served by interstate or
intrastate pipelines.
COAL AND GRAVEL: The Company's coal operations are subject to extensive
regulation under the Surface Mining Control and Reclamation Act of 1977 and the
Colorado law of a similar nature and the Clean Air Act of 1990. The effects of
such regulation have been to increase significantly the lead time to commence
actual surface coal mining operations, to make it more costly for the Company's
coal to be marketed and effectively to limit the customers for the Company's
coal to certain types of power plants. The Company's gravel operations are
subject to comparable regulation, but compliance standards are less rigid.
ENVIRONMENTAL AND HEALTH CONTROLS
The Company's operations are subject to numerous federal, state and
local laws and regulations relating to environmental and health protection.
These laws and regulations require the acquisition of a permit before drilling
commences, restrict the type, quantities and concentration of various substances
that can be released into the environment in connection
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with drilling and production activities, limit or prohibit drilling activities
on certain lands lying within wilderness, wetlands and other protected areas and
impose substantial liabilities for pollution resulting from oil and gas
operations. These laws and regulations may also restrict air or other discharges
resulting from the operation of pipeline systems and other facilities in which
the Company may own an interest. Although the Company believes that compliance
with environmental laws and regulations will not have a material adverse effect
on operations or earnings, risks of substantial costs and liabilities are
inherent in oil and gas operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as stricter environmental laws and regulations or
claims for damages to property or persons resulting from the Company's
operations, could result in substantial costs and liabilities.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's oil and gas operations are subject to all of the risks
normally incident to the oil and gas exploration and production business,
including blowouts, cratering, explosions, pollution and other environmental
damage, any of which could result in substantial losses to the Company due to
injury or loss of life, damage to or destruction of wells, production facilities
and other property, clean-up responsibilities, regulatory investigations and
penalties and suspensions of operations. As is common in the oil and gas
industry, the Company is not fully insured against certain of these risks either
because insurance is not available or because the Company has elected not to
insure due to high premium costs. The Company maintains comparable insurance
coverage for its coal and gravel operations.
EMPLOYEES
As of May 31, 1998, the Company had nine full-time employees and one
part-time employee. Three of the employees and the part-time employee were
located at the Company's executive offices, four were located at the Company's
coal, gravel and real estate development operations office in Durango, Colorado,
and two were field employees located in North Texas. The Company considers its
relations with its employees to be satisfactory. See "Item 6. - Management's
Discussion and Analysis or Plan of Operation - Death of the Company's Parent,
Principal Shareholder and Chief Executive Officer."
ITEM 2. DESCRIPTION OF PROPERTY.
(a) OIL AND GAS PROPERTIES.
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RESERVES
Reference is made to supplemental oil and gas data "Oil and Gas
Information (Unaudited)" included in the Notes to Financial Statements for
additional information concerning: (i) certain cost and revenue information
pertaining to the Company's oil and gas producing activities; (ii) estimates of
the Company's oil and gas reserves and changes in such reserves; and (iii) a
standardized measure of the discounted future net cash flows from the Company's
oil and gas reserves and the changes in such standardized measure. The
engineering report with respect to the Company's proved oil and gas reserves as
of February 28, 1998 was prepared by Stephens Engineering, independent petroleum
engineers, Wichita Falls, Texas ("Stephens Engineering"). At such date, all of
the Company's oil and gas reserves were located in the United States and in the
States of Texas, Mississippi, Colorado and New Mexico.
No reserve reports pertaining to the Company's proved net oil or gas
reserves were filed with any Federal governmental authority or agency during the
fiscal year ended February 28, 1998, and no major discovery is believed to have
caused a significant change in the Company's estimates of proved reserves since
that date.
The following table reflects Stephens Engineering's estimate of those
quantities of oil and gas which can be produced from the Company's proved
developed reserves as of February 28, 1998 during the fiscal year ending
February 28, 1999, using equipment installed and under economic and operating
conditions existing at February 28, 1998:
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Oil (Bbls.).............. 81,178
Gas (MCF)................ 288,051
</TABLE>
The Company is not obligated to provide a fixed and determinable quantity of oil
and gas in the future under any of its existing contracts or arrangements.
PRODUCTION
The following table shows for each of the three fiscal years ended
February 28, 1998 the total production attributable to the Company's oil and gas
interests:
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<CAPTION>
FISCAL YEAR ENDED OIL GAS
FEBRUARY 28/29 (BBLS.) (MCF)
- ----------------- ------- -------
<S> <C> <C>
1998................... 147,911 437,064
1997................... 64,868 389,756
1996................... 19,920 99,396
</TABLE>
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LIFTING COSTS AND AVERAGE SALES PRICES
The Company's production (lifting) costs and average sales prices
received during each of the three fiscal years ended February 28, 1998 were as
shown in the following table:
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<CAPTION>
FISCAL YEAR
ENDED FEBRUARY 28/29
1998 1997 1996
---- ---- ----
Lifting Costs
- -------------
<S> <C> <C> <C>
Per Equivalent Unit (Bbls.) $ 3.36 $ 3.03 $ 5.79
Average Sales Prices
- --------------------
Oil (per Bbl.) ............ 18.28 22.62 17.23
Gas (per MCF) ............. 2.30 2.52 1.84
</TABLE>
SALES CONTRACTS AND MAJOR CUSTOMERS
The Company does not own any refining facilities and sells its oil
under short-term contracts at f.o.b. field prices posted by the principal
purchasers of oil in the areas in which the Company's producing properties are
located. During the fiscal year ended February 28, 1998, approximately 46% of
the Company's oil sales were made to Scurlock Permian Corporation and
approximately 46% were made to Plains Marketing & Transportation.
During the fiscal year ended February 28, 1998, approximately 64% of
the Company's gas sales were from its Limestone County, Texas property. 57% of
the Company's total gas sales were made from this property on the spot market to
Texla Energy Management, Inc. See "Item 1. - Description of Business - Oil and
Gas Operations" and "Item 6. - Management's Discussion and Analysis or Plan of
Operation." An additional 32% of the Company's gas sales were from its Madison
County, Texas property. All of this production was sold on the spot market to
Enserch Energy Service, Inc. (19% of total gas sales) and to Scurlock Permian
Corporation (13% of total gas sales).
In the opinion of management, the termination of any of
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the Company's sales contracts would not adversely affect the Company's ability
to sell its oil and gas production at comparable prices.
DEVELOPED ACREAGE AND PRODUCTIVE WELLS
As of February 28, 1998, the Company owned working and overriding
royalty interests in 15,128 gross (3,303 net) acres of developed oil and gas
leases and 94 gross (28.09 net) productive oil and gas wells.
The following table summarizes the Company's developed acreage and
productive wells as of February 28, 1998:
<TABLE>
<CAPTION>
Developed Acreage(1) Productive Wells(1)(3)
----------------------------- -----------------------
Gross(2) Net(2) Gross(2) Net(2)
------------ ----------- -------- -----------
Oil Gas Oil Gas Oil Gas Oil Gas
--- --- --- --- --- --- --- ---
Texas:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Madison Co. ......... 4,200 -- 1,050 -- 26 -- 6.50 --
Limestone Co(4) ..... -- 6,212 -- 743 -- 18 -- 1.70
All Other Cos........ 2,321 1,753 1,269 137 37 9 18.90 .47
Mississippi ........... 40 -- 1 -- 1 -- .01 --
Colorado .............. -- 242 -- 4 -- 1 -- .02
New Mexico ............ 40 320 8 91 1 1 .20 .29
----- ----- ----- --- -- -- ----- ----
Total ........ 6,601 8,527 2,328 975 65 29 25.61 2.48
===== ===== ===== === == == ===== ====
</TABLE>
- ------------
(1) Reversionary interests which may increase or decrease the interest
shown have been disregarded for purposes of this table.
(2) "Gross," as it applies to acreage or wells, refers to the number of
wells or acres in which an interest is owned by the Company. "Net," as
it applies to acreage or wells, refers to the sum of the fractional
ownership interests owned by the Company in gross wells or gross acres.
(3) Includes 10 gross (2.65 net) shut-in wells.
(4) Effective as of March 1, 1998, the Company sold all of its interest in
this acreage and wells. See "Item 1. - Description of Business - Oil
and Gas Operations" and "Item 6. - Management's Discussion and Analysis
or Plan of Operation."
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UNDEVELOPED ACREAGE
The following table shows the gross and net acres of undeveloped oil
and gas leases held by the Company at February 28, 1998:
<TABLE>
<CAPTION>
STATE GROSS ACRES NET ACRES
----- ----------- ---------
<S> <C> <C>
Texas....................... 8,591 1,928
Arkansas.................... 2,428 1,214
Kansas...................... 1,280 256
------ ------
Total...... 12,299 3,398
====== ======
</TABLE>
All of the Company's undeveloped leases in the State of Arkansas cover
lands located in Miller County, and all of such leases in the State of Kansas
pertain to lands located in Greeley County. In the absence of drilling activity
which establishes commercial reserves sufficient to justify retention, the
Company's leases on approximately 16% of its net acres will expire in fiscal
1999, approximately 27% will expire in fiscal 2000, approximately 10% will
expire in fiscal 2001, 1% will expire in fiscal 2002 and 10% will expire in
fiscal 2003. The remaining 36% of the Company's undeveloped acreage, including
all of such acreage in the State of Arkansas, is currently held in force by
production from shallow depth horizons in which the Company has no ownership
interest.
DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling
activity for each of the three fiscal years ended February 28, 1998:
<TABLE>
<CAPTION>
Exploratory Wells
----------------------------------------------------
Fiscal Year Gross Net
Ended ------------------------ -------------------------
February 28/29 Productive Dry Total Productive Dry Total
--------------- ---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
1996........... 2 8 10 .46 2.45 2.91
1997........... 3 3 6 .50 .68 1.18
1998........... 3 2 5 .38 .45 .83
---- ---- ---- ---- ---- ----
Total..... 8 13 21 1.34 3.58 4.92
==== ==== ==== ==== ==== ====
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
Development Wells
----------------------------------------------------
Fiscal Year Gross Net
Ended ------------------------ -------------------------
February 28/29 Productive Dry Total Productive Dry Total
--------------- ---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
1996........... 7 - 7 1.58 - 1.58
1997........... 20 - 20 3.47 - 3.47
1998........... 15 1 16 2.94 .25 3.19
---- ---- ---- ---- ---- ----
Total..... 42 1 43 7.99 .25 8.24
==== ==== ==== ==== ==== ====
</TABLE>
As of February 28, 1998, the Company was in the process of drilling two gross
(.38 net) development wells.
(b) COAL AND GRAVEL PROPERTIES.
As of February 28, 1998, the Company had 3,156 (1,787 net) acres of
coal leases as described in the following table:
<TABLE>
<CAPTION>
GROSS ACRES NET ACRES
----------- ---------
<S> <C> <C>
Colorado:
La Plata Co.(1)............. 1,825 456
Routt Co.(2)................ 1,331 1,331
----- -----
Total.............. 3,156 1,787
===== =====
</TABLE>
- ------------
(1) The lease was acquired in October 1990 and has a remaining primary term
of approximately 17 years. No annual delay rentals or advance minimum
royalties are required. See discussion following this table.
(2) The lease was acquired in January 1991 and has a remaining primary term
of approximately three years with annual delay rentals of $1 per acre
and advance minimum royalties of $10 per acre.
The Company's Carbon Junction coal mine is located upon the 1,825 acres
in La Plata County, Colorado described in the foregoing table. The renewal mine
permit issued by the State of Colorado for such coal mine pertains to
approximately 237 acres out of such 1,825 acres. The leases described in note
(1) to the table cover a 25% interest in the coal under the 1,825 acres. The
Company owns the surface estate and a 75% interest in the coal and has the
executive rights (i.e., the exclusive right to sign coal leases) on the
remaining 25% interest in the coal.
In 1991, the Company purchased the surface estate, a 75% interest in
the coal and the executive rights to the remaining 25% interest in the coal of
200 additional acres in La Plata County adjacent to the 1,825 acre tract. The
Company has not yet elected to obtain a lease on the remaining 25% interest in
the coal. By virtue of its fee and lease ownership and the executive rights it
holds, the Company controls 100% of the above described 1,825 acre and 200 acre
tracts. The Company has no current plans to attempt to operate the Carbon
Junction coal mine.
13
<PAGE> 17
The Company also owns 55% of the gravel, oil, gas and other mineral
rights with respect to the 1,825 acre tract in La Plata County, Colorado and has
the executive rights on the remaining 45%. During fiscal 1998, the Company's
permit from the State of Colorado to mine gravel from 33 acres on such tract was
transferred to Durango Construction, which is currently mining sand, gravel and
rock products from the permit area pursuant to its contract and lease with the
Company. See "Item 1. - Description of Business - Coal and Gravel Operations."
(c) REAL ESTATE.
The surface of the 2,025 acres of land in La Plata County, Colorado
described in "Coal and Gravel Properties" above is held for development by the
Company. Approximately 300 acres of such land is the subject of a golf
course/residential lots development by the Company. During fiscal 1998, the
Company purchased an additional 10 acres of land for use in the development but
donated approximately 15 acres of land to La Plata County for use as trails,
thereby reducing the total acreage in the development to 2,020 acres. See "Item
1.- Description of Business - Real Estate Held for Development."
(d) OFFICE BUILDING.
The Company owns a one-story office building situated at 4613 Jacksboro
Highway in Wichita Falls, Texas in which its executive offices are located. The
building is located on .519 acres of land and contains 5,117 square feet of
space.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending litigation. To the best
knowledge of the Company, there are no legal proceedings to which any director,
officer or affiliate of the Company, any owner of record or beneficially of more
than five percent (5%) of any class of voting securities of the Company, or any
associate of any such director, officer or security holder is a party adverse to
the Company or has a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
ended February 28, 1998 to a vote of the Company's security holders, through the
solicitation of proxies or otherwise.
14
<PAGE> 18
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, $.04 par value, is traded in the
over-the-counter market. The following table shows the range of bid quotations
for the common stock during the two fiscal years ended February 28, 1998 by
quarters. Such quotations were furnished to the Company by the National
Quotation Bureau Incorporated and were from the National Daily Quotation Service
and the NASD Non-NASDAQ OTC Bulletin Board. The quotations represent prices
between dealers and do not include retail markups, markdowns or commissions and
do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
Fiscal Year Ended February 28, 1997:
Quarter Ended May 31, 1996 $ 2.13 $ 1.75
Quarter Ended August 31, 1996 2.13 2.00
Quarter Ended November 30, 1996 2.00 2.00
Quarter Ended February 28, 1997 2.25 2.00
Fiscal Year Ended February 28, 1998:
Quarter Ended May 31, 1997 $ 2.50 $ 2.00
Quarter Ended August 31, 1997 2.75 2.50
Quarter Ended November 30, 1997 2.88 2.13
Quarter Ended February 28, 1998 2.88 2.75
</TABLE>
As of May 22, 1998, the approximate number of holders of record of the
common stock of the Company was 524.
The Company did not pay any dividends during the two fiscal years ended
February 28, 1998. There are currently no restrictions upon the Company's
ability to pay dividends; however, the Company does not anticipate paying any
dividends in fiscal 1999.
The Company did not make any sales of equity securities during the two
fiscal years ended February 28, 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
15
<PAGE> 19
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto included in Item 7.
RESULTS OF OPERATIONS
During the fiscal year ended February 28, 1998, the Company had net
income of $410,791 ($.08 per share) compared to net income of $499,432 ($.10 per
share) during the fiscal year ended February 28, 1997. Although the Company's
oil and gas revenues and income from operations both increased substantially in
fiscal 1998, a lower level of interest and dividend income, a writedown of the
carrying value of the Company's equity investment securities and a higher tax
burden resulted in lower net income than in fiscal 1997.
Oil and gas revenues increased approximately $1,347,000 (54.9%) in
fiscal 1998 due to higher production levels from the Company's Madison County,
Texas property. The following table reflects the changes in the levels of sales
from the Madison County property between fiscal 1997 and 1998:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998 INCREASE PERCENTAGE
----------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Oil (Bbls.) 48,272 133,897 85,625 +177%
Gas (MCF) 20,596 138,424 117,828 +572%
</TABLE>
During the last quarter of fiscal 1998, the Company drilled two gross (.50 net)
wells in Madison County, both of which were productive. At February 28, 1998,
the Company had 26 gross (6.50 net) productive wells in Madison County.
The increase in oil and gas revenues during fiscal 1998 was
accomplished despite significantly lower average prices received by the Company
as compared to fiscal 1997. The Company's average oil and gas prices received in
the fiscal year ended February 28, 1998 were $18.28 per barrel of oil and $2.30
per MCF of gas, down from the $22.62 per barrel and $2.52 per MCF average prices
received in fiscal 1997. The impact of lower prices was most severe during the
fourth quarter of fiscal 1998 as the Company's average oil price received fell
to $16.20 per barrel, down $7.24 per barrel (30.8%) from the comparable fiscal
1997 quarter, and its average gas price received declined approximately 29.8%.
The lower prices, coupled with a decline in production from the Company's
Limestone County, Texas gas property, as compared to the quarter of the prior
fiscal year, caused oil and gas revenues to decrease approximately $341,000, or
30.2%, in the fourth quarter of fiscal 1998. With respect to the Madison County
property, although oil production increased approximately 6,300
16
<PAGE> 20
barrels (26.6%), revenues from the property were approximately $67,300 less
during the quarter due to the lower oil price received.
The lower prices also had an adverse effect on the Company's proven oil
and gas reserves and their carrying value, as estimated by independent petroleum
engineers at fiscal 1998 yearend, and have continued to hold down revenues
during the first quarter of fiscal 1999. Fiscal 1999 oil and gas production
revenues will also be negatively impacted by the Company's sale of its Limestone
County gas property, which produced approximately 305,200 MCF of gas and
contributed gas revenues of approximately $690,200 (18.2% of total revenues)
during fiscal 1998. Although the Company intends to invest at least a portion of
the funds received from the sale back into its oil and gas operations, there can
be no assurance that the Company will be able to replace the Limestone County
property's contribution to revenues.
Revenues from the Company's gravel operations in Colorado increased
approximately $3,500 (6.3%) in fiscal 1998 due to higher royalty income
resulting from a higher level of gravel sales by Durango Construction from the
Company's property as rentals received from the Company's surface lease with
such company were the same in both fiscal years. Other revenues in fiscal 1997
and 1998 consisted of overhead fees received by the Company from other interest
owners in the oil and gas properties located in the North Texas area for which
the Company serves as operator. Other revenues declined $3,900 in fiscal 1998
due to the continued reduction in the average number of active wells being
operated by the Company.
Oil and gas operating expenses increased approximately $532,400 (28.3%)
in fiscal 1998 due to higher depletion and depreciation and lease operating
expenses and dry hole and abandonment charges. These increases were partially
offset by a much lower lease impairment charge and lower geological and
geophysical (i.e., exploration) expense during the year. As was the case in
fiscal 1997, a significant portion of the increased depletion and depreciation
and lease operating expenses was directly related to the greater level of oil
and gas revenues from the Madison County and Limestone County properties;
however, an additional approximate $100,700 of the depletion and depreciation
expense was related to a new well in Freestone County, Texas to which the
independent petroleum engineering firm did not assign any proven reserves at
February 28, 1998. Dry hole expense was approximately $18,700 lower in fiscal
1998 but an approximate $107,000 charge for abandoned or condemned leaseholds on
exploratory prospects in New Mexico and Kansas caused the combined dry hole and
abandonment charges for fiscal 1998 to increase by approximately $88,300 (32.8%)
as the Company did not incur any expense for abandoned leaseholds in fiscal
1997.
