SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) Form 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the Transition Period from ________ to ________
Commission File Number 0-9098
OIL CITY PETROLEUM INC.
(Exact name of registrant as specified in its charter)
Texas 75-1614001
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5579 South Lewis, Tulsa, Oklahoma 74105
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (918) 749-0483
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 at least the past ninety (90) days.
YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 5-S is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant: $63,502 as of November 29, 1996.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date: 14,912,492 as of
November 29, 1996:
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
OIL CITY PETROLEUM, INC.
INDEX
Page
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stock
Holder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management 15
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 18
<PAGE>
PART I
Item 1. BUSINESS
General
The Registrant was incorporated in the State of Texas on August 4,
1978. On August 31, 1978, the Registrant purchased from Energy Oil and Gas
Corporation ("Energy"), a Louisiana corporation which may be deemed to be
the Registrant's predecessor, certain producing oil properties and related
assets. Subsequent transactions have resulted in the Registrant's acquisition
and disposal of additional producing oil and gas properties and related assets.
The Registrant operates in two industry segments, the production of oil and gas
and rental real estate, in one geographic area, the continental United States.
For financial information concerning these industry segments, see "Financial
Statements and Supplementary Data."
Oil and Gas Producing Activities
Reserves - The Registrant's proved oil and gas reserves were
estimated as of August 31, 1996 by Gary R. Christopher, Registered
Professional Engineer.
Estimates of oil and gas reserves are, of necessity, projections based
on engineering data. There are uncertainties inherent in the interpretation of
such data, and there can be no assurance that the reserves set forth herein will
ultimately be realized. No estimates have been filed with or included in
reports to any Federal Authority or agency other than the Securities and
Exchange Commission ("SEC") since August 31, 1995. The Registrant has no
reserves outside the United States.
Proved Reserves - The following table was prepared in accordance
with the rules and regulations of the SEC and is based on the report of Gary
R. Christopher, Registered Professional Engineer.
Proved Reserves
As of August 31, 1996
Oil (bbls):
Proved developed 38,582
Proved undeveloped 35,688
TOTAL 74,270
Natural Gas (mcf):
Proved developed 5,301
Proved undeveloped -
TOTAL 5,301
<PAGE>
Acreage - The following table shows the developed and undeveloped
leasehold acreage held by the Registrant as of August 31, 1996:
Developed Acreage Undeveloped Acreage
(1) Gross (2) Net (1) Gross (2) Net
Oklahoma 1,020.0 797.0 960.0 802.9
Total 1,020.0 797.0 960.0 802.9
Productive Wells - The following table summarizes the productive oil and
gas wells in which the Registrant had an interest at August 31, 1996:
Oil Wells Gas Wells Total
(1) Gross (2) Net (1) Gross (2) Net (1) Gross (2) Net
Oklahoma 16.0 12.6 - - 16.0 12.6
Total 16.0 12.6 - - 16.0 12.6
(1) A "gross acre" or a "gross well" is an acre or well in which a working
interest is owned by the Registrant and the number of gross acres
or gross wells is the total number of acres or wells in which a
working interest is owned by the Registrant.
(2) A "net acre" or a "net well" exists when the sum of the Registrant's
fractional ownership interests in gross acres or gross wells equals
one. The number of net acres or net wells is the sum of the
fractional interests owned in gross acres or gross wells, and does
not include any royalty, overriding royalty or reversionary interests.
<PAGE>
Production, Price and Cost Data - The following table summarizes
certain information relating to the production, price and cost data for the
Registrant for the fiscal years ended, August 31, 1996, 1995 and 1994.
1996 1995 1994
Oil
Production (bbls) 2,770 2,424 2,060
Revenue $51,261 $41,738 $27,636
Average barrels per day 7.59 6.64 5.64
Average sales price per barrel $18.51 $17.22 $13.42
Natural gas:
Production (mcf) 724 642 197
Revenue $ 624 $ 472 $ 189
Average mcf per day 1.98 1.76 .54
Average sales price per mcf $ .86 $ .74 $ .96
Production costs $ 60,111 $ 54,341 $ 39,036
Equivalent (bbls) (1) 2,891 2,531 2,093
Production costs per equivalent bbl $ 20.79 $ 21.47 $ 18.65
Total oil and gas revenues $ 51,885 $ 42,210 $ 27,825
(1) Gas production is converted to barrel equivalents at the rate of six
mcf per barrel representing the estimated relative energy content of
natural gas to oil.
Office Building Rental Activities
The Registrant owns a commercial office building located in Tulsa,
Oklahoma in which its offices are located. Surplus office space is leased to
other professionals.
Loan Agreements
Since 1987, cash advances have been made to the Registrant by
National Oil & Gas, Inc., an affiliated entity, in order to finance working
capital deficits. The terms of the notes representing such cash advances are 6%
to 9% interest with all principal and accrued interest due on demand. Outstand-
ing principal and accrued interest of $1,465,807 at August 31, 1996 are classi-
fied on the balance sheet as a current liability as these notes are payable on
demand. National Oil & Gas, Inc. is an affiliated company controlled by Mr.
William G. Moser, Chairman of the Board of the Registrant. (See Item 13 -
Certain Relationships and Related Transactions.)
<PAGE>
The Registrant's office building in Tulsa, Oklahoma is subject to a
mortgage in the principal amount of $159,561 as of August 31, 1996 at 10.5%
interest, and will be fully amortized in March, 2005.
In view of the current economic conditions within the oil and gas
industry, and the limited amount of its oil and gas production, the Registrant
anticipates that cash flow from operations will not be sufficient to provide for
the payment of its indebtedness, necessitating the renewal or refinancing of
such indebtedness at maturity. (See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
Patents, Trademarks, Licenses, Etc.
The Registrant does not hold any patents, trademarks, licenses, etc.,
with respect to, nor are patents significant in regard to, the Registrant's oil
production activities (for a discussion of the sources and availability of the
Registrant's oil and gas reserves, see "Properties"). The Registrant's oil
production activities are not subject to significant seasonal fluctuations.
Governmental Regulation
General - The Registrant's oil production activities are, and any
drilling operations of the Registrant would be, subject to extensive regulation
by numerous federal, state and local governmental authorities, including state
conservation agencies, the Department of Energy and the Department of the
Interior (including the Bureau of Indian Affairs and Bureau of Land Management).
Regulation of the Registrant's production, transportation and sale of oil or gas
have a significant effect on the Registrant and its operating results.
