INDEPENDENT AUDITORS' REPORT
The Board of Directors
Double Eagle Petroleum Corporation
We have audited the accompanying balance sheets of Double Eagle Petroleum
Corporation (the "Company") as of December 31, 1996 and 1995, and the related
statements of operations, retained earnings, 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 Double Eagle Petroleum
Corporation as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
January 30, 1998
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
BALANCE SHEETS
December 31,
1996 1995
-------------------------
Assets
Current assets:
Accounts receivable $ $
145,330 117,121
Notes receivable 314,389 254,270
Crude oil inventory 29,154 38,887
Shop and yard inventory 23,588 22,864
-------------------------
Total current assets 512,461 433,142
Property and equipment, at cost:
Oil and gas properties, successful efforts method 1,615,168 1,436,243
Land and building 25,672 25,672
Vehicles 118,995 94,092
Office equipment 16,560 16,560
-------------------------
1,776,395 1,572,567
Less accumulated depreciation, depletion and (565,039) (386,634)
amortization
-------------------------
Net property and equipment 1,211,356 1,185,933
-------------------------
$1,723,817 $1,619,075
=========================
Liabilities and Stockholders' Equity Current liabilities:
Bank overdraft $ $
13,791 1,375
Accounts payable 136,322 101,994
Accrued liabilities 57,796 38,742
Line of credit 15,178 9,500
Deferred drilling costs 114,817 62,150
Current portion of long-term debt 18,595 6,411
-------------------------
Total current liabilities 356,499 220,172
Long-term debt 29,914 10,941
Production payment payable 672,634 716,524
Unearned oil and gas income 865,301 1,136,592
Stockholders' equity:
Common stock, $1 par value, 10,000 shares
authorized;
issued 5,000 shares 5,000 5,000
Additional paid-in capital 53,063 53,063
Accumulated deficit (258,594) (523,217)
-------------------------
Total stockholders' equity (deficit) (200,531) (465,154)
-------------------------
$1,723,817 $1,619,075
=========================
See notes to financial statements
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Year ended December 31,
1996 1995
-------------------------
Revenues:
Oil and gas sales $1,163,931 $1,056,337
Other income 438,789 71,975
Gain on disposal of assets - 5,373
-------------------------
Total revenue 1,602,720 1,133,685
Costs and expenses:
Oil and gas lease operating 655,659 643,158
Administrative and general 493,484 542,234
Depreciation, depletion and amortization 188,954 162,953
-------------------------
Total expenses 1,338,097 1,348,345
-------------------------
Net income (loss) $ $
264,623 (214,660)
==========================
See notes to financial statements
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
$1 Par Value Additional
------------------------------
<S> <C> <C> <C> <C> <C>
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------
Balance, December 31, 1994 5,000 $5,000 $53,063 $(308,557) $(250,494)
Net loss - - - (214,660) (214,660)
-----------------------------------------------------------------------------
Balance, December 31, 1995 5,000 5,000 53,063 (523,217) (465,154)
Net income - - - 264,623 264,623
-----------------------------------------------------------------------------
Balance, December 31, 1996 5,000 $5,000 $53,063 $(258,594) $(200,531)
=============================================================================
</TABLE>
See notes to financial statements
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995
---------------------------------
Cash Flows from Operating Activities
Net income (loss) $ 264,623 $ (214,660)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 188,954 162,953
Gain on sale of assets - (5,373)
Reduction in unearned oil and gas income (271,292) (113,408)
Change in assets and liabilities:
Increase in accounts receivable (28,209) (9,496)
Increase in notes receivable (60,119) (254,270)
(Increase) decrease in inventory 9,009 (18,110)
Increase (decrease) in accounts 34,328 (64,767)
payable
Increase (decrease) in accrued 19,054 (29,076)
liabilities
Increase in deferred drilling costs 52,667 62,150
---------------------------------
Net cash provided by (used in) operating 209,015 (484,057)
activities
Cash Flows from Investing Activities
Expenditures for property and equipment (229,603) (522,168)
Proceeds from sale of assets 15,228 78,500
---------------------------------
Net cash used in investing activities (214,375) (443,668)
Cash Flows from Financing Activities
Borrowings on line of credit 5,678 9,500
Borrowings on long-term debt 51,805 22,913
Principal payments of long-term debt (20,648) (294,495)
Proceeds from sale of future oil production - 1,250,000
Payments on oil production payment liability (43,891) (46,642)
---------------------------------
Net cash provided by (used in) financing (7,056) 941,276
activities
---------------------------------
Net increase (decrease) in cash (12,416) 13,551
Bank overdraft, beginning of year (1,375) (14,926)
---------------------------------
Bank overdraft, end of year $ (13,791) $ (1,375)
=================================
Supplemental disclosures:
Interest paid $ 5,249 $ 25,434
=================================
See notes to financial statements
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Description of business
Double Eagle Petroleum Corporation (the Company) was incorporated in the State
of Oklahoma on May 19, 1987. 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 all of the wells.