17
<PAGE> 21
The expenses of the Company's coal and gravel operations declined
approximately $10,800 (7.4%) during fiscal 1998 as lower testing and permitting
fees and advance royalties more than offset slightly higher mining fees and
engineering expenses. Real estate development expense increased approximately
$43,600 (85.7%) in fiscal 1998 mainly due to repair expense incurred on the
Company's earth moving equipment being used on the golf course the Company is
building on approximately 170 acres of the Company's 2,020 acres of land in La
Plata County, Colorado and increases in most other categories of such expense.
The Company expects real estate development expenses to continue to increase as
the golf course site work progresses.
General and administrative expense increased approximately $46,200
(10.3%) in fiscal 1998 principally due to the value of approximately 15 acres of
the Company's land donated during the fourth quarter of the year by the Company
to La Plata County, Colorado for use as trails. Without such donation, general
and administrative expense would have been slightly lower in fiscal 1998 as the
increased expense of the annual independent petroleum engineering report
obtained with respect to the Company's proven oil and gas reserves and an
increase in bad debt expense offset lower payroll expense, the absence during
the year of any litigation expense and any administrative expenses associated
with the Company's coal and gravel properties.
Reversing a trend of recent years, other income (expense) became a net
expense item once again, changing from an approximate $557,400 income item in
fiscal 1997 to an approximate $59,600 expense item in fiscal 1998, a reversal of
approximately $617,000. The reversal was due to an approximate $240,700 (56.3%)
decline in interest and dividend income resulting from the lower level of funds
the Company had invested during the year, the absence during the year of any
gain on the sale of investment securities available for sale (as opposed to an
approximate $136,700 gain in fiscal 1997) and an approximate $262,100 writedown
of the carrying value of the Company's investment in an equity security, which
was made following a decline in the fair value of the security considered to be
other than temporary. Interest expense fell approximately $54,900 (82.9%) during
fiscal 1998, however, due to the lower level of margin account borrowings
against its investment securities available for sale used by the Company during
the year as compared to the prior year.
The Company's provision for income taxes increased by approximately
$206,200 in fiscal 1998 due to the Company's higher level of income before
income taxes. The provision was approximately $52,100 higher than the
"expected" provision primarily due to the effect of state and local income taxes
and the capital gains rate.
18
<PAGE> 22
The Company's weighted average shares outstanding declined
approximately 3.0% during the fiscal year ended February 28, 1998 as a result of
continuing share purchases by the Company. Purchases during the year totaled
211,750 shares, 61,250 of which were made from an affiliate and an employee. The
balance of the shares purchased by the Company in fiscal 1997 and 1998 was from
unaffiliated shareholders. See "Death of Company's Parent, Principal Shareholder
and Chief Executive Officer," below.
FINANCIAL CONDITION AND LIQUIDITY
During fiscal 1998, the Company's operating activities provided
approximately $2,937,000 in funds. Although the Company's investing activities
(principally additions to oil and gas properties and to real estate held for
development, reduced by net investment proceeds) and financing activities
(purchases of shares of the Company's stock) required approximately $1,617,500
and $638,100 in funds, respectively, the net result was that the Company's cash
and cash equivalents increased by approximately $681,400. At February 28, 1998,
the Company had no indebtedness and held investment securities aggregating
approximately $1,963,700.
The Company expects to fund its contemplated operations in fiscal 1999
from a combination of the sale proceeds from its Limestone County, Texas gas
property, the cash flow from its other oil and gas properties and sales or
maturities of a portion of its investment securities available for sale or
margin account borrowings against their value. See "Death of Company's Parent,
Principal Shareholder and Chief Executive Officer," below.
DEATH OF COMPANY'S PARENT, PRINCIPAL SHAREHOLDER
AND CHIEF EXECUTIVE OFFICER
Noel Pautsky, the Company's parent, principal shareholder and chief
executive officer, died unexpectedly on May 26, 1998 in Durango, Colorado while
on Company business. Mr. Pautsky had been the mainstay of the Company's
operations for 25 years and his contributions to the Company will be greatly
missed.
Sandra Pautsky, the Company's Executive Vice President and the
beneficial owner of approximately 30% of the Company's outstanding shares of
common stock, will act as chief executive officer until the Company's Board of
Directors meets at a future date to select Mr. Pautsky's successor. Ms. Pautsky
will be responsible for the administration of Mr. Pautsky's estate as
independent executrix. In such capacity and combined with her existing
ownership, Ms. Pautsky will be the beneficial owner of a majority of the
Company's outstanding shares of common stock.
19
<PAGE> 23
It is expected that the Company will continue with its existing
business operations with Ms. Pautsky taking over the responsibility for
overseeing the Company's golf course/real estate development in Colorado and
administrative duties and with Danny Croker, the Company's Vice President,
taking over the responsibility for the Company's oil and gas operations.
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 21
Balance Sheets as of February 28, 1998 and 1997 22
Statements of Operations for the years ended
February 28, 1998 and 1997 24
Statements of Stockholders' Equity for the
years ended February 28, 1998 and 1997 25
Statements of Cash Flows for the years ended
February 28, 1998 and 1997 26
Notes to Financial Statements 27
</TABLE>
20
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Oakridge Energy, Inc.:
We have audited the accompanying balance sheets of Oakridge Energy, Inc. (the
Company) as of February 28, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oakridge Energy, Inc. as of
February 28, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
May 8, 1998, except as to note 7
which is as of June 4, 1998
21
<PAGE> 25
OAKRIDGE ENERGY, INC.
Balance Sheets
February 28, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 877,006 $ 195,631
Trade accounts receivable 386,353 836,563
Investment securities available for sale (note 2) 1,637,047 1,399,344
Federal income tax receivable -- 230,602
Deferred tax asset (note 3) 81,729 44,303
Prepaid expenses and other 36,117 32,331
------------ ------------
Total current assets 3,018,252 2,738,774
------------ ------------
Investment securities available for sale (note 2) 326,667 1,347,663
Oiland gas properties, at cost, using the successful efforts method of
accounting:
Proved developed properties 7,336,399 5,821,814
Accumulated depletion and depreciation (3,863,223) (2,864,407)
------------ ------------
3,473,176 2,957,407
Unproved properties, net of impairment allowance of
$70,296 in 1998 and $134,957 in 1997 261,728 222,877
------------ ------------
Net oil and gas properties 3,734,904 3,180,284
------------ ------------
Coal and gravel properties, at cost:
Undeveloped properties 6,062,042 6,060,710
Mining and service equipment 2,674,069 2,674,069
------------ ------------
8,736,111 8,734,779
Accumulated depletion and depreciation (8,347,878) (8,330,649)
------------ ------------
Net coal and gravel properties 388,233 404,130
------------ ------------
Real estate held for development 2,474,309 2,275,977
Other property and equipment, net of accumulated
depreciation of $647,603 in 1998 and $733,429 in 1997 188,876 172,611
Other noncurrent assets (note 6) 1,272,354 1,240,937
------------ ------------
$ 11,403,595 $ 11,360,376
============ ============
</TABLE>
(Continued)
22
<PAGE> 26
OAKRIDGE ENERGY, INC.
Balance Sheets, Continued
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 281,209 $ 239,906
Accrued expenses 59,194 56,008
------------ ------------
Total current liabilities 340,403 295,914
Deferred federal income taxes (note 3) 722,299 481,238
------------ ------------
Total liabilities 1,062,702 777,152
------------ ------------
Stockholders' equity:
Common stock, $.04 par value, 20,000,000
shares authorized, 10,157,803 shares issued 406,312 406,312
Additional paid-in capital 805,092 805,092
Retained earnings 17,599,170 17,188,379
Unrealized loss on investment securities
available for sale, net of income taxes (100,993) (86,002)
------------ ------------
18,709,581 18,313,781
Less treasury stock, at cost; 5,286,194 shares
in 1998 and 5,074,444 shares in 1997 (note 5) (8,368,688) (7,730,557)
------------ ------------
Total stockholders' equity 10,340,893 10,583,224
Commitments and contingencies (note 6)
------------ ------------
$ 11,403,595 $ 11,360,376
============ ============
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 27
OAKRIDGE ENERGY, INC.
Statements of Operations
For the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Oil and gas (note 4) $ 3,798,393 $ 2,451,839
Gravel 58,497 55,023
Other 42,600 46,500
------------ ------------
Total revenues 3,899,490 2,553,362
------------ ------------
Operating expenses:
Oil and gas:
Depletion and depreciation 1,194,220 752,935
Lease operating 781,874 437,770
Lease impairment (notes 1(d) and 1(h)) 35,500 355,274
Exploration 45,967 67,444
Dry hole and abandonment costs 357,786 269,515
------------ ------------
2,415,347 1,882,938
------------ ------------
Coal and gravel:
Operating 117,357 130,718
Depletion 17,229 14,641
------------ ------------
134,586 145,359
------------ ------------
Real estate 94,492 50,896
General and administrative 494,023 447,774
------------ ------------
Total operating expenses 3,138,448 2,526,967
------------ ------------
Income from operations 761,042 26,395
------------ ------------
Other income (expense):
Interest and dividend income 186,905 427,599
Interest expense (11,359) (66,230)
Gain on sales of investment securities -- 136,681
Writedown of investment securities and other, net (note 2) (235,168) 59,382
------------ ------------
Total other income (expense) (59,622) 557,432
------------ ------------
Income before income taxes 701,420 583,827
Income tax expense (note 3) 290,629 84,395
------------ ------------
Net income $ 410,791 $ 499,432
============ ============
Basic and diluted earnings per common share $ .08 $ .10
============ ============
Weighted average shares outstanding 4,957,329 5,108,733
============ ============
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 28
OAKRIDGE ENERGY, INC.