State Regulation - The current production operations of the Registrant
are, and any drilling operations of the Registrant would be, subject to regula-
tion by state conservation commissions which have authority to issue permits
prior to the commencement of drilling activities, establish allowable rates of
production, control spacing of wells, prevent waste and protect correlative
rights, and aid in the conservation of natural gas and oil. Typical state
regulations require permits to drill and produce oil or gas, protection of fresh
water horizons, and confirmation that wells have been properly plugged and
abandoned.
Environmental Matters - Various federal and state authorities have
authority to regulate the exploration and development of oil and gas and mineral
properties with respect to environmental matters. Such laws and regulations,
presently in effect or as hereafter promulgated, may significantly affect the
cost of its current oil production and any exploration and development
activities undertaken by the Registrant and could result in loss or liability to
the Registrant in the event that any such operations are subsequently deemed
inadequate for purposes of any such law or regulation.
<PAGE>
Uncertainties Related to the Oil and Gas Business in General
The Registrant's operations are subject to all of the risks normally
incident to the exploration for and production of oil and gas, including blow-
outs, cratering, pollution, fires, and theft of equipment. Each of these
incidents could result in damage to or destruction of oil and gas wells or
formations of production facilities or injury to persons, or damage to or loss
of property. As is common in the oil and gas industry, the Registrant is not
fully insured against these risks either because insurance is not available or
because the Registrant has elected not to insure due to prohibitive premium
costs.
The Registrant's oil and gas activities have in the past involved
exploratory drilling, which carries a significant risk that no commercial oil or
gas production will be found. The cost of drilling, completing and operating
wells is often uncertain. Further, drilling may be curtailed or delayed as a
result of many factors, including title problems, weather conditions, delivery
delays, shortages of pipe and equipment, and the availability of drilling rigs.
The oil and gas business is further subject to many other contingen-
cies which are beyond the control of the Registrant. Wells may have to be shut-
in because they have become uneconomical to operate due to changes in the price
of oil, depletion of reserves, or deterioration of equipment. Changes in the
price of imported oil, the discovery of new oil and gas fields and the develop-
ment of alternative energy sources have had and will continue to have a dramatic
effect on the Registrant's business.
Competition and Markets
There are many companies and individuals engaged in the oil and gas
business. Some are very large and well established with substantial capabili-
ties and long earnings records. The Registrant is at a competitive disadvantage
with some other firms and individuals in acquiring and disposing of oil and gas
properties since they have greater financial resources and larger technical
staffs than the Registrant. In addition, in recent years a number of small
companies have been formed which have objectives similar to those of the
Registrant and which present substantial competition to the Registrant.
<PAGE>
A number of factors, beyond the Registrant's control and the effect of
which cannot be accurately predicted, affect the production and marketing of oil
and gas. These factors include crude oil imports, actions by foreign oil
producing nations, the availability of adequate pipeline and other transporta-
tion facilities, the marketing of competitive fuels and other matters affecting
the availability of a ready market, such as fluctuating supply and demand.
The Registrant currently sells a substantial portion of its oil pro-
duction to two purchasers, Koch Oil Company and Sun Oil Company. The Registrant
has no written contracts with purchasers. The Registrant does not believe that
the loss of either of these purchasers would significantly impair its
operations.
Employees
The Registrant currently coordinates all oil field maintenance and
supervision activities using contract labor. The Registrant retains consultants
with respect to current and proposed properties and operations. The Registrant
from time to time retains independent engineering and geological consultants
and the services of lease brokers and geophysicists in connection with its
operations.
Item 2. PROPERTIES
Oil and Gas Reserves
(See Item 1, - General Business - Oil and Gas Production Activities,
Proved Reserves, Acreage, Productive Wells).
Title to Properties
As is customary in the oil and gas industry, the Registrant conducts
only a perfunctory title examination prior to acquisition of properties believed
to be suitable for drilling operations. Prior to the commencement of actual
drilling operations, a thorough title examination is usually conducted and sig-
nificant defects remedied before proceeding with operations. A thorough title
examination has been performed by the Registrant or its predecessor in interests
with respect to substantially all of the Registrant's producing properties and
the Registrant believes that the title to its properties is generally acceptable
to third parties. The Registrant's properties are subject to royalty, over-
riding royalty and other interests customary in the industry, liens incident to
operating agreements, current taxes and other burdens, minor encumbrances, and
easement restrictions. The Registrant does not believe that any of these
burdens materially detract from the value of the properties or will materially
interfere with their use. Oil and gas leases generally provide that properties
are subject to reversion for nonproduction.
<PAGE>
Other Properties
In the opinion of management of the Registrant, the Registrant owns or
has adequate sources of supply of oil field service equipment to maintain its
properties.
The Registrant also owns an office building in Tulsa, Oklahoma
consisting of approximately 8,400 square feet of office space. The Registrant
deems its properties to be adequate for its operations.
Item 3. LEGAL PROCEEDINGS
There are presently no material pending legal proceedings which would
result in any uninsured liability, other than routine litigation incidental to
the business, to which the Registrant is a party.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
(a) The Registrant's common stock is traded in the over-the-
counter market under the symbol OLCP through the "pink sheets" of the National
Quotations Bureau. The table below sets forth the high and low bid prices of
the Registrant's common stock for the periods indicated. Such prices are inter-
dealer prices, without mark-up, mark-down or commissions and do not necessarily
represent actual sales.
High Bid Low Bid
1995:
1st quarter 1/16 1/32
2nd quarter 1/16 1/32
3rd quarter 1/16 1/32
4th quarter 1/16 1/32
1996:
1st quarter 1/16 1/32
2nd quarter 1/16 1/32
3rd quarter 1/16 1/32
4th quarter 1/16 1/32
(b) The high and low bid prices for the Registrant's common stock
on November 29, 1996 were 1/16 and 1/32, respectively. As of November 29,
1996, there were 423 holders of record of the Registrant's common stock.
(c) The Registrant has neither declared nor paid any cash
dividends on its common stock, and it is not anticipated that any such
dividends will be declared or paid in the foreseeable future.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the
Registrant for the five fiscal years ended August 31, 1996 (see "Business - Oil
and Gas Producing Activities, Production, Price and Cost Data").
<TABLE>
For the years ended August 31,
<CAPTION>
1996 1995 1994
1993 1992
<S> <C> <C> <C> <C>
<C>
Net revenues $ 51,885 $ 42,210 $ 27,825 $
31,687 $ 31,025
Net loss ( 222,095) ( 252,945) ( 196,968) (
192,309) ( 161,320)
Loss per share ( .01) ( .02) ( .01) (
.01) ( .01)
Long-term debt less
current portion 147,390 159,560 170,523
180,398 189,292
Total assets 692,597 714,909 749,584
765,655 778,798
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Registrant was unable to satisfy all of its general working
capital requirements with cash flow generated from operations during the current
fiscal year. As in past years, this deficit in working capital was financed by
direct cash advances made by National Oil and Gas Incorporated ("National"), an
affiliated company. Aggregate indebtedness on such cash advances, including
principal and accrued interest of $1,465,807 at August 31, 1996, is represented
by notes providing for rates of interest at 6% to 9% per annum and payable on
demand. (See Item 13 - Certain Relationships and Related Transactions.)