Inventories
Crude oil inventory is stated at market value. Shop and yard inventory is stated
at cost (first-in, first-out).
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),
related costs are expensed. Costs incurred to drill and equip developmental
wells, including unsuccessful development wells, are capitalized.
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 repair, 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 and
field equipment is provided for by the straight-line method over estimated
useful lives of the related assets.
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.
<PAGE>
Income taxes
Deferred income taxes are provided on all temporary differences between the tax
basis and financial basis of the Company's assets and liabilities.
Management estimates
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.
Fair value
The carrying amounts of accounts receivable and accounts payable approximate
their fair value. Based on estimated borrowing rates currently available to the
Company for long-term loans with similar terms and average maturities, the
aggregate fair value at December 31, 1996 and 1995 of the Company's long-term
debt approximates the aggregate carrying amount.
Note 2 - Related Party Transactions
At December 31, 1996 and 1995, the Company had a non-interest bearing note
receivable from its President for $268,339 and $193,202, respectively.
Note 3 - Production Payments Payable
In August, 1993, the Company purchased 58 leases and assumed a $1,000,000
vendor's mortgage lien and production payment on those leases. The production
payment is to be repaid from fifteen percent (15%) of the revenues received from
the sale of oil and gas from the purchased leases with the entire principal
balance due in full on August 1, 1998. In the event that the Company sells the
leases, the production payment shall also be payable from the sales proceeds.
At, December 31, 1996 and 1995, the outstanding balance of the production
payment was $672,634 and $716,524, respectively.
Note 4 - Deferred Oil and Gas Revenue
On June 30, 1995, the Company entered into a production and delivery agreement
whereby the Company received $1,250,000 in exchange for 109,615 barrels of oil
to be produced from specified wells over a period of five (5) years. The Company
retained responsibility for all operating costs, production taxes, and delivery
costs associated with the production and delivery of the oil. As a result, the
proceeds from the transaction were accounted for as deferred revenue when
received, which is being recognized over the life of the agreement as the oil is
delivered. At December 31, 1996, the Company had delivered a total of 33,735
barrels of oil and recognized oil and gas revenues of $271,291 in 1996 and
$113,408 in 1995.
<PAGE>
Note 5 - Long-Term Debt
Long-term debt at December 31, 1996 and 1995 consists of vehicle loans
collateralized by the vehicles.
1996 1995
--------------------------------
Bank loan bearing interest at 12.5%, payable
monthly
at $326, including interest, maturing on $ 4,774 $ 7,949
April 25, 1998
Bank loan bearing interest at 9.9%, payable
monthly
at $319, including interest, maturing on - 9,403
March 6, 1998
Bank loan bearing interest at 8.75%, payable
monthly
at $482, including interest, maturing on
February 24, 2000 15,941 -
Bank loan bearing interest at 14.95%, payable
monthly
at $610, including interest, maturing on
December 20, 2000 21,794 -
Other 6,000 -
--------------------------------
48,509 17,352
Less current maturities 18,595 6,411
--------------------------------
Total long term debt $29,914 $10,941
================================
At December 31, 1996, maturities of long-term debt are as follows:
1997 $18,595
1998 12,175
1999 11,914
2000 5,825
---------------
$48,509
===============
Note 6 - Income Taxes
No provision (benefit) for income taxes was provided for the years ended
December 31, 1996 and 1995 du to the Company's pretax operating losses
sustained for income tax purposes.