Statements of Stockholders' Equity
For the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on investment
Additional securities
Common paid-in Retained available Treasury
stock capital earnings for sale stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1996 $ 406,312 $ 805,092 $16,688,947 $ 98,833 $(7,626,559) $10,372,625
Net income -- -- 499,432 -- -- 499,432
Purchases of treasury stock -- -- -- -- (103,998) (103,998)
Change in unrealized gains
(losses) on investment
securities available for
sale, net of $95,218
deferred Federal income
taxes (note 2) -- -- -- (184,835) -- (184,835)
----------- ----------- ----------- ----------- ----------- -----------
Balance, February 28, 1997 406,312 805,092 17,188,379 (86,002) (7,730,557) 10,583,224
Net income -- -- 410,791 -- -- 410,791
Purchases of treasury stock
(note 5) -- -- -- -- (638,131) (638,131)
Change in unrealized losses
on investment securities
available for sale, net of
deferred Federal
income taxes (note 2) -- -- -- (14,991) -- (14,991)
----------- ----------- ----------- ----------- ----------- -----------
Balance, February 28, 1998 $ 406,312 $ 805,092 $17,599,170 $ (100,993) $(8,368,688) $10,340,893
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 29
OAKRIDGE ENERGY, INC.
Statements of Cash Flows
For the years ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 410,791 $ 499,432
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depletion and depreciation 1,245,979 798,739
Abandoned leaseholds 107,055 --
Lease impairment 35,500 355,274
Deferred income taxes 188,644 246,082
Gain on sales of investment securities -- (136,681)
Write-down of investment securities 262,087 --
Other (48,636) (71,433)
Net changes in assets and liabilities:
Trade accounts receivable 450,210 (476,519)
Prepaid expenses and other noncurrent assets 10,272 12,417
Federal income tax receivable 230,602 298,016
Accounts payable and accrued expenses 44,489 (133,666)
------------ ------------
Net cash provided by operating activities 2,936,993 1,391,661
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (1,891,395) (2,344,497)
Additions to real estate held for development (218,856) (147,323)
Purchases of investment securities (152,156) (1,008,685)
Proceeds from sales/redemptions of investment securities 690,000 2,699,349
Investments in limited partnerships (45,475) (337,362)
Other 395 2,186
------------ ------------
Net cash used in investing activities (1,617,487) (1,136,332)
------------ ------------
Cash flows from financing activities - purchases of treasury stock (638,131) (103,998)
------------ ------------
Net increase in cash and cash equivalents 681,375 151,331
Cash and cash equivalents at beginning of year 195,631 44,300
------------ ------------
Cash and cash equivalents at end of year $ 877,006 $ 195,631
============ ============
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 30
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
February 28, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) General
Oakridge Energy, Inc. (the "Company") is engaged in the
exploration for and development, production and sale of oil and
gas primarily in Texas and, to a much lesser extent, in the
development of gravel in Colorado. In addition, the Company holds
certain real estate and coal deposits in Colorado for
development.
(b) Statements of Cash Flows
Cash equivalents of $418,000 and $29,000 at February 28, 1998 and
1997, respectively, consisted of interest-bearing cash deposits.
For purposes of the statements of cash flows, the Company
considers all cash and highly liquid investments with original
maturities of three months or less to be cash equivalents.
Supplemental disclosure of cash flow information:
1998 1997
---- ----
Interest paid $ 11,359 $ 66,230
========== ========
Income taxes paid (refund), net $(159,802) $ 68,915
========= ========
(c) Investment Securities
Investment securities consist of U.S. Government agency bonds and
corporate debt and equity securities. The Company's investments
are classified at the time of purchase into one of three
categories as follows:
o Held to Maturity Securities - Debt securities that the Company
has the positive intent and ability to hold to maturity are
reported at amortized cost, adjusted for the amortization or
accretion of premiums and discounts.
o Trading Securities - Debt and equity securities that are
bought and held principally for the purpose of selling them in
the near term are reported at fair value, with unrealized
gains and losses included in earnings.
o Available for Sale Securities - Debt and equity securities not
classified as either held to maturity securities or trading
securities are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate
component of stockholders' equity (net of tax effects).
The Company does not have any securities classified as held to
maturity or trading as of February 28, 1998 and 1997.
27
<PAGE> 31
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
A decline in the market value of any available for sale or held
to maturity security below cost that is deemed to be other than
temporary results in a reduction of the carrying amount to fair
value. The impairment is charged to earnings and a new cost basis
for the security is established. Premiums and discounts are
amortized or accreted over the life of the related held to
maturity security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when
earned. Gains and losses from sale of investment securities are
computed under the specific identification method.
(d) Oil and Gas Properties
The Company uses the successful efforts method of accounting for
oil and gas producing activities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 19. Costs to acquire
mineral interests in oil and gas properties, to drill exploratory
wells that find proved reserves, and to drill and equip
development wells are capitalized. Geological and geophysical
costs, costs to drill exploratory wells that do not find proved
reserves, and nonproducing leasehold abandonments are expensed as
incurred.
Unproved oil and gas properties which are individually
significant are periodically assessed for impairment of value and
a loss is recognized at the time of impairment by providing an
impairment allowance. During the year ended February 28, 1997, an
impairment allowance of $134,957 was recorded on certain unproved
oil and gas properties. During the year ended February 28, 1998,
the Company reduced its impairment allowance to $70,296. Other
unproved properties are amortized based on the Company's prior
experience of successful drilling and average holding periods.
Capitalized costs of producing oil and gas properties are
depleted and depreciated by the units-of-production method based
on proved oil and gas reserves as estimated by an independent
petroleum reservoir engineering firm.
Upon sale or retirement of a proved property, the cost and
related accumulated depletion and depreciation are eliminated
from the property accounts, and any resulting gain or loss is
recognized.
(e) Coal and Gravel Properties
Costs attributable to the acquisition and development of the coal
properties are capitalized, while costs incurred to maintain the
properties are expensed. Undeveloped coal properties which are
individually significant are periodically assessed for impairment
of value and a loss is recognized at the time of impairment by
providing an impairment allowance. Capitalized costs of producing
properties are depleted on a property-by-property basis using the
units-of-production method.
Depreciation on mining and service equipment is calculated using
accelerated and straight-line methods over the estimated useful
lives of the assets. Upon sale or abandonment, the cost of the
equipment and related accumulated depreciation are removed from
the accounts and any gains or losses thereon are recognized.
28
<PAGE> 32
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(f) Real Estate Held for Development
Real estate held for development is carried at cost, which is not
in excess of estimated net realizable value. Real estate
development and construction costs directly identifiable with
real estate held for development are capitalized.
(g) Other Property and Equipment
Depreciation on other property and equipment is calculated using
accelerated and straight-line methods over the estimated useful
lives of the assets. Upon sale or abandonment, the cost of the
equipment and related accumulated depreciation are removed from
the accounts and any gains or losses thereon are recognized.
(h) Impairment of Long-Lived Assets
Effective March 1, 1996, the Company adopted the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("Statement No.
121"). Statement No. 121 requires long-lived assets and certain
identifiable intangibles to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. When it is determined
that an asset's estimated future net cash flows will not be
sufficient to recover its carrying amount, an impairment loss
must be recorded to reduce the carrying amount to its estimated
fair value.
Under Statement No. 121, the Company evaluates impairment of
proved oil and gas properties on a field-by-field basis. On this
basis, certain fields are impaired because they are not expected
to recover their entire carrying value from future net cash
flows. During the years ended February 28, 1998 and 1997, the
Company recorded impairment losses of $35,500 and $220,317,
respectively, related to its proved oil and gas properties. The
fair values of the impaired proved oil and gas properties were
determined by using the present value of expected future cash
flows. If estimated future cash flows are not achieved with
respect to certain fields, further writedowns may be required.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date. In addition, a valuation allowance is established to reduce
any deferred tax asset for which it is determined that it is more
likely than not that some portion of the deferred tax asset will
not be realized.
29
<PAGE> 33
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(j) Earnings Per Common Share
The Company adopted the provisions of SFAS No. 128, "Earnings per
Share", during 1998. SFAS No. 128 reporting requirements replace
primary and fully-diluted earnings per share (EPS) with basic and
diluted EPS. Basic EPS is calculated by dividing net income
(available to common shareholders) by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if accounts or other
contracts to issue common stock were converted into common stock.
There were no dilutive securities for 1998 and 1997.
(k) Revenue Recognition
The Company recognizes revenue on oil and gas properties as
produced based on contracted or estimated sales prices. Estimated
revenue is subject to adjustments based on final settlement. Such
adjustments are reflected in revenue when received.
(l) Investment in Partnerships
The Company uses the equity method of accounting for investments
in partnerships where the Company has the ability to exercise
significant influence over such entities.
(m) Fair Value of Financial Instruments
In accordance with the reporting requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," the
Company calculates the fair value of its assets and liabilities
which qualify as financial instruments under this statement and
includes this additional information in the notes to the
financial statements when the fair value is different than the
carrying value of those financial instruments.
(n) Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect (i) the reported
amounts of assets and liabilities, (ii) disclosure of contingent
assets and liabilities at the date of the financial statements,
and (iii) the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
(o) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related
Information". SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in
financial statements. SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic
areas and major customers. Adoption of these statements will not
impact the Company's financial position, results of operations or
cash flows, and any effect will be limited to the form and
content of its disclosures. Both statements are effective for
fiscal years beginning after December 15, 1997.
