[DESCRIPTION] CRESTED CORP.
[TEXT]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 and 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): October 20, 1999
CRESTED CORP.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 0-8773 84-0608126
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(State or other (Commission (I.R.S. Employer
jurisdiction of File No.) Identification No.)
incorporation)
877 North 8th West
Riverton, WY 82501
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (307) 856-9271
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Not Applicable
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(Former Name, Former Address or Former Fiscal Year,
if Changed From Last Report)
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Item 5. Other Events (New Coal Bed Methane Project; Litigation with
Kennecott Uranium Company and Kennecott Energy Company).
Coal Bed Methane Project. Crested Corp. ("Crested" or the "registrant") and
its parent U.S. Energy Corp. ("USE") d/b/a USECC, have signed an agreement to
purchase from Quantum Energy LLC, Oklahoma City, Oklahoma, a 50% working
interest (40% net revenue interest) in approximately 185,000 acres of leasehold
interests in the Powder River Basin of southeastern Montana. The properties are
prospective for coal bed methane ("CBM"). USECC has assigned its rights under
the agreement to a new Wyoming corporation Rocky Mountain Gas, Inc. ("RMG").
Crested and USE are the majority shareholders of RMG, and RMG is presently
seeking financing to close the agreement with Quantum and develop the
properties.
The agreement with Quantum is scheduled to close on or before December 20,
1999. After closing, RMG will hold over 200,000 gross acres of properties which
are prospective for CBM. See below for terms of the Quantum agreement.
CBM is natural gas contained in coal and in water within coal. The Powder
River Basin in Montana and northeast Wyoming is an active area for CBM projects
and there is presently a very high level of drilling activity in process or
planned in the Wyoming part of the Basin. Two new gas pipelines have been
constructed into the Basin in 1999 and another one is under construction. An
existing pipeline lies within 10 miles of the northern border of the Quantum
property. Active participants in the Basin's CBM properties include Phillips
Petroleum, Pennaco Energy, Inc., Barrett Resources Corp., CMS Energy Corp.,
Devon Energy Corp., Redstone Gas Partners, LLC and J.M. Huber Corp.
Quantum's properties are classified as unproved. The registrant believes
that the properties are similar in depth, thickness and methane content to
producing CBM properties in the Basin, where cumulative coal thickness
approaches 100 feet. Well depths may range from 300 to 1,300 feet. USECC now has
six rigs drilling CBM properties for other companies; one rig drilling on
Quantum properties, and intends to commit two more to the exploration program on
behalf of RMG. USECC will be the drilling contractor for RMG on the project.
USECC has several items of other equipment including tractors, water trucks,
trailers, pumps, cement units and other miscellaneous equipment being used on
the various CBM projects.
Terms of the Quantum agreement are: $3.2 million at closing (adjusted for
title matters); option to acquire 50% working interest in Quantum's current well
program (acreage outside the sales package); $2.5 million into escrow to drill
and complete 25 CBM wells on the properties identified by Quantum between
January 1 and April 30, 2000 subject to force majeure; $1.3 million into escrow
on or before December 31, 2000 to pay for drilling, construction of
infrastructure (gathering lines, compressors, etc.) and/or acquiring additional
properties in the area. Finally, subject to closing of the Quantum agreement,
RMG and Quantum have agreed (subject to right of first refusal on each well) to
drill and complete another 100 CBM wells on the properties during 2000.
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This Form 8-K Report contains "forward-looking" statements which include
use of the words "will" and "closing and similar words. These statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 which amended section 21 E of the Securities Exchange Act of
1934. Forward-looking statements inherently involve risks and uncertainties that
could cause actual results to differ materially from the forward- looking
statements. Among the factors which could contribute to such differences are
changes in the financial markets making it difficult for RMG to obtain the
financing necessary for the CBM projects, energy supplies and prices generally,
and actual drilling or production results, which may differ from what is now
expected. Other factors may affect changes in actual results compared to current
expectations.