At December 31, 1996, the Company had net operating loss carryforwards available
to offset future taxable income of approximately $100,000 expiring in various
years through 2010. The tax benefit of these losses has been offset by a
valuation allowance due to the uncertainty of their realization.
<PAGE>
Note 7 - 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 and 1995. Such sales accounted for 39% and 24% of
oil and gas sales in 1996, and 52%, 23% and 17% of oil and gas sales in 1995.
Note 8 - Subsequent Events
Beginning in August 1997, the Company entered into a series of transactions to
effect a plan of business combination. Effective September 2, 1997, the Company
was merged into a wholly-owned subsidiary of Oil City Petroleum, Inc. (Oil
City). The stockholders of Double Eagle as of December 31, 1997, received
approximately 52% of the Oil City common stock.
Oil City is an oil and gas exploration and production company operating in
Oklahoma. Approximately 5% of its stock is publicly held, although not actively
traded, and it submits periodic reports to the Securities and Exchange
Commission. The business combination will be accounted for as a purchase with
Double Eagle being designated the purchasing entity.
Note 9 - Supplemental Information on Oil and Gas Producing Activities(Unaudited)
The following supplemental historical and reserve information is presented in
accordance with Financial Accounting Standards Board (FASB) Statement No. 69,
"Disclosure of 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 December 31, 1996 and 1995 were as follows:
1996 1995
-----------------------------------
Capitalized costs -
proved properties $1,615,168 $1,436,243
Less accumulated depreciation,
depletion and amortization 490,971 322,064
-----------------------------------
$1,124,197 $1,114,179
===================================
<PAGE>
Costs incurred
Costs (capitalized and expensed) incurred in oil and gas property acquisition,
exploration and development activities for the years ended December 31, 1996 and
1995 were as follows:
1996 1995
-----------------------------------
Property acquisition costs -
proved properties $ $417,536
-
Development 175,824 64,567
-----------------------------------
$175,824 $482,103
===================================
Results of Operations
The results of operations from oil and gas activities for the years ended
December 31, 1996 and 1995 were as follows:
1996 1995
-----------------------------------
Oil and gas sales $1,163,931 $1,056,337
Production costs (655,658) (643,158)
Depreciation, depletion and
Amortizaton (171,234) (143,778)
-----------------------------------
Results of operations from
oil and gas producing activities
(excluding corporate overhead
and interest costs) $ 337,039 $ 269,401
===================================
Estimated Quantities of Proved Oil and Gas Reserves
The following table presents the Company's estimate of changes in the proved
developed and undeveloped oil and natural gas reserves during the years ended
December 31, 1996 and 1995. This information is derived from management's
estimates of future net oil and gas reserves and were not prepared by an
independent petroleum 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 are located in the State of Oklahoma. The Company does not have any
long-term supply contracts with foreign governments or reserves of equity
investees.
<PAGE>
Natural Gas Oil and Condensate
-----------------------------------------------------
(MCF) (Bbls)
1996 1995 1996 1995
---- ---- ---- ----
Proved developed and
undeveloped reserves
Beginning of year 1,481,266 1,150,739 761,731 664,119
Extensions,
discoveries - 522,093 - 159,573
and other
additions
Production (180,603) (191,566) (70,702) (61,961)
-----------------------------------------------------
End of year 1,300,663 1,481,266 691,029 761,731
=====================================================
Proved developed reserves
Beginning of year 1,481,266 1,150,739 761,731 664,119
End of year 1,300,663 1,481,266 691,029 761,731
Based on information available as of the date of the issuance of these financial
statements, there has been no major discovery or event that is believed to have
caused a significant change in the estimated proved reserves of the Company,
except as otherwise disclosed in Note 8 - Subsequent Events.
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves
The following is a summary of a standardized measure of discounted future net
cash flows related to the proved oil and gas reserves of the Company as of June
30, 1997. For these calculations, estimated future cash flows from estimated
future production of proved reserves were computed using oil and gas prices as
of the end of the period presented. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic life of the properties, and costs
were not escalated for the future. The information presented below should not be
viewed as an estimate of the fair value of the properties nor should it be
considered indicative of any future trends.