In view of the current economic conditions within the industry in
which the Registrant participates, the Registrant anticipates that cash flow
from operations for fiscal 1996 will be insufficient to satisfy all of its
general working capital requirements, necessitating additional capital infusions
either from affiliates or from sales of assets, borrowed funds, equity partici-
pations or Farmout Agreements.
The Registrant will continue a deficit working capital position in the
future if sustaining and growth capital are not generated. In recent years, the
Registrant has been seeking a buyer or a merger partner in order to infuse
substantial operating assets into the Registrant and reverse the trend of
operating losses. Until such time as a sale or merger may be consummated, of
which there can be no assurance, management's plan is to continue in business
with the existing producing assets through financing anticipated to be provided
by its Chairman, William G. Moser, and/or National. Any such financing is
expected to be in the form of demand loans, which, in effect, provide both long
and short-term financing required to continue in business, as no demands for
repayment of principal or interest are anticipated until such time as the
Registrant achieves profitable operations.
Because of the resources possessed by William G. Moser and National
Oil and Gas, Inc., management's plan has the ability to allow the Registrant to
continue in operations through fiscal 1997.
<PAGE>
Fiscal Year 1996 Compared with Fiscal Year 1995
The 1996 net loss of $222,095 was $30,850 less than the 1995 loss of
$252,945. Gross income from oil and gas operations was $51,885, a 23%
increase over the prior year, due mostly to equipment upgrades and well
workovers from the prior year. Additionally, five wells were acidized in fiscal
1996 to further stimulate production. Oil and gas production and operating
expenses were $60,111, an 11% increase over prior year due to the
aforementioned well stimulation, and due to a bitterly cold and dry winter
followed by widespread grass fires. These events required extra effort and
expense to keep the wells flowing. Net income from rental operations was up
$4,668 over the prior year due to a higher occupancy rate from the improving
market for commercial real estate in the Tulsa, Oklahoma area. Depreciation,
depletion and amortization expense decreased slightly by $949. Administrative
and general expense remained steady, with a slight drop of $772. Interest
expense to affiliates increased $8,676 due to the fact that the Registrant's
debt to an affiliate has increased $135,736 since August 31, 1995.
Fiscal Year 1995 Compared with Fiscal year 1994
The 1995 net loss of $252,945 was $55,977 more than the 1994 loss of
$196,968. Gross income from oil and gas operations was $42,210, up over 50%
over the prior year, mostly due to equipment upgrades and well workovers
performed in the current and previous years. Income was adversely affected by
a lightning strike which set fire to a tank battery, shutting down over half of
the Registrant's wells for two months. After deducting fire repairs, equipment
upgrades and well workovers, the 1995 net loss from oil and gas operations was
$920 greater than 1994. Depreciation, depletion and amortization expense
decreased $3,128, mostly due to an increase in estimated oil and gas reserves.
Rental income decreased $7,060 due to the loss of a tenant formerly occupying
1,200 square feet of office space. The tenant was replaced effective April 1,
1995. The loss of rental income was partially offset by a $4,923 decrease in
rental expenses, mostly due to fewer repairs being necessary in Fiscal 1995.
Administrative and general expenses increased by $17,829 due to higher fees
from contracted labor. Interest expense to affiliates increased $9,136 due to
the fact that the Registrant's debt to affiliates increased $151,775 since
August 31, 1994. In addition to the above, one oil and gas property was sold
for a book loss of $30,661.
<PAGE>
Fiscal Year 1994 Compared with Fiscal Year 1993
The 1994 net loss of $196,968 was $4,659 more than the 1993 loss of
$192,309. Net income from oil and gas operations improved significantly in the
first half of fiscal 1994, but a prairie fire in May shut down half of the
Registrant's wells for four months, negating the improvement and leaving 1994
net income from oil and gas operations $1,612 lower than 1993. Depreciation,
depletion and amortization expense decreased $6,469 due to an increase in
estimated reserves combined with the fact that some leases became nearly fully
depleted in fiscal 1993. Rental income increased $7,389 due to the leasing of
an additional 950 square feet of previously vacant office space, but was
partially offset by an increase of $4,362 in rental expenses due to improvements
in the newly occupied suites. Administrative and general expenses increased
$2,334 primarily due to increased fees from contracted labor. Interest expense
increased $11,179 due to the fact that the Registrant's debt to affiliates has
increased $131,403 since August 31, 1993.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate section (Item 14)
of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The names of the directors and information about them, as
furnished by the directors themselves, are set forth below:
Director
Name Principal Occupation Since Age
William G. Moser President of National Oil & Gas, Inc. 1983 63
Herman E. Nichols, Jr. Vice President of CN Electronics, Inc. 1985 75
Jay D. Kipfer Controller and Secretary of National 1990 62
Oil & Gas, Inc.
<PAGE>
William G. Moser has served as Vice President of the Registrant since
September, 1982, and as a Director of the Registrant since January, 1983. Mr.
Moser was elected as Chairman and Chief Executive Officer of the Registrant
in December of 1990. For the past six years, he has served as President of
National Oil & Gas, Inc.
Herman E. Nichols, Jr. has served as President of the Registrant since
August, 1985. From 1983 to the present, he has been involved with numerous
firms as a consulting geologist. Prior to this, he served as Senior Geologist
for Coastal Oil & Gas Corporation.
Jay D. Kipfer has served as a Director and as Secretary of the
Registrant since September, 1982. For more than the past thirteen years, he
has served as Controller and Secretary of National Oil & Gas, Inc.
Each of the above named members of the present Board of Directors
was elected to such office at the Annual Meeting of Stockholders held February
24, 1993. There are no family relationships among any of the Directors and any
Officer.
(b) The following table sets forth the names and ages of all
executive officers of the Registrant, their positions and offices with the
Registrant, and the period during which each person has served as such.
Positions & Offices
Currently Held with Served as Executive
Name Age the Registrant Officer Since
William G. Moser 63 Chairman, Chief 1982
Executive Officer
and Vice President
Herman E. Nichols, Jr. 75 President 1985
Jay D. Kipfer 62 Secretary/Treasurer 1982
The Executive Officers of the Registrant are elected annually for
terms terminating at such time as their respective successors are elected and
qualified.