30
<PAGE> 34
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
(2) Investment Securities
The amortized cost and fair values of investment securities (available
for sale) as of February 28, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Equity securities $ 747,010 -- (136,263) 610,747
Corporate notes 1,020,844 5,456 -- 1,026,300
---------- ---------- ---------- ----------
Total current 1,767,854 5,456 (136,263) 1,637,047
---------- ---------- ---------- ----------
Noncurrent:
U.S. Government
agency bonds, due
within 5 years 222,016 3,265 -- 225,281
Corporate notes,
due within 5 years 100,087 1,299 -- 101,386
---------- ---------- ---------- ----------
Total noncurrent 322,103 4,564 -- 326,667
---------- ---------- ---------- ----------
Total $2,089,957 10,020 (136,263) 1,963,714
========== ========== ========== ==========
</TABLE>
The amortized cost and fair values of investment securities (available
for sale) as of February 28, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Equity securities $ 861,006 -- (153,818) 707,188
Corporate notes 686,573 5,583 -- 692,156
---------- ---------- ---------- ----------
Total current 1,547,579 5,583 (153,818) 1,399,344
---------- ---------- ---------- ----------
Noncurrent:
U.S. Government
agency bonds,
due within 5 years $ 219,914 4,735 -- 224,649
Corporate notes,
due within 5 years 1,109,820 13,194 -- 1,123,014
---------- ---------- ---------- ----------
Total noncurrent 1,329,734 17,929 -- 1,347,663
---------- ---------- ---------- ----------
Total $2,877,313 23,512 (153,818) 2,747,007
========== ========== ========== ==========
</TABLE>
31
<PAGE> 35
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
At February 28, 1998, the Company wrote down to estimated fair market
value certain equity security investments. The write-down amounted to
approximately $262,000 and was due to a decline in fair value considered
to be other than temporary. The write-down is included in write-down of
investment securities and other on the accompanying 1998 statement of
operations.
(3) Income Taxes
Income tax expense (benefit) attributable to income from operations
consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
--------- --------- ---------
<S> <C> <C> <C>
Year ended February 28, 1998:
U.S. Federal $ 76,247 163,416 239,663
State and local 25,738 25,228 50,966
--------- --------- ---------
$ 101,985 188,644 290,629
========= ========= =========
Year ended February 28, 1997:
U.S. Federal $(191,128) 217,315 26,187
State and local 29,441 28,767 58,208
--------- --------- ---------
$(161,687) 246,082 84,395
========= ========= =========
</TABLE>
Income tax expense for the years presented differs from the "expected"
Federal income tax expense for those years, computed by applying the
statutory U.S. Federal corporate tax rate of 34% to pretax income, as a
result of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Computed "expected" tax expense (benefit) $ 238,483 198,501
State and local income taxes,
net of Federal income tax benefit 33,638 38,417
Effect of capital gains rate differential 36,692 --
Other, primarily revision of prior year
provision estimate (18,184) (152,523)
------------ ------------
$ 290,629 84,395
============ ============
</TABLE>
32
<PAGE> 36
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 28, 1998 and February 28, 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities
available for sale $ 81,729 44,303
Statutory depletion 57,061 57,061
Alternative minimum tax credit carryforward 124,407 44,348
Net operating loss carryforward 36,479 --
Other 16,950 16,950
------------ ------------
Total gross deferred tax assets 316,626 162,662
------------ ------------
Deferred tax liabilities:
Oil and gas properties and other property
and equipment, principally due to
depletion and depreciation (876,817) (519,218)
Coal properties, principally due to
differences in depletion (80,379) (80,379)
------------ ------------
Total gross deferred tax liabilities (957,196) (599,597)
------------ ------------
Net deferred tax liability $ (640,570) (436,935)
============ ============
</TABLE>
Based on the future reversal of existing taxable temporary differences
and future earnings expectations, management of the Company believes it
is more likely than not that deferred tax assets will be realized or
settled, and accordingly, no valuation allowance has been recorded.
(4) Segment Information and Major Customers
The Company is engaged in oil and gas and coal and gravel activities.
Separate financial information with respect to these two business
segments is included in the accompanying financial statements. All of
the Company's operations are in the United States.
For the year ended February 28, 1998, the Company had two customers
which individually accounted for more than 10% of the Company's total
oil sales. Sales to these customers aggregated approximately $2,470,000
or 92% of the Company's total oil sales.
In addition, the Company had three customers which individually
accounted for more than 10% of the Company's total gas sales. Sales to
these customers aggregated approximately $965,000 or 89% of the
Company's total gas sales.
(5) Related Party Transactions
In the normal course of business, the Company owns interests in various
oil and gas properties in which certain stockholders and affiliates also
own interests.
33
<PAGE> 37
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
During fiscal year 1998, the Company purchased 60,000 shares of the
Company's common stock from the Company's Executive Vice President at
$2.875 per share which approximated the market price at the time of the
purchase.
In addition, subsequent to February 28, 1998, the Company purchased
20,000 shares of the Company's common stock from the Company's Executive
Vice President at $3.20 per share which approximated the market price at
the time of the purchase.
(6) Commitments and Contingencies
The Company is subject to certain claims. In the opinion of management,
the outcome of such matters will not have a materially adverse effect on
the financial statements of the Company.
As of February 28, 1998 and 1997, the Company has pledged
interest-bearing cash deposits of $875,681 to secure letters of credit
in favor of the Colorado Bureau of Land Management for state
requirements regarding land reclamation with respect to coal and gravel
properties. These pledged cash deposits are included in other noncurrent
assets in the accompanying balance sheets.
(7) Subsequent Event
On June 2, 1998, the Company sold its interest in an oil and gas field
for approximately $3,100,000. At February 28, 1998, the Company had a
net basis in this field of approximately $1,400,000.
(8) Quarterly Operating Results (Unaudited)
The quarterly results of operations for 1998 and 1997, follows:
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1998
----
<S> <C> <C> <C> <C> <C>
Total revenues $ 919,967 1,027,489 1,144,033 808,001 3,899,490
Income from operations 183,599 373,308 322,447 (118,312) 761,042
Net income 153,936 297,046 265,627 (305,815) 410,791
Basic and diluted earnings
per share .03 .06 .05 (.06) .08
</TABLE>
34
<PAGE> 38
OAKRIDGE ENERGY, INC.
Notes to Financial Statements
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1997
----
<S> <C> <C> <C> <C> <C>
Total revenues $ 422,176 414,822 568,074 1,148,290 2,553,362
Income (loss)
from operations (32,085) (149,315) 28,848 178,947 26,395
Net income (loss) (7,110) (66,205) 76,447 496,300 499,432
Basic and diluted earnings
per share (.00) (.01) .01 .10 .10
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded an
adjustment of approximately $262,000 (before income taxes) to increase
realized loss on available-for-sale securities for an other than
temporary decline in market value below cost of certain investment
securities. The Company also recorded approximately $500,000 in
depreciation and depletion during the fourth quarter of fiscal 1998
($692,341 recorded for the first three quarters), primarily due to
reduction in reserve estimates associated with the decline in oil and
gas prices.
35
<PAGE> 39
OAKRIDGE ENERGY, INC.
Supplemental Oil and Gas Data (Unaudited)
The following tables set forth supplementary disclosures for oil and gas
producing activities in accordance with Statement of Financial
Accounting Standards No. 69 ("Statement No. 69").
Costs Incurred
A summary of costs incurred in oil and gas property acquisition,
development, and exploration activities (both capitalized and charged to
expense) for the years ended February 28, 1998 and February 28, 1997
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Acquisition of unproved properties $ 147,158 155,232
=========== =========
Development costs $ 1,744,237 2,189,265
=========== =========
Exploration costs $ 403,753 336,959
=========== =========
</TABLE>
Results of Operations for Producing Activities
The following table presents the results of operations for the Company's
oil and gas producing activities for the years ended February 28, 1998
and February 28, 1997.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 3,798,393 2,451,839
Production costs (781,874) (437,770)
Depletion, depreciation, and valuation
provisions (1,229,720) (1,108,209)
Exploration costs (403,753) (336,959)
----------- ----------
1,383,046 568,901
Income tax expense (470,236) (193,426)
----------- ----------
Results of operations for producing
activities (excluding corporate
overhead and interest costs) 912,810 375,475
=========== ==========
</TABLE>
36
<PAGE> 40
OAKRIDGE ENERGY, INC.
Supplemental Oil and Gas Data (Unaudited)
Reserve Quantity Information
The following table presents the Company's estimate of its proved oil
and gas reserves, all of which are located in the United States. The
Company emphasizes that reserve estimates are inherently imprecise and
that estimates of reserves related to new discoveries are more imprecise
than those for producing oil and gas properties. Accordingly, the
estimates are expected to change as future information becomes
available. The estimates have been prepared with the assistance of an
independent petroleum reservoir engineering firm. Oil reserves, which
include condensate and natural gas liquids, are stated in barrels and
gas reserves are stated in thousands of cubic feet.
<TABLE>
<CAPTION>
Oil Gas
--- ---
Proved developed and undeveloped reserves:
<S> <C> <C>
Balance, February 29, 1996 106,103 869,150
Revisions of previous estimates 35,741 156,736
Extensions and discoveries 525,796 1,436,790
Production (64,868) (389,756)
-------- ---------
Balance, February 28, 1997 602,772 2,072,920
Revisions of previous estimates 303,628 (159,043)
Extensions and discoveries 113,653 342,204
Production (147,911) (437,064)
-------- ---------
Balance, February 28, 1998 872,142 1,819,017
======== =========
Oil Gas
--- ---
Proved developed reserves:
February 29, 1996 106,103 869,150
======== =========
February 28, 1997 314,277 1,908,674
======== =========
February 28, 1998 325,946 1,684,528
======== =========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flow and
Changes Therein Relating to Proved Oil and Gas Reserves
The following table, which presents a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, is presented pursuant to SFAS No. 69. In computing this data,
assumptions other than those required by the Financial Accounting
Standards Board could produce different results. Accordingly, the data
should not be construed as representative of the fair market value of
the Company's proved oil and gas reserves.