Future cash inflows $19,399,000
Future production and development costs (10,505,000)
Discounts of future net cash flows at 10% per annum (3,921,000)
------------------
Standardized measure of discounted future net cash flows $ 4,972,000
==================
<PAGE>
ADDITIONAL INFORMATION
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
The Board of Directors
Double Eagle Petroleum Corporation
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information in the following section
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
accordingly, we do not express an opinion on it.
January 30, 1998
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
INTERIM BALANCE SHEET
(UNAUDITED)
August 31,
1997
------------------
Assets
Current assets:
Accounts receivable $ 160,045
Inventory 188,146
------------------
Total current assets 348,191
Property and equipment, as cost:
Oil and gas properties, successful efforts method 3,526,474
Land and building 124,672
Vehicles 117,870
Office equipment 16,560
------------------
3,785,576
Less accumulated depreciation, depletion
and amortization 611,347
------------------
Net property and equipment 3,174,229
Other assets 39,644
==================
$3,562,064
==================
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 60,851
Accounts payable 166,439
Accrued liabilities 58,149
Deferred drilling costs 30,000
Current portion of long-term debt 101,565
------------------
Total current liabilities 417,004
Long-term debt 262,656
Deferred oil and gas income 684,441
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares
authorized; 21,366,620 shares issued and outstanding 21,367
Additional paid-in capital 2,064,337
Retained earnings 112,259
------------------
Total stockholders' equity 2,197,963
==================
$3,562,064
==================
See Independent Auditors' Report on Additional Information
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
INTERIM INCOME STATEMENTS
(UNAUDITED)
Eight Months Ended August 31,
1997 1996
--------------------------------
Revenues:
Oil and gas sales $ 933,595 $833,206
Other income 188,849 156,212
Gain on disposal of assets 218,134 -
--------------------------------
1,340,578 989,418
Costs and expenses:
Oil and gas lease operating 450,928 427,222
Administrative and general 392,828 327,739
Depreciation, depletion and amortization 125,970 125,970
--------------------------------
969,726 880,931
--------------------------------
Income before income taxes 370,852 108,487
Provision for income taxes 103,000 -
Net income $267,852 $108,487
================================
See Independent Auditors' Report on Additional Information
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
INTERIM CASH FLOW STATEMENTS
(UNAUDITED)
Eight Months Ended August 31,
1997 1996
---------------------------------
Net cash flows from operating activities $ (329,547) $119,337
Cash flows from Investing Activities
Expenditures for property and equipment (44,769) (95,841)
Proceeds from sale of assets 258,717 -
---------------------------------
Net cash provided by (used in) investing 213,948 (95,841)
activities
Cash flows from Financing Activities
Proceeds of long-term debt 163,256 20,012
Principal payments of line of credit and
long-term debt (63,579) (14,138)
Reduction of oil production payment liability (31,138) (29,261)
---------------------------------
Net cash provided by (used in) financing 68,539 (23,387)
activities
---------------------------------
Net increase (decrease) in cash (47,060) 109
Bank overdraft, beginning of period (13,791) (1,375)
---------------------------------
Bank overdraft, end of period $ (60,851) $ (1,266)
=================================
Interest paid $ 30,160 $ 3,499
Supplemental disclosure of noncash investing
and
financing activities:
Issuance of 6,348,920 shares of stock
to acquire
certain oil and gas working $2,027,641 $
interests and -
production payment obligation
Acquisition of property and equipment
financed $ 490,926 -
by notes payable
Reduction of notes receivable in
exchange for $ 259,104 -
property and equipment
See Independent Auditors' Report on Additional Information
<PAGE>
DOUBLE EAGLE PETROLEUM CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Description of business
Double Eagle Petroleum Corporation (the Company) was incorporated in the State
of Oklahoma on May 19,1987. 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 all the wells.
Note 2 - Interim Financial Information
The interim financial information as of August 31, 1997 and for the eight months
ended August 31, 1997 and 1996, is unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments necessary to present fairly the
financial position of the Company and the results of operations and cash flows
with respect to the interim financial statements, have been included. The
operating results for the interim periods are not necessarily indicative of
results for the full year.