There are no family relationships between any Director or Executive
Officer and any other Director or Executive officer.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Set forth in the following table is information as to the compensation
paid by the Registrant during the previous three fiscal years to the Chief
Executive Officer, and each other executive officer, if any, where compensation
exceeded $100,000 for any of such periods. The Company has no option plans or
other forms of compensation.
SUMMARY COMPENSATION TABLE
Fiscal Year Other Annual
Name and Principal Ended Salary Bonus Compensation
Position August 31 ($) ($) ($) (1)
William G. Moser, 1996 - - -
Chairman and Chief 1995 - - -
Executive Officer 1994 - - -
(1) The Registrant cannot precisely ascertain the specific amount
of personal benefits furnished by the Registrant to any specified persons in the
above table, or the extent to which such benefits are personal rather than
business, but after reasonable inquiry, the Registrant has concluded that the
aggregate amounts of such benefits and any other compensation not otherwise
disclosed above do not in any event exceed the lesser of $50,000 or 10 percent
of the compensation, if any, reported in the above table as to any person
specified.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table sets forth, as of November 29, 1996, the
name and address of each person known to the Registrant to be the beneficial
owner of more than 5 percent of the Registrant's Common Stock and the number of
shares owned by each such person together with the percent of outstanding
amount of such class which such ownership represents. Unless otherwise
indicated, such persons have sole voting and investment power with respect to
such shares.
<PAGE>
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership Class
Silver Petroleum Corporation (1) 7,526,915 50.47%
503 Orchard Drive
Bluffton, Indiana 46714
Moco Resources, Inc. (1) 2,219,077 14.88%
503 Orchard Drive
Bluffton, Indiana 46714
William G. Moser (1) 3,138,000 21.04%
503 Orchard Drive
Bluffton, Indiana 46714
(1) A member of a group (as defined in Rule 13d-5 of the Securi-
ties Exchange Act of 1934, as amended) which, according to
Amendment No. 5 to its Schedule 13D report, at September 7,
1987, owned beneficially an aggregate of 13,495,192 shares
(approximately 90.5%) of outstanding Common Stock (see Item
13 - Certain Relationships and Related Transactions).
(b) The following table sets forth, as of November 29, 1996, the
beneficial ownership (as defined by the rules of the Securities and Exchange
Commission) of Common Stock of the Registrant by each Director and by all
Officers and Directors as a group, together with the percentage of the
outstanding shares of such class which such ownership represents. Unless
otherwise indicated, such persons have sole voting and investment power with
respect to such shares.
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership Class
William G. Moser (1) 13,495,192 (2) 90.5%
Herman E. Nichols, Jr. 62,600 0.4%
All Officers and Directors as a Group,
including Those Named Above
(5 persons) 13,557,792 90.9%
(1) William G. Moser is an Officer and Director of Moco
Resources, Inc. and Silver Petroleum Corporation (see Item
13 - Certain Relationships and Related Transactions).
(2) Includes 7,526,915 shares owned by Silver Petroleum
Corporation, and 2,219,077 shares owned by Moco Resources,
Inc., both of which are companies owned or controlled by the
Company's Chairman, William G. Moser. (See Item 13 - Certain
Relationships and Related Transactions.)
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William G. Moser, who is a Director and Chief Executive Officer of the
Registrant, is a Director and Executive Officer (and a controlling stockholder,
directly or indirectly) of Moco Resources, Inc. ("Moco") and Silver Petroleum
Corporation ("Silver"). Jay D. Kipfer, who is Secretary/Treasurer of the
Registrant, is a Director and Executive Officer of Moco and Silver. Moco and
Silver are members of a group which, according to Amendment No. 5 to its
Schedule 13D report, at September 7, 1987, owned beneficially an aggregate of
13,495,192 shares, constituting approximately 90.5% of the outstanding shares
of Common Stock (see Item 12 - Security Ownership of Certain Beneficial
Owners and Management).
As in prior years, the Registrant was unable to satisfy all of its
general working capital requirements including debt service with cash flow
generated from operations during its 1996 fiscal year. This deficit in working
capital was financed by direct cash advances made by National Oil and Gas, Inc.
("National"), of which Mr. Moser and Mr. Kipfer are Directors and Executive
Officers and of which Mr. Moser, directly and indirectly, is a controlling
stockholder. Advances totaling $131,403, $151,775, and $135,736 were
received by the Registrant from National in 1994, 1995, and 1996, respectively.
Notes for such advances, representing outstanding principal and accrued interest
of $1,465,807 at August 31, 1996, provide for rates of interest at 6% to 9% per
annum and are payable on demand. The Registrant believes that these notes
provide terms and conditions at least as favorable to the Registrant as terms
and conditions obtainable from nonaffiliated parties.
It is anticipated that additional financing will be provided by Mr.
Moser or affiliated entities if the Registrant is not able to generate adequate
cash flow from operations, or from sales of assets, mergers, or other
transactions, through August 31, 1997. (See Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations.)
In 1989, the Registrant's office building was contributed to it by C N
Operating Company, an affiliate of William G. Moser, subject to an existing
mortgage in the principal amount of $189,292 which is still in the name of the
contributing entity, but which the Registrant is currently servicing.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Financial Statements and Schedules. The following financial
statements and schedules for Oil City Petroleum, Inc. as of August 31, 1996 and
1995 and for the years ended August 31, 1996, 1995 and 1994 are filed as part
of this report.
Page
(1) Financial statements of Oil City Petroleum, Inc.:
Reports of Independent Accountants 21
Balance Sheets 23
Statements of Operations 24
Statements of Shareholders' Equity 25
Statements of Cash Flows 26
Notes to Financial Statements 27
(2) Financial Statement Schedules:
Schedule V - Property, Plant and Equipment 41
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment 42
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended
August 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DATE OIL CITY PETROLEUM, INC.
November 29, 1996 By: /s/ Herman E. Nichols, Jr.
Herman E. Nichols, Jr.
President
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Date
/s/ William G. Moser November 29, 1996
William G. Moser,
Chairman of the Board and
Chief Executive Officer
/s/ Herman E. Nichols, Jr. November 29, 1996
Herman E. Nichols, Jr.
President and Director
/s/ Jay D. Kipfer November 29, 1996
Jay D. Kipfer
Treasurer and Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED AUGUST 31, 1996
OIL CITY PETROLEUM, INC.
<PAGE>
William T. Zumwalt, Inc.
1429 South Baltimore
Tulsa, OK 74119
918-583-1040
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders
Oil City Petroleum, Inc.