Litigation with Kennecott
Background. Crested Corp. ("Crested" or the "registrant") and its parent
U.S. Energy Corp. ("USE"), the USECC joint venture ("USECC") consisting of USE
and Crested together own approximately 50% of the Green Mountain Mining Venture
(the GMMV), a Wyoming joint venture partnership, which owns the Green Mountain
unpatented uranium claims in south- central Wyoming, the Jackpot Mine and
support facilities (the mine is in the development stage) and the Sweetwater
Mill (a uranium mill currently on standby located about 20 miles south of the
Jackpot Mine). In the context of the GMMV and in this report, the term "USE
Parties" means USE and USECC.
Kennecott Uranium Company ("Kennecott") owns approximately 50% of the GMMV.
KUC is a 100% subsidiary of Kennecott Energy Company ("KEC"), and KEC is a 100%
subsidiary of Rio Tinto plc, one of the largest mining companies in the world.
The GMMV was formed in June 1990. Unpatented mining claims held by the USE
Parties were contributed to the GMMV and Kennecott committed to pay the expenses
of up to $50 million to put the uranium properties into production. In 1991, the
GMMV acquired the Sweetwater Mill from UNOCAL. Kennecott filed bonds or agreed
to 'self bond' reclamation and related environmental liabilities associated with
the uranium properties, the Jackpot Mine and the Sweetwater Mill.
Except for short-term price swings, uranium oxide prices have not changed
substantially since the GMMV was first organized but have trended lower. The
registrant and USECC continue to believe that worldwide inventories of uranium
oxide are shrinking and that a price turnaround will occur as domestic and
foreign utilities are forced to go to uranium producers for new long term supply
contracts. However, the timing and indeed the certainty of such a turnaround
cannot be predicted and may not occur at all.
In July 1998, the Management Committee of the GMMV, which is controlled by
Kennecott, decided to suspend further development of the Jackpot Mine and to not
further upgrade the Sweetwater Mill to operating status. The Mine has been on
standby since that time, and the Mill has been on standby since it was acquired.
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As previously reported by the registrant, in late calendar 1998 and in
1999, the USE Parties had disagreements with Kennecott over the kinds and costs
of work which the GMMV should be conducting on the uranium properties, the Mine
and the Mill. The USE Parties have demanded an explanation of budget items
submitted by Kennecott but an explanation has not been received by the USE
Parties as of the date of this report. As allowed by the Joint Venture Agreement
which created the GMMV, the USE Parties elected not to participate (contribute
to) in the funding of the GMMV annual program and budget since 1998 and as a
result, will have their collective 50% interest in the GMMV diluted.
Kennecott has stated in audited financial statements for its most recent
fiscal year, that its investments in the GMMV (approximately $60 million) are
fully impaired. This means that Kennecott does not believe it will make any
profit, or even recover its investment out of the GMMV, in the foreseeable
future, because of Kennecott's estimates of the added investments needed to put
the assets into uranium production, and its estimates of future uranium oxide
prices.
Lawsuit. On November 10, 1999, Kennecott and KEC filed a complaint in
District Court, Campbell County, Wyoming (file number 22406) against USE,
Crested and USECC. Kennecott and KEC seek dissolution of the GMMV by court
order, and an accounting of GMMV expenses since the last audit of GMMV's
financial statements (calendar 1998). Kennecott and KEC also seek a court order
of a judicial plan of liquidation by which they would try to sell their interest
in the GMMV to a responsible entity which would take over the permits,
substitute bonds, and give adequate indemnification to the GMMV parties, or if
that is not successful, then for a court order for the GMMV to complete
reclamation, with the GMMV parties bearing their shares of reclamation costs.
The complaint does not seek damages from USE, Crested or USECC.
USE, Crested and USECC have not filed an answer to the complaint, but
expect to file responsive pleadings in court by early December 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CRESTED CORP.
Dated: November 22, 1999 By: /s/ Daniel P. SvilaR
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Daniel P. Svilar, Secretary
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