Note 3 - Equity Transactions
Effective August 4, 1997, the Company amended its Certificate of Incorporation
to, among other things, increase the authorized capital to 30,000,000 shares of
$.001 par value common stock. Concurrent with this action, the original
shareholders, consisting of the President and his immediate family members,
surrendered their stock and were issued 15,017,700 shares of common stock.
Effective August 20, 1997 the Company issued 3,585,000 shares of common
stock for all of the issued and outstanding shares of Elite Enterprises,
Inc. (Elite). Elite is an unrelated, privately held oil and gas production
company owned by James G. Borem.
Effective August 20, 1997, the Company issued 598,920 shares of common stock in
exchange for certain working interests in oil and gas properties and its
production payment obligation to entities controlled by William Gene Moser
(Moser Purchase).
Effective August 20, 1997, the Company issued a total of 2,165,000 shares of
common stock in exchange for certain working interests in oil and gas properties
owned by entities controlled by Don Busby (Busby Purchase).
The above acquisitions have been accounted for as purchase transactions.
<PAGE>
OIL CITY PETROLEUM, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
Oil City Petroleum, Inc. (Oil City) was incorporated in the State of Texas on
August 4, 1978. Oil City is principally engaged in the production of oil and
gas. Oil City 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 constitute the bulk of its
working interests. Oil City also owns a commercial office building in Tulsa,
Oklahoma, consisting of 8,400 square feet of office space. Oil City 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.
Double Eagle Petroleum Corporation (Double Eagle) was incorporated in the State
of Oklahoma on May 19, 1987. Double Eagle is principally engaged in the
exploration and 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 all of the wells.
Effective August 4, 1997, Double Eagle amended its Certificate of Incorporation
to, among other things, increase the authorized capital to 30,000,000 shares of
$.001 par value common stock. Concurrent with this action, the original
shareholders, the President and his immediate family members, surrendered their
stock and were issued 15,017,700 shares of common stock.
Effective August 20, 1997 Double Eagle issued 3,585,000 shares of common
stock for all of the issued and outstanding shares of Elite Enterprises,
Inc. (Elite). Elite is an unrelated, privately held oil and gas production
company, owned by James G. Borem. Elite had oil and gas revenues for the year
ended August 31, 1997 of approximately $163,000.
Effective August 20, 1997, Double Eagle issued 598,920 shares of common stock in
exchange for certain working interests in oil and gas properties and a certain
production payment from entities controlled by William Gene Moser (Moser
Properties). The revenue from the oil and gas properties for the year ended
August 31, 1997 amounted to approximately $136,500. The remaining balance of the
production payment at the date of the acquisition was approximately $642,000.
Effective August 20, 1997, Double Eagle issued a total of 2,165,000 shares of
common stock in exchange for certain working interests in oil and gas properties
owned by entities controlled by Don Busby (Busby Properties). The revenue from
the oil and gas properties for the year ended August 31, 1997 was approximately
$184,000.
The above acquisitions have been accounted for as purchase transactions.
Effective September 2, 1997, Oil City issued 21,366,620 shares of its common
stock in exchange for all of the issued and outstanding common stock of Double
Eagle. The business combination will be accounted for as a purchase with Double
Eagle being designated the purchasing entity.
<PAGE>
The following unaudited pro forma financial statements present the historical
results of Double Eagle and give effect to the following pro forma adjustments
as if such transactions were made effective September 1, 1996: (i) the
acquisition of Elite; (ii) the acquisition of the Moser properties; (iii) the
acquisition of the Busby properties; (iv) merger of Oil City with Double Eagle;
(v) the adjustment to depreciation, depletion and amortization expense for the
increase in carrying value of oil and gas properties; (vi) the reduction in
interest expense related to the production payment acquired from Moser; and
(vii) the reduction in other income generated from billings to Moser and Busby
for oil field services.
The Oil City merger financial data is derived from audited financial statements
as of August 31, 1997. Purchase accounting adjustments to fair value are not
material.
The pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been if such
transactions in fact had occurred at the September 1, 1996 or to project the
Company's financial position or results of operations for any future period.
<PAGE>
OIL CITY PETROLEUM, INC.