Future cash inflows were computed by applying existing contract and
year-end prices of oil and gas relating to the Company's proved reserves
to the estimated year-end quantities of those reserves. Future price
changes were considered only to the extent provided by contractual
arrangements in existence at year-end. Future development and production
costs were computed
37
<PAGE> 41
OAKRIDGE ENERGY, INC.
Supplemental Oil and Gas Data (Unaudited)
by estimating the expenditures to be incurred in developing and
producing the proved oil and gas reserves at the end of the year, based
on year-end costs. Future income tax expenses were computed by applying
the year-end statutory tax rate adjusted for tax credits, with
consideration of future tax rates already legislated, to the future
pretax net cash flows relating to the Company's proved oil and gas
reserves, less the tax basis of the properties involved. The
standardized measure of discounted future cash flows at February 28,
1998 and February 28, 1997, which represent the present value of
estimated future cash flows using a discount rate of 10% a year,
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Future cash inflows $ 14,563,635 15,861,328
Future production and development costs (8,006,427) (7,468,032)
Future income tax expenses (1,033,620) (1,002,950)
------------ ------------
Future net cash flows 5,523,588 7,390,346
10% annual discount for estimated
timing of cash flows (1,651,108) (1,602,116)
------------ ------------
Standardized measure of discounted
future net cash flows $ 3,872,480 $ 5,788,230
============ ============
Beginning of year $ 5,788,230 $ 1,621,656
Sales of oil and gas, net of production costs (3,016,519) (2,014,069)
Extensions, discoveries, and improved
recoveries, less related costs 504,289 7,221,876
Accretion of discount 578,823 162,166
Net change in sales and transfer prices, net of
production costs (949,921) 746,573
Changes in estimated future development costs 93,187 (1,522,377)
Net change in income taxes 650,733 (1,354,531)
Changes in production rates (timing and other) (1,139,944) 441,966
Revisions of previous quantities 1,363,602 484,970
------------ ------------
End of year $ 3,872,480 $ 5,788,230
============ ============
</TABLE>
38
<PAGE> 42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company did not change its principal independent accounting firm
nor have any disagreements with such firm on accounting and financial disclosure
matters during the two fiscal years ended February 28, 1998.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1998 to be filed with the Securities and
Exchange Commission ("SEC") not later than 120 days after the end of such year.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1998 to be filed with the SEC not later
than 120 days after the end of such year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1998 to be filed with the SEC not later
than 120 days after the end of such year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to
the definitive proxy statement for the Company's Annual Meeting of Stockholders
for the fiscal year ended February 28, 1998 to be filed with the SEC not later
than 120 days after the end of such year.
39
<PAGE> 43
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(3)(ii) By-Laws of the Company dated May 23, 1975 filed as Exhibit A(4)
to Form 10 and incorporated herein by reference.
(10) Purchase and Sale Agreement dated March 25, 1998 between the
Company as seller and Mitchell Energy Corporation as buyer
pertaining to the Company's Limestone County, Texas gas
property.
(27) Financial Data Schedule.
(b) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed by the
Company during the last quarter of the period covered by this report.
40
<PAGE> 44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OAKRIDGE ENERGY, INC.
By /s/ Sandra Pautsky
--------------------------------
Sandra Pautsky, Executive
Vice President
DATE: June 12, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By By /s/ Sandra Pautsky
-------------------------------- --------------------------------
Noel Pautsky, Chairman Sandra Pautsky, Executive
of Board of Directors, Vice President and
President and Director* Secretary-Treasurer
(Acting Chief Executive
Officer, Chief Financial
Officer and Chief
Accounting Officer)
and Director
DATE: June __, 1998 DATE: June 12, 1998
By /s/ Danny Croker By /s/ Randy Camp
-------------------------------- --------------------------------
Danny Croker, Director Randy Camp, Director
DATE: June 12, 1998 DATE: June 12, 1998
*Mr. Pautsky died on May 26, 1998, and his successors as President (Chief
Executive Officer) and as a Director have not yet been named.
41
<PAGE> 45
INDEX TO EXHIBITS
The exhibits filed with this Registration Statement are filed in
accordance with the requirements of Item 601 of Regulation S-B for filings on
Form 10-KSB. For convenient reference, each exhibit is listed according to the
number assigned to it in the Exhibit Table of such Item 601.
(2) Plan of acquisition, reorganization, arrangement, liquidation,
or succession - not applicable.
(3)(ii) By-laws - By-Laws of the Registrant dated May 23, 1975 filed
as Exhibit A(4) to Form 10 and incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including
indentures - not applicable.
(9) Voting trust agreement - not applicable.
(10) Material contracts - Purchase and Sale Agreement dated March
25, 1998 between the Registrant as seller and Mitchell Energy
Corporation as buyer pertaining to the Registrant's Limestone
County, Texas gas property.
(11) Statement re computation of per share earnings - not
applicable.
(13) Annual or quarterly reports, Form 10-Q - not applicable.
(16) Letter on change in certifying accountant - not applicable.
(18) Letter on change in accounting principles - not applicable.
(19) Previously unfiled documents - not applicable.
(21) Subsidiaries of the registrant - not applicable.
(22) Published report regarding matters submitted to vote -not
applicable.
(23) Consent of experts and counsel - not applicable.
(24) Power of attorney - not applicable.
(27) Financial Data Schedule.
(99) Additional exhibits - not applicable.
<PAGE> 1
EXHIBIT 10
[MITCHELL ENERGY CORPORATION LETTERHEAD]
March 25, 1998
FEDERAL EXPRESS
Mr. R. O. Shaw
OAKRIDGE ENERGY, INC.
4613 Jacksboro Highway
Wichita Falls, Texas 76302
Re: Offer to Purchase Oil and Gas Properties
Personville Field
Limestone County, Texas
Gentlemen:
This Purchase and Sales Agreement represents Mitchell Energy Corporation's offer
to purchase all of the Parties listed on Exhibit "A" attached hereto interest in
the Properties described herein. This offer is for the purchase of all of the
parties interest and is not to be construed as an offer for an individual
interest alone. An identical Purchase and Sales Agreement to this is being sent
to each individual Seller for their approval and acceptance.
Mitchell Energy Corporation (hereinafter referred to prospectively as
"Purchaser") hereby offers to purchase from all of the parties identified on
Exhibit "A" (hereinafter referred to prospectively and collectively as "Seller")
all of Seller's rights, titles, and interest in and to all of the properties
listed on Exhibit "A" attached hereto together with all fixtures, improvements,
and facilities thereon and appurtenant rights thereto, ("the Properties") for
the total purchase price ("the Purchase Price") of Sixteen Million Eight Hundred
Twenty Seven Thousand and No/100 Dollars ($16,827,000.00). This offer is subject
to the Terms and Conditions attached hereto as Exhibit "B". The Purchase Price
has been allocated among the individual wells and the pipeline system on Exhibit
"A" for the sole purpose of setting a value for the individual property, well,
or other asset in the event an adjustment to the Purchase Price is required as
set out herein.
<PAGE> 2
March 25, 1998
Page 2
If this offer is acceptable to Seller, please execute this letter in the spaces
provided (or, if required, obtain the necessary execution of the letter),
initial the attachments, and return the fully executed letter to me. Upon my
receipt of said letter from all parties identified on Exhibit "A", the fully
executed letters together with the attachments hereto will constitute an
Agreement for Sale/Purchase ("Agreement"), and I will contact you to make
arrangements necessary to complete the transaction. The additional signed letter
is for your files.
We thank you for your consideration of this offer.
Very truly yours,
MITCHELL ENERGY CORPORATION
/s/ JACK YOVANOVICH
Jack J. Yovanovich
Senior Vice President
Land
JJY:RBS:jrm
Attachments
<PAGE> 3
March 25, 1998
Page 3
ACCEPTED AND AGREED TO THIS 30th
DAY OF March, 1998.
OAKRIDGE ENERGY, INC.
By: /s/ NOEL PAUTSKY
-------------------------------
Name: Noel Pautsky
-----------------------------
Title: president
----------------------------
<PAGE> 4
Exhibit A
<TABLE>
<S> <C>
ALLOCATED PURCHASE PRICE $ 16,827,000
W.I. OWNERSHIP:
- ---------------
$ 3,053,508
382,832
72,922
97,029
83,781
774,782
319,954
Oakridge Energy, Inc. 3,099,122
63,311
219,830
510,443
765,665
97,029
382,832
387,390
72,922
83,781
1,158,473
63,311
4,719,406
385,903
5,774
-------------
$ 16,800,000
=============
ROYALTY/MINERAL INTEREST:
- -------------------------
$ 9,000
9,000
9,000
-------------
TOTAL ROYALTY/MINERAL INTEREST $ 27,000
=============
</TABLE>
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y
--------------------
NOTE: Individual well schedules and names of all Sellers
other than Oakridge Energy, Inc. have been deleted.
<PAGE> 5
EXHIBIT B
TERMS AND CONDITIONS
Attached to that Offer to Purchase from
MITCHELL ENERGY CORPORATION
("Purchaser") to
SKLAR & PH[LLIPS OIL CO., ET AL
("Seller")
dated March 25, 1998
Personville Field
Limestone County, Texas
1. Effective Period of Offer
Purchaser's offer shall remain in effect to 5:00 p.m. (Houston, Texas
time) on March 31, 1998, or until rejected in writing by Seller, whichever
occurs first, unless extended in writing by Purchaser.