We have audited the balance sheets of Oil City Petroleum, Inc. (the
"Company") as of August 31, 1996 and 1995, and the related statements of
operations, shareholders' equity and cash flows, and the financial statement
schedules for each of the years in the three-year period ended August 31, 1996,
as listed in Item 14(a) of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules 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 Oil City Petroleum,
Inc. as of August 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended August 31, 1996,
in conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above when considered
in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be included therein.
The accompanying financial statements have been prepared assuming
that Oil City Petroleum, Inc. will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered recurring losses
from operations, current liabilities exceed current assets by $1,443,629 and it
has an accumulated deficit of $8,207,255. Additionally, the Company may not
be able to obtain funds needed to develop its proved undeveloped oil and gas
properties, which constitute approximately $229,000 of the Company's total
standardized measure of discounted future net cash flows of $395,000 at August
31, 1996. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.
/s/ William T. Zumwalt, Inc.
Certified Public Accountants
Tulsa, Oklahoma
November 1, 1996
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
BALANCE SHEETS
AUGUST 31, 1996 AND 1995
<CAPTION>
ASSETS 1996
1995
<S> <C>
<C>
Current assets:
Cash $
311 $ 3,964
Short term investment (Note 2)
25,000 25,000
Accounts receivable
15,119 12,693
Crude oil inventory
4,992 3,315
Other current assets
3,597 3,957
Total current assets
49,019 48,929
Property and equipment, at cost (Notes 2 and 4):
Oil and gas properties, successful efforts
method
1,094,018 1,088,142
Field equipment
7,945 7,945
Building, land and office equipment
254,331 306,393
1,356,294 1,402,480
Less accumulated depreciation, depletion
and amortization
712,716 736,500
Net property and equipment
643,578 665,980
$
692,597 $ 714,909
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
14,670 $ 24,171
Current portion of long-term debt
12,171 10,963
Notes and accrued interest payable to
affiliate (Note 3)
1,465,807 1,245,561
Total current liabilities
1,492,648 1,280,695
Long-term debt, less current portion (Note 4)
147,390 159,560
Shareholders' equity:
Common stock, no par value, authorized
30,000,000 shares, issued and outstanding
14,912,492 shares
5,692,571 5,692,571
Additional paid-in capital
1,567,243 1,567,243
Accumulated deficit (
8,207,255) ( 7,985,160)
Total shareholders' equity (deficit) (
947,441) ( 725,346)
$
692,597 $ 714,909
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OIL CITY PETROLEUM INC.
STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995
1994
<S> <C> <C>
<C>
Revenues:
Oil and gas sales $ 51,885 $
42,210 $ 27,825
Rental income 37,408
30,041 37,010
Loss on sale of assets ( 2,675) (
30,661) -
Interest and other income 1,490
1,357 815
88,108
42,947 65,650
Cost and expenses:
Oil and gas production and
operating expenses 60,111
54,341 39,036
Rental expenses 26,934
24,235 29,158
Depreciation, depletion and amortization 20,513
21,462 24,590
Administrative and general 100,737
101,509 83,680
Interest expense - non affiliates 17,398
18,511 19,456
Interest expense - affiliates (Note 3) 84,510
75,834 66,698
310,203
295,892 262,618
Net loss $ 222,095 $
252,945 $ 196,968
Net loss per share $ .01 $
.02 $ .01
Average number of shares outstanding 14,912,492
14,912,492 14,912,492
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<CAPTION>
Common Stock
No Par Value
Additional
Number of Paid-in
Accumulated
Shares Amount Capital
Deficit Total
<S> <C> <C> <C>
<C> <C>
Balance, August 31,
1993 14,912,492 $5,692,571 $1,567,243
($7,535,247) ($275,433)
Net loss, year ended
August 31, 1994 - - - (
196,968) ( 196,968)
Balance, August 31,
1994 14,912,492 5,692,571 1,567,243 (
7,732,215) ( 472,401)
Net loss, year ended
August 31, 1995 - - - (
252,945) ( 252,945)
Balance, August 31,
1995 14,912,492 5,692,571 1,567,243 (
7,985,160) ( 725,346)
Net loss, year ended
August 31, 1996 - - - (
222,095) ( 222,095)
Balance, August 31,
1996 14,912,492 $5,692,571 $1,567,243
($8,207,255) ($947,441)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<CAPTION>
Increase
(Decrease) in Cash
1996
1995 1994
<S> <C>
<C> <C>
Cash flows from operating activities
Net loss ($222,095)
($252,945) ($196,968)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 20,513
21,462 24,590
Interest expense - affiliates 84,510
75,834 66,698
Loss on sale of assets 2,675
30,661 -
Write off of other assets -
1,994 -
Change in assets and liabilities:
(Increase) decrease in accounts
receivable ( 2,426)
( 6,054) ( 3,030)
(Increase) decrease in inventory ( 1,677)
( 1,827) 2,832
(Increase) decrease in other current
assets 360
75 ( 357)
Increase (decrease) in accounts payable ( 9,501)
536 ( 8,310)
Total adjustments 94,454
122,681 82,423
Net cash used in operating activities ( 127,641)
( 130,264) ( 114,545)
Cash flows from investing activities:
Capital expenditures ( 5,876)
( 9,208) ( 7,238)
Proceeds from sale of assets 5,090
625 -
Net cash used by investing activities ( 786)
( 8,583) ( 7,238)
Cash flows from financing activities:
Borrowings from affiliate 135,736
151,775 131,403
Principal payments on long-term debt ( 10,962)
( 9,875) ( 8,894)
Net cash provided by financing activities 124,774
141,900 122,509
Net increase (decrease) ( 3,653)
3,053 726
Cash at beginning of year 3,964
911 185
Cash at end of year $ 311
$ 3,964 $ 911
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 17,387
$ 18,511 $ 19,456
Income taxes $ -
$ - $ -
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
1 - Nature of Business and Significant Accounting Policies
(a) Business
Oil City Petroleum, Inc. (the "Company") was incorporated in the
State of Texas on August 4, 1978. The Company is principally engaged in the
production of oil and gas. The Company owns working interests and overriding
royalty interests in producing oil and gas properties, all located in the State
of Oklahoma, and acts as operator of the oil wells on two leases which consti-
tute the bulk of its working interests. The Company also owns a commercial
office building in Tulsa, Oklahoma, consisting of 8,400 square feet of office
space. The Company deems its oil and gas producing activities to be the most
important segment of its business based on current and potential future revenues
derived therefrom.
(b) Basis of presentation
The accompanying financial statements of the Company have been
prepared on a going concern basis which contemplates the realization of assets
and the liquidation of liabilities in the normal course of business.