PRO FORMA BALANCE SHEET
AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pro
Oil Double Moser Busby Forma
City Eagle Group Group Elite Adjustments Total
-------------------------------------------------------------------
Assets
Current assets:
$ $ $ $ $ $ $
Accounts receivable 27,961 160,045 - - - - 188,006
Inventory 6,005 188,146 194,151
Other current assets 28,275 - 28,275
-------------------------------------------------------------------
Total current 62,241 348,191 - - - - 410,432
assets
Property and
equipment,at cost:
Oil and gas
properties, 218,885 2,140,329 522,257 443,888 420,000 - 3,745,359
successful
efforts method
Land and building 261,101 124,672 - - - - 385,773
Vehicles 117,870 - - - - 117,870
Office equipment 7,945 16,560 - - - - 24,505
-------------------------------------------------------------------
487,931 2,399,431 522,257 443,888 420,000 - 4,273,507
Less accumulated
depreciation, 207,401 611,347 - - - 63,496(a)882,244
depletion and
amortization
-------------------------------------------------------------------
Net property and 280,530 1,788,084 522,257 443,888 420,000(63,496) 3,391,263
equipment
Other assets - 39,644 - - - - 39,644
===================================================================
$342,771 $2,175,919 $ 522,257 $443,888$420,000$(63,496)$3,841,339
===================================================================
<PAGE>
Liabilities and
stockholders' equity
Current liabilities:
Bank overdraft $ $ $ $ $ $
- 60,851 $ 60,851
Accounts payable 42,035 166,439 - - - - 208,474
Accrued - 58,149 - - - 58,149
liabilities
Deferred drilling - 30,000 - - - - 30,000
costs
Current portion 13,512 - - - - - 13,512
of long-term debt
-------------------------------------------------------------------
Total current 55,547 315,439 - - - - 370,986
liabilities
Long-term debt 133,878 364,221 - - - - 498,099
Production payment - 641,496 (641,496) - - - -
payable
Deferred oil and gas - 684,441 - - - - 684,441
income
-------------------------------------------------------------------
189,425 2,005,597 (641,496) - - - 1,553,526
Stockholders' equity:
Common stock, no par
value,
30,000,000 shares
authorized;
29,625,920 shares
issued and
outstanding 5,692,571 15,018 599 2,165 3,585 5,713,938
Additionalpaid-in 3,265,614 43,045 1,163,154$441,723 416,415 5,329,951
capital
Retained earnings (8,804,839) 112,259 - - -(63,496)(8,756,076)
-------------------------------------------------------------------
Total stockholders' 153,346 170,322 1,163,753$443,888 420,000 (63,496) 2,287,813
equity
===================================================================
$342,771 $2,175,919 $ 522,257 $443,888 $420,000$(63,496)$3,841,339
===================================================================
(a) Represents the additional depreciation, depletion and amortization.
<PAGE>
OIL CITY PETROLEUM, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1997
(UNAUDITED)
Pro
Oil Double Moser Busby Forma
City Eagle Group Group Elite Adjustments Total
--------------------------------------------------------------------------------------
Revenues:
Oil and gas sales $ $1,439,456 $136,530 $184,109 $162,956 $ $1,968,305
45,254 -
Other income 44,952 188,849 - - - (163,840) 69,961
a
Gain on disposal of assets - 218,134 - - - - 218,134
--------------------------------------------------------------------------------------
90,206 1,846,439 136,530 184,109 162,956 (163,840) 2,256,400
Costs and expenses:
Oil and gas lease operating 71,272 844,267 64,136 99,704 66,194 (163,840) 981,733
expenses.
Write down of oil and gas 352,645 352,645
properties.
Administrative and general 243,812 558,973 - - - (33,724) b 769,061
Depreciation, depletion and 20,061 188,954 - - - 63,496 c 272,511
amortization.
--------------------------------------------------------------------------------------
687,790 1,592,194 64,136 99,704 66,194 (134,068) 2,375,950
--------------------------------------------------------------------------------------
Net income (loss) $(597,584) $ 254,245 $ 72,394 $ 84,405 $ 96,762 $ (28,772) $(119,550)
======================================================================================
</TABLE>
(a) Represents the elimination of other income items billed to Moser and Busby
by Double Eagle. (b) Represents the reduction of Double Eagle interest expense
related to the Moser production payment. (c) Represents the additional
depreciation, depletion and amortization.
<PAGE>