2. Effective Date/Time of Sale/Purchase
The effective Date/Time of Sale/Purchase ("Effective Date/ Time") is
March 1, 1998. at 7-00 a.m. (local time in the place the "Properties" are
located), unless otherwise agreed to by both parties in writing.
3. Closing
Upon satisfaction of all the terms and conditions contained herein,
Seller and Purchaser shall close this Sale/Purchase on a mutually acceptable
date within sixty (60) days from the date of Purchaser's receipt of all of the
individual Seller's acceptance of Purchaser's offer or fifteen (15) days
following Seller's receipt of Purchasers notification of any significant title
defects as referenced in Paragraph 7 below, whichever is earlier, unless
otherwise agreed to by both parties in writing, Closing shall take place in
Shreveport, Louisiana, at a location designated by Seller.
Seller appoints Sklar & Phillips Oil Co. as its agent for closing.
Seller shall provide to Sklar & Phillips Oil Co. the assignments and other
documents referenced below in Paragraph 3(a), 3(b) and 3(c) not less than five
(5) days prior to closing. Seller authorizes Sklar & Phillips Oil Co. to deliver
all such assignments and documents to Purchaser on behalf of Seller at closing,
Seller also authorizes Sklar & Phillips Oil Co. to receive payment from
Purchaser of the Purchase Price as adjusted herein and directs Purchaser to pay
such adjusted Purchase Price to Sklar & Phillips Oil Co. which shall thereby
satisfy Purchasers obligation to pay Seller the Purchase Price. Sklar & Phillips
Oil Co. shall then be obligated to each party Seller to immediately tender to
each party's Seller that party's allocated share of the Purchase Price.
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y.
--------------------
Exhibit B - Page -1-
<PAGE> 6
At closing, the following shall occur:
a. Sklar & Phillips Oil Co. shall deliver to Purchaser, in
triplicate, fully executed and recordable assignments, bills
of sale and other documents (from all Parties Seller) as
reasonably requested by Purchaser to convey the Properties to
Purchaser.
b. Sklar & Phillips Oil Co. shall deliver to Purchaser duplicate
certified copies of corporate resolutions, certificates of
good standing, and other documents as reasonably requested by
Purchaser to show Seller's authority and good standing to make
this sale.
C. Sklar & Phillips Oil Co. shall provide to Purchaser any
documents required or reasonably requested by Purchaser to
evidence to governmental agencies the Sale/Purchase of the
Properties.
d. Seller shall deliver possession of the Properties.
e. Seller shall transfer custody of all information and original
documents in Seller's possession or within Seller's control
pertaining to the Properties.
f. Purchaser shall pay the Purchase Price, as provided
hereinbelow.
If the Purchase of the Properties from a particular party Seller is not
completed as contemplated herein by reason of any breach or default by
Purchaser, then Purchaser shall pay to that Seller, in consideration of Seller
having held the Properties off the market and having refrained from dealing with
others concerning the Properties and as liquidated damages in lieu of all other
damages (and as that Seller's sole remedy), a cash sum equal to ten percent
(10%) of the Purchase Price due that Seller. The Parties hereby acknowledge that
the extent of damages to Seller occasioned by such breach or default by
Purchaser would be impossible or extremely difficult to ascertain and that the
amount of the payment referenced above is a fair and reasonable estimate of such
damages under the circumstances. If the Purchase and Sale of the Properties is
not completed for any other reason, Purchaser shall not be obligated to pay
Seller the above referenced payment.
4. Purchase Price
This is a cash sale with the Purchase Price, adjusted if necessary as
provided hereinbelow, to be paid at closing.
a. Adjustments, if any, due to title failure or problems with
leases or other agreements affecting the Properties as
described in Section 7 hereinbelow shall be handled as
provided therein.
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y.
--------------------
Exhibit B - Page -2-
<PAGE> 7
b. All revenues received by Seller attributable to the Properties
from the sale of production produced from the Properties after
the Effective Date/Time and prior to closing shall be
subtracted from the Purchase Price. All revenues of production
produced prior to the Effective Date/Time shall remain the
property of Seller.
c. Ali reasonable and necessary direct operating expenditures
which have been incurred for the Properties after the
Effective Date/Time and for which bills have been received and
paid by Seller after the Effective Date/Time but prior to
closing shall be added to the Purchase Price.
d. All of Seller's liens affecting said Properties shall be
subtracted from the Purchase Price unless Seller has obtained
a release of lien prior to closing.
e. All expenditures, including without limitation, capital
expenditures, incurred prior to the Effective Date/Time and
not fully paid by closing shall be deducted from tile Purchase
Price.
f. The cost of plugging all wells located on said Properties
which are temporarily abandoned (as defined herein below),
shall be subtracted from the Purchase Price. For purposes of
this Agreement, "temporarily abandoned well" shall mean any
well which is not specifically referenced for purchase in this
Offer to Purchase and/or any well which is not capable of
producing oil or gas in paying quantities (excluding tile
Ethridge Gas Unit, Well No. 3). The amount for plugging costs
deducted from the Purchase Price shall be the difference
between the cost of plugging such well and the salvage value
of any equipment and pipe associated with said well, if any.
Notwithstanding anything to the contrary contained herein,
should the cost of plugging all temporarily abandoned wells
located on said Properties exceed the Purchase Price, then
Purchaser shall have the right to withdraw its offer with no
further obligation to consummate the Sale/Purchase and no
liability to Seller.
All revenues attributable to production from the Properties after the
Effective Date/Time and received by Seller from and after closing shall be
remitted to Purchaser after closing as set out below. Any operating expenses
which were incurred for the Properties after the Effective Date/Time and prior
to closing but for which invoices were not received until on or after closing
shall be paid by Seller with copies of such invoices and evidence of such
payment forwarded to Purchaser, and reimbursement to Seller will be made by
Purchaser after closing as set out below.
As soon as reasonably practicable after the Closing but not later than
the 90th day following the closing, for all Parties Seller, Sklar & Philips Oil
Co. shall prepare and deliver to Purchaser a statement setting forth the final
calculation of any further adjustments to the Purchase Price and showing the
calculation of each adjustment, based, to the extent possible on actual credits,
charges, receipts and other items before and after the Effective Date. Sklar &
Phillips Oil Co. shall at
INITIALS: SELLER N.P.
-----------------------
PURCHASER /s/ J.J.Y.
--------------------
Exhibit B - Page -3-
<PAGE> 8
Purchaser's request, supply reasonable documentation available to support any
credit, charge, receipts or other item. As soon as reasonably practicable but
not later than the 30th day following receipt of Sklar & Phillips Oil Co.'s
statement hereunder, Purchaser shall deliver to Sklar & Phillips Oil Co. a
written report containing any changes that Purchaser proposes be made to such
Statement. Purchaser and Sklar & Phillips Oil Co. shall undertake to agree on
the final statement of adjustments to the Purchase Price no later than 150 days
after the closing. After Purchaser and Sklar & Phillips Oil Co. agree upon such
final adjustments to the Purchase Price, (either upward or downward) the amount
due shall be paid in cash within five (5) days thereafter by Sklar & Phillips
Oil Co. (if Seller owes same) or by Purchaser to Sklar & Phillips Oil Co. (if
Purchaser owes same).
Purchaser shall have the fight, at its election and expense, at any
time within one (1) year from the date of closing to audit the books and records
of Seller to verify the accuracy of revenues and expenses which are allocated at
closing. During this period, Seller agrees to furnish copies of appropriate
documentation of such revenues and expenses or, at Purchaser's election, to make
copies of the originals of the books and records available at Seller's place of
business. If any errors in the revenues and expenses allocated are determined,
then such errors shall be promptly rectified by Purchaser or Seller, whichever
is the applicable party.
5. Information Made Available
Seller shall, as soon as Purchaser receives Seller's acceptance, make
available to Purchaser at Seller's office in Shreveport, LA and/or Tyler, TX
(during normal working hours) the following information and documents:
a. All correspondence, documents, abstracts, title opinions, tax
receipts, and other material pertaining to ownership and
descriptions of the Properties.
b. All contracts and agreements affecting the Properties and all
correspondence related thereto.
c. All correspondence relating to operation of the Properties and
all permits and licenses, including any pending applications,
pertaining to the Properties.
d. A summary of any pending litigation, outstanding tax
assessments, lessor demand letters or like information
potentially affecting the Properties.
e. All outstanding debt instruments relating to the Properties.
Seller, at its option, will permit Purchaser to make or have made
copies (at Purchaser's expense) of any such information and documents and take
them to Purchaser's or its attorneys' offices.
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y.
--------------------
Exhibit B - Page -4-
<PAGE> 9
6. Facilities
Purchaser shall have the right during normal working hours to inspect
the fixtures, improvements, and facilities (collectively "the Facilities") of
the Properties and to observe the operation of the Properties. Should Purchaser
find the Facilities, including but not limited to wells, not to be in good
working condition, Purchaser reserves the right to exclude the affected
Property from this Agreement and reduce the Purchase Price by an amount equal to
the allocated value of such excluded Property if Seller cannot return such
Facilities in good working condition prior to closing. NOTWITHSTANDING THIS
SALE/PURCHASE SHALL BE WITHOUT ANY WARRANTY OF FITNESS OF CONDITION OR
MERCHANTABILITY OF THE MATERIAL, EQUIPMENT OR FACILITIES CONVEYED, ALL SUCH
PROPERTY WILL BE CONVEYED IN AN "AS IS" AND "WHERE IS" BASIS.