Substantial operating losses have been incurred in each of the past
several years. During the last eight years, the Company had significant cash
flow deficiencies that required the Company's Chairman of the Board and
affiliated companies to fund the Company's operations.
Through December, 1987, the Chairman committed to provide funding
for any operating cash flow deficiencies and to provide funds for the timely
settlement of liabilities. Since December, 1987, cash flow deficiencies
continued, and affiliated companies funded company operations. Management's
plan is to continue in business with the existing producing assets through
financing anticipated to be provided by its Chairman or an affiliated company
until such time as a suitable buyer or merger partner can be found. Because of
the resources possessed by the Registrant's Chairman and its affiliated
companies, management's plan should have the ability to allow the Company to
continue in operations for at least one year.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-2-
1 - Nature of Business and Significant Accounting Policies (continued)
(b) Basis of presentation (continued)
The continuation of the Company as a going concern is dependent
upon continuing to receive financial support from affiliated companies and/or
the Chairman or obtaining additional capital in order to meet its obligations.
The Company's financial statements do not include any adjustments relating to
the realization of assets and liquidation of liabilities that might be necessary
should the Company be unable to continue as a going concern.
(c) Cash equivalents and short-term investments
For purposes of the statement of cash flows, the Company considers
all certificates of deposit and other securities or debt instruments with
maturities of three months or less, when purchased, to be cash equivalents.
Securities with maturities of more than three months, when purchased, are
classified as "short-term investments" in the balance sheet.
(d) Inventories
Crude oil inventory is stated at market value.
(e) Property and equipment
The Company follows the successful efforts method of accounting for
its oil and gas producing activities. Under the successful efforts method, the
Company capitalizes all oil and gas leasehold acquisition costs. For unproved
properties, leasehold impairment is recognized based upon an individual property
assessment and exploration experience. Upon discovery of commercial reserves,
such leasehold costs are transferred to proved properties.
Geological and geophysical expenses, production costs and overhead
are charged against income as incurred. Exploratory drilling costs are
capitalized when incurred. If exploratory wells are determined to be
unsuccessful (dry holes), applicable costs are expensed. Costs incurred to
drill and equip developmental wells, including unsuccessful development wells,
are capitalized.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-3-
1 - Nature of Business and Significant Accounting Policies (continued)
(e) Property and equipment (continued)
Expenditures related to extensive well workover projects are
capitalized upon determining that the workover resulted in significantly
increased proved reserves. All other workover costs are expensed as incurred.
These costs include those for deepening existing producing wells within the
same producing formation when such operations are conducted for the purpose
of restoring efficient operating conditions as well as other repairs,
reconditioning or reworking costs of wells already drilled and operating.
Depreciation, depletion and amortization of the cost of proved
producing oil and gas properties, including wells and related equipment and
facilities, are determined by the units-of-production method based on quantities
produced as a percent of estimated proved recoverable reserves. Depreciation
of the office building, office and field equipment is provided for by the
straight-line method over estimated useful lives of 31-1/2 years for the office
building, 5 years for office equipment and 10 years for field equipment.
When complete units of depreciable property are retired or sold, the
asset cost and related accumulated depreciation and depletion are eliminated
with any gain or loss reflected in income. When less than complete units of
depreciable property are retired or sold, the difference between asset cost and
sales price or salvage value is charged or credited to accumulated depreciation
and depletion.
(f) Income taxes
Effective September 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". The adoption of SFAS No. 109 changed the Company's method of
accounting for income taxes from the deferred method under Accounting
Principles Board ("APB") Opinion No. 11 to an asset and liability method.
SFAS No. 109 requires the recognition of deferred tax assets and liabilities for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. In addition, SFAS No. 109 requires the recognition of
future tax benefits, such as net operating loss carryforwards, to the extent
that realization of such benefits is more likely than not.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-4-
1 - Nature of Business and Significant Accounting Policies (continued)
(f) Income taxes (continued)
General business credits are accounted for in the years the credits
arise by the flow-through method.
(g) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(h) Fair value
The carrying amounts of accounts receivable and accounts payable
approximate their fair value. Based on the estimated borrowing rates currently
available to the Company for long-term loans with similar terms and average
maturities, the aggregate fair value at August 31, 1996 of the Company's long-
term debt approximates the aggregate carrying amount.
(I) Loss per common share
Loss per share is computed by dividing the net loss for the period
by the weighted average number of common shares outstanding.
2 - Short-Term Investment
At August 31, 1996 and 1995, the short-term investment represents a
one-year renewable certificate of deposit stated at cost which approximates its
market value. The certificate of deposit is maintained as collateral in support
of a $25,000 letter of credit issued by the Company's bank in favor of the
Oklahoma Corporation Commission to meet certain licensing requirements.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-5-
3 - Related Party Transactions
The balance in "notes and accrued interest payable to affiliate"
consists of the following unsecured notes and accrued interest payable to
National Oil and Gas, Inc., an entity controlled by the Company's chairman and
major stockholder:
August 31,
1996 1995
Notes payable $1,101,936 $ 966,200
Accrued interest payable 363,871 279,361
$1,465,807 $1,245,561
The notes bear interest at rates from 6% to 9%. Interest expense
incurred on these notes amounted to $84,510, $75,834 and $66,698 for the
years ended August 31, 1996, 1995 and 1994, respectively.
Although the notes and related accrued interest have no scheduled
maturity date and are not likely to be repaid within the foreseeable future, by
their terms, the notes are due upon demand, and, along with related accrued
interest, are classified as current liabilities in these financial statements.
In October, 1993, the Company received nominal overriding royalty
interests in sixteen producing oil and gas properties from Silver Petroleum
Corporation ("Silver"), an entity controlled by the Company's chairman and major
stockholder. The overriding interests were received in exchange for the use of
the Company's production bond in Osage County, Oklahoma by Silver and an
unrelated joint venture partner in drilling developmental oil and gas wells in
that area. Oil and gas sales, net of production taxes, on these properties
amounted to $3,146, $3,178 and $2,418 for the years ended August 31, 1996, 1995
and 1994, respectively.
4 - Long-Term Debt
Long-term debt at August 31, 1996 and 1995 consisted of an
installment mortgage obligation collateralized by the Company's commercial
office building contributed to the Company in fiscal 1990. The mortgage debt
bears interest at 10.5% and is payable in monthly installments of $2,362 through
maturity in March, 2005.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-6-
4 - Long-Term Debt (continued)
Estimated installments due on long-term debt during each of the five
fiscal years subsequent to August 31, 1996 are as follows:
1997 $12,171
1998 13,512
1999 15,001
2000 16,654
2001 18,490
5 - Income Taxes
No provision (benefit) for income taxes was provided for the years
ended August 31, 1996, 1995 and 1994 due to the Company's pretax operating
losses sustained for both income tax and financial reporting purposes.
At August 31, 1996, the Company had an operating loss carryforward
of approximately $6,638,000 for income tax purposes, expiring as follows: 1997,
$1,750,000; 1998, $505,000; 1999, $444,000; 2000, $625,000; 2001, $1002,000;
2002, $487,000; 2003, $278,000; 2004, $216,000; 2005, $138,000; 2006,
$216,000; 2007, $144,000; 2008, $193,000; 2009, $183,000; 2010, $242,000;
and 2001, $215,000. The tax benefit of these losses has been offset by a
valuation allowance due to the uncertainty of their realization.
6 - Major Customers
The Company had oil and gas sales of 10% or more of total oil and
gas sales to two major customers in 1996, 1995 and 1994. Such sales
accounted for 55% and 44% of oil and gas sales in 1996, 51% and 48% of oil
and gas sales in 1995, and 44% and 55% of oil and gas sales in 1994.
7 - Business Segment Information
The Company operates in two business segments, oil and gas
development and production ("oil and gas") and rental of commercial real estate
("real estate"). The Company's operations are conducted entirely within the
continental United States.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-7-
7 - Business Segment Information (continued)
<TABLE>
Summarized financial information by industry segment for the years
ended August 31, 1996, 1995 and 1994 follows:
<CAPTION>
1996 1995
1994
<S> <C> <C>
<C>
Net operating revenues from
sales to unaffiliated customers:
Oil and gas $ 49,210 $
11,549 $ 27,825
Real estate 37,408
30,041 37,010
Corporate 1,490
1,357 815
Net operating revenues $ 88,108 $
42,947 $ 65,650
Operating loss:
Oil and gas ($ 95,220)
($128,673) ($ 86,345)
Real estate ( 11,346) (
16,058) ( 11,255)
Operating loss of segments ( 106,566) (
144,731) ( 97,600)
Corporate revenue (expenses) (net) ( 13,621) (
13,869) ( 13,214)
Interest expense ( 101,908) (
94,345) ( 86,154)
Net loss ($222,095)
($252,945) ($196,968)
Identifiable assets:
Oil and gas $ 461,342 $
472,889 $ 515,115
Real estate 205,944
213,056 206,564
Corporate 25,311
28,964 27,905
$ 692,597 $
714,909 $ 749,584
Depreciation, depletion and
amortization:
Oil and gas $ 13,804 $
14,824 $ 16,558
Real estate 6,709
6,638 6,555
Corporate - -
1,477
$ 20,513 $
21,462 $ 24,590
</TABLE>
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-8-
7 - Business Segment Information (continued)
<CAPTION>
1996 1995
1994
<S> <C> <C>
<C>
Capital expenditures:
Oil and gas $ 5,876 $
3,208 $ 7,238
Real estate -
6,000 -
Corporate - -
-
$ 5,876 $
9,208 $ 7,238
</TABLE>
Corporate revenues consist principally of interest income.
Operating profit is net revenues less applicable operating expenses.
Corporate administrative and general expenses are allocated to each of the
industry segments and to general corporate expenses based on management's
estimates of time devoted to each segment and general corporate matters.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets consist primarily of cash, short-
term investments and corporate office equipment.
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited)
The following supplemental historical and reserve information is
presented in accordance with Financial Accounting Standards Board ("FASB")
Statement No. 69, "Disclosures about Oil and Gas Producing Activities".
Capitalized Costs
The aggregate amounts of capitalized costs relating to oil and gas
producing activities and the aggregate amounts of the related accumulated
depreciation, depletion and amortization at August 31, 1996 and 1995, were as
follows:
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-9-
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited) (continued)
Capitalized Costs (continued)
1996 1995
(In Thousands)
Capitalized costs:
Proved properties $ 1,102 $ 1,096
Unproved properties - -
Total capitalized costs 1,102 1,096
Less accumulated depreciation
depletion and amortization 651 638
$ 451 $ 458
Costs incurred
Costs (capitalized and expensed) incurred in oil and gas property
acquisition, exploration and development activities for the years ended August
31, 1996, 1995 and 1994 were as follows:
1996 1995 1994
(In Thousands)
Property acquisition costs:
Proved properties $ - $ - $ -
Unproved properties - - -
Exploration - - -
Development 6 3 7
$ 6 $ 3 $ 7
Results of operations
The results of operations from oil and gas producing activities for
the years ended August 31, 1996, 1995 and 1994 were as follows:
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-10-
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited) (continued)
Results of operations (continued)
<TABLE>
<CAPTION>
1996 1995
1994
<S> <C> <C>
<C>
Oil and gas sales $51,885
$42,210 $27,825
Production costs ( 60,111) (
54,341) ( 39,036)
Depreciation, depletion
and amortization ( 13,531) (
13,889) ( 15,623)
Results of operations from producing
activities (excluding corporate
overhead and interest costs) ( $21,757) (
$26,020) ( $26,834)
</TABLE>
Estimated quantities of proved oil and gas reserves
The following estimates of changes in the Company's net proved
developed and undeveloped oil and natural gas reserves during the years ended
August 31, 1996, 1995 and 1994 were made by an independent reservoir
engineer. Reserve estimates are based on a complex and highly interpretative
process which is subject to continuous revisions as additional production and
development drilling information becomes available. The quantities reported
below are only those amounts which the Company can reasonably expect to
recover from known reservoirs under existing economic and operating conditions
using current prices and operating costs. All oil and gas reserves reported are
located in the United States, in the State of Oklahoma in 1996 and in the States
of Oklahoma and Louisiana in 1995 and 1994. The Company does not have any
long-term supply contracts with foreign governments or reserves of equity
investees.
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-11-
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited) (continued)
Estimated quantities of proved oil and gas reserves (continued)
<CAPTION>
Natural Gas Oil
and Condensate
(MCF)
(Bbls)
1996 1995 1994 1996
1995 1994
<S> <C> <C> <C> <C>
<C> <C>
Proved developed and
undeveloped reserves
Beginning of year 4,432 34,714 34,567 66,158
54,393 51,281
Extensions, discoveries
and other additions - - 930 -
- 2,366
Revisions of previous
estimates 1,593 4,340 ( 586) 10,882
14,189 2,806
Production ( 724) ( 642) ( 197) ( 2,770) (
2,424) ( 2,060)
Sales of
minerals-in-place - (33,980) - -
- -
End of year 5,301 4,432 34,714 74,270
66,158 54,393
Proved developed reserves
Beginning of year 4,432 20,698 20,551 30,470
18,705 15,593
End of year 5,301 4,432 20,698 38,582
30,470 18,705
</TABLE>
Based on the information available as of the date of issuance of
these financial statements, there has been no major discovery or other event
that is believed to have caused a significant change in the estimated proved
reserves of the Company. There have been no reports filed with any federal
agency of authority since the beginning of the last fiscal year giving estimates
of total proved oil and gas reserves other than reports filed with the
Securities and Exchange Commission.
Standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves
Estimated future cash inflows are computed by applying year-end
prices of oil and gas to year-end quantities of proved reserves. Future price
changes are considered only to the extent provided by contractual arrangements.
Estimated future development and production costs are determined by estimating
the expenditures to be incurred in developing and producing the proved oil
and gas reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-12-
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited) (continued)
Standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves (continued)
tax expense, if any, is calculated by applying year-end statutory tax rates
(adjusted for permanent differences and tax credits) to estimated future pretax
net cash flows related to proved oil and gas reserves, less the tax basis of the
properties involved. The resulting future net cash flows are then discounted
using a rate of 10% per annum.
The arbitrary valuation prescribed under FASB Statement No. 69
requires assumptions as to the timing of future production from proved reserves
and the timing and amount of future development and production costs. The
changes in present values between years not only reflect changes in estimated
proved reserve quantities, but also reflect changes in assumptions used in
determining future production volumes and expenditures.
It should be recognized that applying current costs and prices and a
10% standard discount rate allows for comparability but does not convey
absolute value. The discounted amounts arrived at are only one measure of the
value of proved reserves.
The Company does not use discounted estimated future net cash flows
from proved reserves for its planning or investment decisions. The following
information does not represent management's estimate of the Company's
expected future cash flows or value of proved oil and gas reserves. Estimates
of proved reserve quantities are imprecise and change over time as new
information becomes available. Although calculated in accordance with FASB
Statement No. 69, the Company cautions statement users to not place
unwarranted reliance on the information.
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-13-
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited) (continued)
Standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves (continued)
The standardized measures of discounted future net cash flows as of
August 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994
(In Thousands)
Future cash inflows $1,527 $1,082 $946
Future production costs ( 705) ( 509) ( 372)
Future development costs ( 130) ( 100) ( 104)
Future net cash flows * 692 473 470
10% annual discount for estimated
timing of cash flows 297 202 190
Standardized measure of discounted
future net cash flows $ 395 $ 271 $ 280
* Future net cash flows do not include estimated future net salvage
value of lease and well equipment of $120,000 at August 31, 1996, 1995, and
1994. The estimated net future salvage value of lease and well equipment
pertains primarily to tank batteries, flow lines, pumping units and motors and
other surface equipment.
Following is an analysis of changes in the estimated standardized
measure of discounted future net cash flows during the years ended August 31,
1996, 1995 and 1994:
<PAGE>
OIL CITY PETROLEUM, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996, 1995 AND 1994
-14-
8 - Supplemental Information on Oil and Gas Exploration and Production
Activities (Unaudited) (continued)
Standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves (continued)
1996 1995 1994
(In Thousands)
Standardized measure, beginning of year $271 $280 $266
Sales and transfers of oil and gas
produced, net of production costs 8 12 11
Net changes in prices and production costs ( 25) ( 158) ( 45)
Extensions, discoveries and other additions - - 21
Sales of minerals-in-place - ( 23) -
Revisions of previous quantity estimates 118 170 31
Accretion of discount 27 27 26
Other, primarily changes in the timing
of production and development ( 4) ( 37) ( 30)
Standardized measure, end of year $ 395 $ 271 $ 280
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<CAPTION>
Other
Balance at
Changes- Balance
Beginning of Additions
Add At End of
Classification of Period at Cost Retirements
(Deduct) Period
<S> <C> <C> <C>
<C> <C>
Year ended
August 31, 1996:
Producing oil and
gas properties $1,088,142 $5,876 $ - $
- - $1,094,018
Field equipment 7,945 - -
- - 7,945
Building, land and
office equipment 306,393 - 52,062 <F3>
- - 254,331
$1,402,480 $5,876 $52,062 $
- - $1,356,294
Year ended
August 31, 1995:
Producing oil and
gas properties $1,121,292 $3,208 $36,358 <F1> $
- - $1,088,142
Field equipment 58,954 - 51,009 <F2>
- - 7,945
Building, land and
office equipment 300,393 6,000 -
- - 306,393
$1,480,639 $9,208 $87,367 $
- - $1,402,480
Year ended
August 31, 1994:
Producing oil and
gas properties $1,114,054 $7,238 $ - $
- - $1,121,292
Field equipment 58,954 - -
- - 58,954
Building, land and
office equipment 300,393 - -
- - 300,393
$1,473,401 $7,238 $ - $
- - $1,480,639
Depreciation, depletion and amortization of producing oil and gas properties is
provided for on the unit-of-production basis. Depreciation of other property
and equipment is provided for using the straight-line method over the estimated
useful lives, which are 10 years for field equipment, 31-1/2 years for buildings
and 5 years for office equipment.
<FN>
<F1>
Represents the sale of the Swann gas lease in July, 1995.
<F2>
Represents write-off of fully depreciated field equipment no longer owned.
<F3>
Represents sale of warehouse and yard facilities in Oil City, Louisiana in
December, 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
OIL CITY PETROLEUM, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<CAPTION>
Additions
Other
Balance at Charged to
Changes- Balance
Beginning of Costs and
Add At End of
of Period Expenses Retirements
(Deduct) Period
<S> <C> <C> <C>
<C> <C>
Year ended
August 31, 1996:
Producing oil and
gas properties $629,849 $13,531 $ - $
- - $643,380
Field equipment 7,945 - -
- - 7,945
Building, land and
office equipment 98,706 6,982 44,297
- - 61,391
$736,500 $20,513 $44,297 $
- - $712,716
Year ended
August 31, 1995:
Producing oil and
gas properties $621,032 $13,889 $ 5,072 $
- - $629,849
Field equipment 58,954 - 51,009
- - 7,945
Building, land and
office equipment 91,133 7,573 -
- - 98,706
$771,119 $21,462 $56,081 $
- - $736,500
Year ended
August 31, 1994:
Producing oil and
gas properties $605,409 $15,623 $ - $
- - $621,032
Field equipment 58,954 - -
- - 58,954
Building, land and
office equipment 82,166 8,967 -
- - 91,133
$746,529 $24,590 $ - $
- - $771,119
</TABLE>