During the time period provided for title examination in Paragraph 7,
Purchaser shall have the right to inspect the Properties for environmental
defects (including but not limited to the presence of any Naturally Occurring
Radioactive Material "NORM"). In the event any such defects are detected,
Purchaser shall have the fight to advise Seller, of any such defects affecting
the Properties which are not in compliance with the applicable Environmental aws
and Regulations. Notwithstanding the foregoing, no defect may be asserted until
the total of all of Purchasers asserted environmental defects exceeds Ten
Thousand Dollars ($10,000.00) (as to the total interest of all Parties Seller).
After receipt of such notice, Seller shall have the right to cure, clean up or
remediate such environmental defects at its sole cost, to Purchasers reasonable
satisfaction not later than five (5) days prior to closing. If Seller fails or
declines to cure any such defects, Purchaser shall have the option to reduce the
Purchase Price by the estimated cost of remediation in excess of Ten Thousand
Dollars ($10,000.00) provided however, in the event the estimated value of such
defects exceeds Two Hundred Twenty Five Thousand Dollars ($225,000.00) (as to
the total interests of all Parties Seller), then either Seller or Buyer shall
have the option to terminate this agreement. If such agreement is terminated
neither Purchaser nor Seller shall be under any further obligations or liability
hereunder. For the purposes of termination under this paragraph by Seller, it
will require approval of all Party's Seller.
7. Titles and Examination of Documents
This is a Sale/Purchase of all of Seller's rights, titles and interests
in the Properties. However, in no event, unless adjustment of Purchase Price
occurs as provided in this Section 7 hereinbelow, shall Seller's net revenue
interest be less, or its working interest greater, than such interests in the
Properties as shown on Exhibit "A". If Seller owns a lesser net revenue
interest, or a greater working interest without the same proportionate increase
in tile net revenue interest, same shall be considered a significant title
defect as defined below. For the purposes of this Agreement. "net revenue
interest" (or "NRI" or "NI") is defined as "the interest in and to all
production of hydrocarbons produced, saved or sold from, under, or by virtue of
each of the leases covered hereby after giving effect to all valid lessor's
royalties, overriding royalties, and other burdens against
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y.
--------------------
Exhibit B - Page -5-
<PAGE> 10
production therefrom"; "working interest" (or "WI") is defined as "the interest
in the full and entire leasehold estate created by virtue of the leases covered
hereby and all rights and obligations of every kind and character appurtenant
thereto, or arising therefrom, without regard to any valid lessor's royalties,
overriding royalties, and other burdens against production therefrom, insofar as
the interest in said leasehold estate is burdened with the obligation to bear
and pay costs of operation"; "overriding royalty interest" (or "ORRI") is
defined as "royalty in excess of the usual royalty payable under an oil and gas
lease, such overriding royalty being free of any expense of production" and,
"significant title defects" shall include any defect which results in or could
reasonably be expected (in Purchaser's opinion) to result in a loss of title in
Seller or any other occurrence such that Seller's net revenue interest as shown
on Exhibit "A" would be reduced, Seller's working interest as shown on Exhibit
"A" increased without the same proportionate increase in net revenue interest,
or Seller's right to use the Properties as an owner, lessee, licensee or
permittee, as applicable would be extinguished or significantly impaired. The
term "significant title defect" shall also include any inability on the part of
Seller to obtain any necessary third party consents or the waiver of
preferential rights to purchase.
Seller confirms that there are no reserves of the Properties for which
payment has been received but production has not been delivered.
Except as provided hereinabove, all assignments, bills of sale and
other conveyances of the Properties shall be by special warranty (i.e., warranty
by, through, or under Seller but not otherwise). However, if any property is
erroneously described, Seller shall, at any time before or after closing,
correct such descriptions upon proof of proper descriptions. Subject to the
operating standards provided in Section 8 hereinbelow, Seller shall transfer the
Facilities on an "as is" basis.
Purchaser shall have forty-five (45) days after receipt of all of the
individual Seller's acceptance of the offer to (i) examine title to the
Properties, (ii) examine all leases, gas contracts, operating agreements and all
other agreements affecting the Properties, and (iii) to verify that the
gathering, compression and dehydration fee received by Seller on the Brazos
River Pipeline System for the six (6) month period prior to the Effective Date
has averaged not less than $.13 cents/MMBTU and the cost of compression rental
is not greater than $15,244/month and to notify Seller of any significant title
defects or substantial problems with leases or other agreements affecting the
Properties. Seller shall have an additional fifteen (15) days to either (a) in
good faith using its best efforts, attempt to correct any such defect or
problems to the satisfaction of Purchaser or (b) at Seller's option, agree to
indemnify Purchaser in a form acceptable to Purchaser. Purchaser's approval of
corrections of title defects or problems and of indemnities shall not be
unreasonably withheld.
If, after (i) the total of sixty (60) days of the two periods specified
above have elapsed, or (ii) fifteen (15) days following Seller's receipt of
Purchaser's notification of any significant title defects or other substantial
problems, whichever is earlier, title defects or problems with leases and other
agreements have not been cured to Purchaser's satisfaction or indemnities
acceptable to Purchaser
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y
--------------------
Exhibit B - Page -6-
<PAGE> 11
have not been offered by Seller, then Purchaser shall have, at its option, the
right to either (a). withdraw its offer with no further obligation to consummate
the Sale/Purchase and no liability to Seller or (b). reasonably renegotiate in
good faith the purchase of the Properties, in which case Seller shall reasonably
renegotiate in good faith its sale of the Properties to Purchaser.
8. Operation after Acceptance of Offer
Seller shall, after its acceptance of Purchaser's offer but prior to
closing, timely disburse proceeds, pay all royalties and other lease
obligations, and pay expenses relating to the Properties and shall operate the
Properties as a reasonably prudent operator and in a good and workmanlike
manner. During this period, Seller shall not remove any Facilities except to
replace defective components or to repair and return them to working order.
Seller shall not make any major capital expenditures in excess of Fifty
Thousand Dollars ($50,000.00) after the Effective Date/Time but prior to closing
without Purchaser's prior written consent.
All storage tanks and meters will be accurately metered or otherwise
determined at the Effective Date/Time and all oil, condensate, and other gas
liquids in tanks and downstream of pipeline connection as of that Effective
Date/Time will remain the property of Seller.
9. No Commission
No commission or brokerage fee will be paid by Seller or Purchaser.
10. Proration of Taxes
All ad valorem and other applicable taxes on the Properties shall be
prorated between the Seller and Purchaser as of the Effective Date/Time of
Sale/Purchase. If actual taxes or tax liabilities are not known at closing, tax
liabilities shall be estimated, and reimbursements by Seller or refunds by
Purchaser, as appropriate, shall be made at such date(s) as actual taxes are
levied. Seller agrees to pay when due any severance, ad valorem, or other taxes
payable after the Effective Date/Time hereof where the basis or valuation for
such taxes is production which actually occurred during the time in which Seller
owned the property and/or received proceeds from the production attributable
thereto.
11. Indemnities
If the Sale/Purchase is consummated, Purchaser agrees to defend and
indemnify Seller against any claims, suits, and other liabilities to third
parties under the leases and other agreements related to the Properties and
resulting from operations thereon or activities or events related thereto after
the Effective Date/Time (including but not limited to any liability resulting
from any failure
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y
--------------------
Exhibit B - Page -7-
<PAGE> 12
to properly plug and abandon any wells assigned to Purchaser under this
Sale/Purchase) except to the extent such liabilities result from the negligence
or willful misconduct of Seller.
Likewise, Seller agrees to defend and indemnify Purchaser against any
claims, suits, and other liabilities to third parties under the leases and other
agreements related to the Properties and resulting from operations thereon or
activities or events related thereto prior to the Effective Date/Time, and for
all such liabilities arising after the Effective Date/Time including but not
limited to any liability resulting from failure to properly plug and abandon any
wells existing as of the Effective Date/Time hereof and not specifically
assigned to Purchaser under this Sale/Purchase to the extent such liabilities
result from the negligence or willful misconduct of Seller. This indemnification
shall apply to liability for voluntary environmental response actions undertaken
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act (CERCLA) or any other federal, state or local law. Sellers indemnities above
shall not exceed the amount of the Purchase Price, and shall terminate on the
second anniversary of the Closing Date except in each case as to matters for
which a specific written claim for indemnity has been delivered on or before
such termination date.
Notwithstanding anything to the contrary herein, Purchaser shall not be
liable nor indemnify Seller for Sellers actions off the Properties or for any
wastes generated on the Properties but disposed of off the Properties.
12. Continuing Obligation
If the Sale/Purchase is consummated, the Terms and Conditions contained
in this Agreement shall survive closing and shall apply to and bind the
successors and assigns of Seller and Purchaser.
INITIALS: SELLER /s/ N.P.
-----------------------
PURCHASER /s/ J.J.Y
--------------------
Exhibit B - Page -8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OAKRIDGE ENERGY, INC. AS OF AND FOR THE PERIOD ENDED
FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 877,006
<SECURITIES> 1,637,047
<RECEIVABLES> 386,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,018,252
<PP&E> 19,645,026
<DEPRECIATION> 12,858,704
<TOTAL-ASSETS> 11,403,595
<CURRENT-LIABILITIES> 340,403
<BONDS> 0
0
0
<COMMON> 406,312
<OTHER-SE> 9,934,581
<TOTAL-LIABILITY-AND-EQUITY> 11,403,595
<SALES> 3,899,490
<TOTAL-REVENUES> 3,899,490
<CGS> 2,644,425
<TOTAL-COSTS> 3,138,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,359
<INCOME-PRETAX> 701,420
<INCOME-TAX> 290,629
<INCOME-CONTINUING> 410,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,791
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
